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CONFIDENTIAL – For members only

© Philippine Business Leaders Forum Inc. CONFIDENTIAL – For members only

Philippine Business Leaders Brief 19 September 2005 | Number 232 The Philippine Business Leaders Brief is designed to provide an informed international perspective on recent events in the Philippines and across the Asian region that may impact on local and foreign business operations. Items are selected for inclusion on the basis of their perceived relevance to the business community.

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Contents of this Issue

Commentary............................................................................................... 2 Mindanao as the preferred destination for mining investment .................. 2

The Policy Environment ............................................................................... 5 GMA chairs UN Security Council ........................................................... 5 Who is spying: RP or the US?............................................................... 6 RP scraps contract with American lobby firm ......................................... 6 Government won’t collect back taxes of Clark locators ............................. 7 Airport terminal’s opening in four months? ........................................... 8 RP's development index improves, but at a slow pace .............................. 8 Another murder case in Singapore ....................................................... 9 Imelda’s jewels to be auctioned........................................................... 9 RP cited for three reforms..................................................................10 BIR withdraws new tax on block sales..................................................11 Government retains 70 percent cap on input VAT ..................................11

Economy and Business................................................................................12 Jobs up by 889,000 ..........................................................................12 Consumers see improvement in income next year ..................................13 US$1 billion fund for gas sector..........................................................13 High oil prices to widen RP’s fiscal deficit ............................................14 Dollar remittances up 26 percent in July..............................................15 Actual FDIs up by 190 percent in first half............................................15 RP registers BoP surplus in August......................................................15 The total wealth of the Philippines .....................................................15 17 wind-power sites eyed for development...........................................16 Export group optimistic of US$44-billion target ....................................16

Our thanks to our members:

CONFIDENTIAL – For members only Philippine Business Leaders Brief 19 September 2005 | Number 232


Domestic air travel posts strong growth in first quarter ..........................17 Corporate Briefs........................................................................................ 18

Climax-Arimco seeks partners for copper-gold project ........................... 18 Telecom firms slash call rates............................................................ 18 Hitachi invests PhP1.58 billion in Laguna ........................................... 18 Kuwait Petroleum to explore RP for oil................................................ 18 AustralAsian to drill for oil ................................................................19 ISM plans to takeover Eastern Telecom ................................................19 US$850 million needed to develop Malampaya oil..................................19 New US$400-M plant eyed in Batangas ................................................19 Ayala Corp secures PhP4.2-billion loan ................................................19 Sale of government TV stations approved .............................................20

The Financial Markets .................................................................................20 Combined income of listed firms up 27 percent .....................................20 Bank loans up 4 percent....................................................................20 Market Movements ...........................................................................21 The Charts ......................................................................................21

Economic and financial indicators ................................................................22 Disclaimer ............................................................................................24

Commentary

Mindanao as the preferred destination for mining investment

A speech by Dr. Mike Clancy, President and CEO, Philippine Business Leaders Forum to the 14th Mindanao Business Conference, Davao City 14-17th September 2005

Firstly let me say that is an honour to be invited to talk to you today. I first came to the Philippines in 1976. I have lived in the Philippines for more than five years now. The Philippines is my country of residence. My wife is a Filipina – from Mindanao. My daughter is a Filipina. While I do not carry a Filipino passport, I certainly regard myself as a stakeholder in this country. So if you find me lapsing into the occasional “we” then please understand that when I return to the Philippines from overseas I regard myself as coming “home.”

Of course, Mindanao is not yet the preferred destination for overseas mining and minerals investment and in talking with you today I want to share some thoughts as to what needs to done to make it so. But before I do that I want to start by showing you one finding from some recent research our company has undertaken.

Young people of this country – and remember we are talking about those who have already made it to the elite group – are filled with despair. They see no future in the Philippines today (and the results for Mindanao are no different from those recorded in the Visayas or Luzon). Fully 93 percent of those interviewed wish to find a way to leave the country. It is a sobering statistic and a very sad one. More than 50 percent of students interviewed in Davao were very pessimistic about their life in the Philippines.

But let us not dwell on the things that are wrong; let us focus instead on what needs to be done to put things right and here I want to start by sharing the experience of Australia, a neighbouring country and one with a similar minerals endowment to Mindanao, as a way of inspiring some hope in what could be achieved with the common will to do so.

Mining is a major contributor to the wealth of Australia



• According to the Australian Bureau of Agricultural and Resource Economics, the value of exports from the mining sector in 2003-04 amounted to AU$52.2 billion (US$38 billion). In peso terms this is more than 2 trillion per year.

• Mining accounts for around 5.6 percent of Australia’s GDP and

• Minerals and metals (including coal) makes the single largest contribution to exports at around 29 percent. Services, Manufacturing and Rural contribute around 21 percent each and oil and gas around 8 percent.

• Australia's exports of minerals and petroleum have earned AU$565 billion (US$412 billion; PHP23 trillion), over the past 18 years - some 50 per cent higher than exports of the agricultural sector.

In the Philippines Business Leaders Forum we have often argued that the Philippines should not seek to emulate the other Asian Tigers that have risen to prosperity on the basis of their (export-oriented) manufacturing industry. We have already missed the boat except for a few niche areas. Rather than looking for a broad-based development model the Philippines should seek to become a resource-based economy similar to Australia and to Canada.

And more than anywhere else in the Philippines, Mindanao can do it. Why?

• Because more than 70 percent of the mineral wealth of the Philippines can be found in Mindanao.

• Mindanao has the potential to become the food basket of Asia.

• Mindanao is organised – in no other region of the Philippines are there organisations similar to or as effective in investment promotion as the Mindanao Business Council and the Mindanao Economic Development Council (MEDCO). Nor is there such a sense of common identity in other areas of the Philippines.

But potential now has to be transformed into actual implementation that will lead to wealth creation. The Mindanao Action Agenda formulated at the 2004 conference, outlines a framework for achieving this. From the point of view of the global minerals industry, what needs to be done to turn on the investment tap? I believe there are at least four areas where foreign investors are looking for comfort:

Security: investors want security – both physical security in terms of a peaceful environment but also security in the knowledge that the goalposts will not be shifted unfairly during the lifetime of their investment;

Support of Local Government Units: At the national government level, policy now supports the development of a world-class minerals industry operating to international standards of best practice. At the local level however, in many instances there is still much confusion and downright misinformation perpetrated about mining. I think the Mindanao Business Council is well aware of this and is working to overcome the fragmented and piecemeal responses to reverse these negative perceptions. Industry needs to get behind the effort of the Council and be pro-active in its advocacy work rather than giving the appearance that it is more often than not merely reactive.

Resolution of issues relating to Indigenous Peoples: This is another area where investors are often held hostage to spurious or mischievous complaints or claims. Nobody would argue against a fair and equitable distribution of wealth but it must be within the context of a transparent environment. There remains a feeling among many within the industry that the entire issue of “free and prior consent” is still fraught with complexity and uncertainty.

Corruption: Sadly this pervades much of our life here in the Philippines. The effects of corruption are not confined to the minerals sector but are a major inhibitor to greater levels of foreign investment in the country.



Just this week we heard the good news that foreign investment this year has tripled; then behind it came the bad news: the Philippines still lags behind almost every other Asian country in attracting overseas investment.

Perceptions are everything: it is a sad fact that the Philippines is perceived as a difficult place in which to do business and that Mindanao is perceived to be the most difficult place in the country. We must change these perceptions.

But there is now a fifth issue to deal with:

Federalism: Like it or not, federalism is going to raise fresh uncertainties in the minds of investors. If it is done well and in orderly fashion then federalism is the obvious answer for improving governance in a country such as this – and especially here in Mindanao. But if not done well then it will only disrupt the investment climate further and perpetuate the cycles of poverty and violence that many Mindanao communities are now experiencing.

So where do we start? Here I would like to share a few ideas with you.

We are not starting with a blank sheet. Already there are substantial mining investments into Mindanao and real projects underway. We have Philex Mining; Anglo-American, TVI Resources; Indophil Resources, Sagittarius Mining and Pacific Nickel to mention just a few. This must be where we start by making these projects not only successful but by making them showcases as to what can be achieved when all the stakeholders work together towards the goal of sustainable wealth creation.

Of course, mining by its very nature will not sustain communities into the longer term. But mining projects can be the catalyst towards sustainable development. Already there are people looking at the concept of Accelerated Area Integrated Development (AAID) whereby other industries can be encouraged to come into the mining areas, leverage on the wealth created and thereby extend that wealth outwards into new growth corridors. This is where agribusiness can play an enormous supporting role.

But I would like to take the challenge one step further. In his best-selling book Good to Great, management guru, Jim Collins argues that “Good is the enemy of Great.” He is right of course. Being “good” does not imply being “great” and sometimes it even prevents it! And we want to make Mindanao not only a good place in which to invest and do business, we need to make Mindanao a great place. We need to focus on those areas where Mindanao can be the best!

If we remember this maxim, then we are well on our way to achieving standards of excellence for Mindanao – and demanding the same standards of others in their dealings with Mindanao. And Mindanao, as well as the Philippines as a whole, needs to put aside the politicking and the short-term manoeuvring and concentrate on building one or two (or more) successful showcase projects for the world to see.

In short, we need to brand Mindanao as a centre of excellence and we need to tell the world about it.

If we can do that then the investment will come. If we fail to do it, then Mindanao will continue to be like the rest of the country – a place of unfulfilled potential.

I am pleased to be able to tell you that the PBLF has been invited to work with the Mindanao Business Council to realize the revitalisation of Mindanao through the Mindanao Action Agenda and the minerals industry roadmap that has been created. Our work with the Council will involve not just mining but we will support the entire process of sustainable development. I am sure the MBC Chairman, Tony Santos, and Vice-Chairman Romy Serra will be able to tell you more of what has been planned for 2006 in this regard.

In terms of turning our backs on past mistakes, there is no better time to start than now.



And there is no better place to start than here in Mindanao. With proper discipline and common cause, Mindanao could be to the Philippines what for the past 20 years China has been to the rest of Asia. Fast-track and broad-based growth is possible if the mindset is there. Mining investment – domestic and foreign – should be the catalyst to achieving that growth.

Look at Pudong in Shanghai 20 years ago and compare that with today. It can happen.

The minerals industry too must play its part. Instead of working in isolation, the mining companies themselves need to work in concert with the Mindanao Business Council and its local chambers, supporting the advocacy work that now needs to be done.

The mining industry must help build the beacon that puts Mindanao on the map and that attracts more investment here. In return industry will build greater security into its own future through greater support from those local communities who prosper from the investments. Mindanao will benefit as a whole through providing a growing economy in which entrepreneurs can then thrive.

Our children should not feel they are forced to leave this country in order to build their future. We need to build them a future here in Mindanao. But this requires more investment that can be gathered domestically. Mindanao has to see itself a part of the global economy. Prosperity requires major international investments into those areas where Mindanao has a competitive advantage and these are mining and agribusiness. Look beyond Manila; look to London, to New York, to Toronto, to Sydney and the other financial capitals of the world for support. Only then can Mindanao become a truly great place. All of us in this room today have a part to play in achieving this.

The children of Mindanao deserve this legacy.

The Policy Environment

GMA chairs UN Security Council

From being on the verge of being ousted as the 14th president of the Philippines in August, President Gloria Macapagal-Arroyo has emerged with international influence in the second week of September when she presided as chair of the United Nations Security Council. At least, that is how the local press is describing the media event.

Confident that the political instability at home has subsided since Congress threw out an impeachment case against her, Mrs. Arroyo attended the World Summit in New York where she told corporate executives that the Philippines is on its way to political stability and economic focus after almost three months of "political noise" and spiralling oil prices. The president said that she is politically stronger today than a month ago due to the rock-solid support of Congress and local governments.

At the World Summit, she urged the UN to exert its influence on the economic superpowers and international lending institutions in granting substantial debt relief to financially strapped middle-income countries such as the Philippines. The President pushed for a 50 percent conversion of debt into equity so that needy countries can meet their commitments to halve the poverty incidence by 2015.

Under the Philippine proposal first espoused by Speaker Jose de Venecia, foreign creditors would convert 50 percent of debt payments due them by ploughing the money back into the country. The arrangements would include debt for reforestation; debt-for-mass housing, debt for irrigation, post-harvest facilities and food production, debt for hospital and health care; debt for schools, classrooms, and information technology; debt for clean water; debt for eco-tourism; debt for wealth-creating projects such as mining, reclamation and natural



resources development; and debt for culture. While the benefits to the Philippines from such a proposal were obvious, the benefit to the debtor countries was rather more obscure.

“We are not asking for debt forgiveness, for debt cancellation. What we propose is that the debt service or principal amount should be converted into equity of new projects of at least equal value and with their own potential earnings,” she told some 170 heads of state and heads of government.

The president’s five other initiatives at the summit include easing the impact of oil price spirals, protection of migrant workers, the fight against terrorism, attainment of lasting peace through inter-faith dialogue and family planning and productivity.

Mrs. Arroyo also called on the Organization of Petroleum Exporting Countries (Opec) to recycle petro-dollars and extraordinary profits from the oil trade in the form of equity investments and long-term, low-interest loans to medium and poor oil-importing countries.

At the UN Security Council, President Arroyo presided over a historic meeting of the 15-member council. Her chairmanship resulted in the unanimous approval of two resolutions — one on the fight against terrorism and the other on the settlement of political conflicts.

The Philippines is one of the 10 elected non-permanent members of the Security Council. The others are Algeria, Benin, Brazil, Romania, Tanzania, Hellenic State, Argentina, Denmark and Vietnam. The Security Council’s five permanent members are the US, China, France, Russian Federation and United Kingdom.

Who is spying: RP or the US?

American authorities have nabbed two Filipinos in the US for allegedly spying for three politicians in the Philippines. The two Filipinos arrested were Michael Ray Aquino, a former subordinate of opposition senator Panfilo Lacson and Leandro Aragoncillo, a Filipino-American citizen who served as an intelligence analyst at the Federal Bureau of Investigation (FBI).

Reports said the two stole classified information from the FBI and passed them to three unnamed public officials in the Philippines. Although the three politicians were not named, news reports speculated that they were Senator Lacson, Senator Aquilino Pimentel and former President Joseph Estrada. The name of former National Security Adviser Roilo Golez was also mentioned.

While Lacson, Pimentel and Golez admitted having received e-mail messages from Aquino, they denied that these contained classified information. Reports said the stolen information was about politics in the Philippines.

According to the FBI, Mr. Aragoncillo leaked classified information about Filipino politicians to Mr. Aquino, who in turn transmitted it to a “former national-level public official,” a “current high-level public official,” and a “second high-level public official.” The FBI would reportedly identify the three Filipino politicians in a hearing on September 21.

The espionage case is expected to strain the US-Philippine relations, not so much because two Filipinos were caught spying in the US, but because the US itself has been spying on the Philippines.

RP scraps contract with American lobby firm

First, the Arroyo administration admitted hiring a US-based law firm for PhP50.4 million (US$900,000) a year to lobby in the US Congress for the Philippines. The amount translates to about US$75,000 in monthly retainer, excluding operating costs such as travel expenses, telephone, fax and copying. The opposition party said this is a waste of money at a time the government is implementing austerity measures.



Venable LPP, reportedly one of the oldest and most influential lobby groups in the US, was hired to, among others, help secure funding for charter revision in the Philippines and push the country’s interests in Washington.

In the contract, the Arroyo administration is apparently trying to secure funding from the US government, through congressional appropriation, for the Charter change that President Arroyo is pushing. On July 25 this year, National Security Adviser Norberto Gonzales signed the contract for the Philippine government while James T. Pitts and James George Jatras signed it for Venable.

Under the contract, the American law firm would serve as liaison with US government officials including the executive branch on behalf of the Philippine government and provide information on US policy, including likely directions of federal legislation that would have a potential impact on the Philippines. (Isn’t that what the Philippine Embassy is supposed to do?)

Among the objectives of the contract is to employ Venable’s best efforts to secure grants or congressional earmarks for support of the Charter-change initiative of the President of the Philippines; facilitate the re-inclusion of the Philippines in various assistance and development programs as well as credit facilities of US government institutions; create a capability enhancement program for the Armed Forces of the Philippines under the auspices of the US Defense Loan Guarantee Program; and advance Philippine objectives relating to US investments and trade.

While the administration party claimed there is nothing wrong about the contract, the opposition party said hiring Venable LLP for lobby support is in stark contrast with the administration’s own belt-tightening measures amid the oil crisis. In the end, the administration party had to scrap the contract for fear that it could fuel another political issue which the opposition party could use against the president.

However, records show that the Philippines has hired a number of lobby firms in the US in the past, according to Senator Ralph Recto. Senator Recto even cited records from the US Department of Justice, showing that the Philippine government has hired lobby firms such as Fasturn Inc., Icon Group, Patton Boggs, Bannerman and Associates, Burson-Marsteller, Crowell and Moring International and Maria Luisa Haley, and Rhoads-Weber Shandwick Government Relations.

Government won’t collect back taxes of Clark locators

While Congress has yet to enact a law permanently granting tax incentives to investors at Clark special economic zone in Pampanga and Camp John Hay in Baguio City, the Department of Finance (DoF) has been trying to appease the affected investors by saying it would condone their back taxes.

The Supreme Court had earlier revoked the tax privileges granted to the locators at former military bases now run by the Bases Conversion Development Authority (BCDA). Under the court ruling, locators in Clark lost their tax exemption on July 29 and those in John Hay on March 29. The court said only locators at the Subic Bay Freeport are entitled to tax incentives under Republic Act No. (RA) 7227.

The Department of Finance said it would not collect the taxes retroactively. The department adopted its position in consultation with the BCDA. Before the court ruling, the locators were paying a preferential tax rate of five percent on gross income in lieu of all national and local taxes. The back taxes should amount to the difference between five percent gross income tax and the rates of regular national and local taxes.

Apparently not appeased, the Joint Foreign Chambers of Commerce of the Philippines asked President Arroyo to certify as urgent a bill amending RA 7227 to enable investors at Clark and Camp John Hay to have the same incentives enjoyed by Subic locators.



Meanwhile, the Board of Investments (BOI) has announced that it has stripped 146 companies of their tax privileges after they had failed to comply with their registration contracts.

Reports said the companies failed to comply with their obligation to submit annual income tax returns (ITRs) as required in their registration contracts. The BOI said it has repeatedly submitted demand letters from the affected companies between May and August this year, but the companies never replied.

Apart from losing the incentives, the 146 companies may be required by the government to pay back the incentives they have enjoyed in accordance with the provisions of Executive Order 226 or the Omnibus Investments Code. Under Article 12, Section 2 of EO 226 , companies whose registration is either suspended or withdrawn may be required to refund the incentives they previously enjoyed.

Airport terminal’s opening in four months?

The government plans to open the Ninoy Aquino International Airport (NAIA) Terminal 3 in four months, after the completion of the remaining works needed to make it operational, according to the Department of Finance. Finance Secretary Margarito B. Teves said the plan is to bid out or fund the airport’s completion through a bridge loan or long-term financing.

Fraport AG, a German firm that formed part of the consortium that built the disputed airport terminal, has reportedly accepted the offer of Manila Hotel Corp. for the purchase of all its rights in the consortium for US$200 million. The Manila Hotel, which bought Fraport’s shares in the Philippine International Air Terminals Co. (PIATCO), has also affirmed its intentions to negotiate with the government to make the mothballed airport facility operational.

It said the purchase of Fraport’s stake in PIATCO would make it easier for the government and the consortium to reach an agreement over the NAIA-3 operations.

The British Chamber of Commerce (BCC) had earlier urged the government to justly compensate all foreign and local investors in the NAIA-3 before expropriating it. The European Chamber of Commerce also welcomed the measure as removing a major irritant in relations with Europe and especially Germany. Fraport AG said it would drop its arbitration case against the Philippine government before the year ends if it receives proper compensation for its investment in the Terminal 3. However, German ambassador to the Philippines Axel Weishaupt warned that Fraport may still pursue the arbitration case if the amount of compensation is too low.

RP's development index improves, but at a slow pace

The level of human development continues to improve in the Philippines, but at a slower pace compared with its Asian neighbours, according to the latest report of the United Nations Development Programme (UNDP).

At the launching of the 2005 Human Development Report, Dr. Arsenio M. Balisacan, president of the Human Development Network in the Philippines, said that while the country's human development index improved to 0.758 in 2003 from 0.753 in 2002, its ranking fell to No. 84 from No. 83.

The human development indicators, with a possible best score of 1.0, provide a global assessment of country achievements in different areas of human development such as life expectancy at birth, adult literacy rate, school enrolment ratio, and GDP per capita in terms of purchasing power parity (PPP) dollars.

"This means that more countries have been experiencing faster progress in terms of their development than the Philippines," Dr. Balisacan said. He added that the Philippines has been lagging other Asian countries in terms of investing for social services such as education, poverty alleviation, health and infrastructure.



The report ranked the Philippines ahead of Asian countries like India (No. 127), Indonesia (No. 110), Vietnam (No. 108) and China (No. 85). However, the Philippines was behind Japan (No. 11), Hong Kong (No. 22), Singapore (No. 25), Brunei (No. 33), Malaysia (No. 61), and Thailand (No. 73).

The gross domestic product (GDP) per capita of the Philippines was estimated at US$4,321 as of 2003, in terms of the PPP, an international dollar which excludes differences in national price levels. With these scores, the Philippines is classified as a medium-human-development (with HDI of 0.500 to 0.799) and middle-income (with GDP per capita of US$766 to US$9,385) country, along with the likes of Thailand and Malaysia.

Globally, Norway topped the list of 177 countries while Niger was at the bottom. The Philippines actually got its best ranking of No. 35 in the human poverty index. It was also ranked No. 46 in gender empowerment measure and No. 63 in gender-related development index.

Former President Fidel Ramos, the main guest speaker in the event, said that it is sad that the Philippines remains at the middle of the list, when it has all the resources and talents to improve its ranking. “We are a rich nation pretending to be poor,” he said, while acknowledging that there are two things missing in the equation for social progress: good governance and national pride.

The former president served from 1992 to 1998, a term described by De La Salle University economist Ponciano Intal, as the golden age of the Philippine economy.

Another murder case in Singapore

A fresh criminal case reminiscent of a previous one that strained the bilateral relations between the Philippines and Singapore some years ago has the possibility of becoming another sensational issue and one likely to arouse strong feelings. Singaporean authorities have arrested Filipino household maid Guen Aguilar, a 29-year-old mother of two, for allegedly murdering her fellow Filipino worker Jane Parangan La Puebla.

If convicted, Aguilar will face the death penalty, the same fate that Flor Contemplacion suffered several years ago. Contemplacion, who was widely believed in the Philippines to be innocent of murdering another Filipino and her employer’s child in Singapore, was hung in 1995 and died a hero to many overseas Filipino workers.

Contemplacion’s death a decade ago forced many Singaporeans to leave the Philippines for fear that they would be the subject to the wrath of Filipinos. It took a number of years before anger subsided and bilateral relations between the Philippines and Singapore normalised.

Now, extensive media coverage on the trial of Guen Aguilar could revive painful memories of Filipinos seemingly being denied justice in other countries. This time, however, the Singapore government has allowed the Philippines to send a pathologist to observe the autopsy of the remains of Filipino worker Jane Parangan La Puebla. Aguilar and La Puebla, both from Ilocos, were reported to be “best friends” in Singapore.

For many Filipinos, it is hard to believe that a Filipino would leave her family in the Philippines to become a murderer of a compatriot in another land, especially one who was her friend. About 140,000 foreign maids work in Singapore, many of them are from the Philippines and Indonesia.

Imelda’s jewels to be auctioned

The Presidential Commission on Good Government (PCGG) is selling 760 pieces of jewellery confiscated from former First Lady Imelda Marcos in 1986. It invited two experts of Christie’s auction house to appraise the jewellery, earlier estimated at US$10 million.

However, Mrs Marcos asked the Manila Regional Trial Court to stop the auction of her gems, which she described as family heirlooms. The jewels have been kept in a vault at the Central Bank since 1986. The collection



includes a set of a diamond-encrusted bracelets, earrings and a brooch believed to be worth about US$1.48 million.

Apart from claiming that the gems were legally hers, Mrs. Marcos said some of the items in her collection got lost at the hands of PCGG.

RP cited for three reforms

An annual report launched by the World Bank and the International Finance Corp. (IFC) has cited three reforms initiated by the Philippines to improve the business environment in the country. The report, titled "Doing Business in 2006" lauded Vietnam, Indonesia, the Philippines and other Asian countries for the reforms in several areas of business regulation.

"Many economies improved their regulations for protecting investors, including Hong Kong, Indonesia, Korea, Malaysia, Thailand, the Philippines, and Vietnam," the report said.

For one, the Philippines was cited for completing the phase-out of compulsory pre-shipment inspections. It was also positively mentioned in the report for introducing online business registration and speeding contract enforcement by setting time limits on court judgments.

Vietnam was cited for introducing reforms in the company registry, a new bankruptcy law, and measures to streamline contract enforcement and reduce the costs to register property. Other Asian countries were also mentioned for speeding up reforms in several areas of business regulation. These include Indonesia, China, Fiji, and Timor-Leste, which streamlined administrative barriers to trading.

The report pointed out how simple reforms in business regulations and taxes could have far-reaching effects that attract more investments and create more jobs. It identified some of the areas where the Philippines can improve to realize its potential for higher levels of investment.

At present, the report said it takes 23 steps and 197 days to complete the licensing and permit requirements for ongoing operations in Philippines. This is longer than the average among other East Asia Pacific countries of 17 steps and 153 days.

"In the Philippines, it takes 8 steps and 33 days for a business to register property. The regional average is 4 steps and 60 days," it added. Also, the time and cost required to resolve bankruptcies in Philippines is 5.7 years and 38 percent of the estate value, while the regional average is only 3.3 years and 27.6 percent of the estate value.

IFC country manager Vipul Bhagat emphasised the need to lower the costs of business by simplifying approval procedures. This would also include improving the judicial enforcement and dispute resolution processes, he added.

"For private sector businesses, the cost of dispute resolution is currently among the highest in the world. In this environment, firms limit their exposure and lower their cost of exit. A consequence of this is lower levels of technology transfer, lower supply of capital, and slower integration into production networks," he explained.

For his part, World Bank country director Joachim von Amsberg said that "with the country's excellent assets, including highly educated and entrepreneurial people and rich natural resources, the Philippines has the potential to be an incredibly attractive place for both international and domestic investments into businesses that generate new jobs and income."



BIR withdraws new tax on block sales

The Bureau of Internal Revenue (BIR) has withdrawn its new revenue measure which imposed capital gains tax of 5 percent and 10 percent, instead of the 0.5 percent and 1 percent stock transaction tax, on block sales or pre-negotiated transactions executed at the Philippine Stock Exchange (PSE).

It said it has to conduct more consultations first before it can implement Revenue Memorandum Circular (RMC) 43-2005, which was issued on August 30 this year. The new measure had stated that prearranged or predetermined transactions of stock listed and traded through the PSE are subject to capital gains tax of 5 percent and 10 percent.

The BIR had said the measure following a recent series of huge stock market deals involving banks and multinationals. But it had to withdraw the measure following intense pressures from the same groups.

Apart from the stock transaction tax, investors in the stock market pay a .007 percent gross receipt tax, .000917 percent Philippine Depository and Trust Corporation charge, 0.5 percent sales tax and .0009174 percent Securities Clearing Corp. fee. The standard fees also include a brokerage commission of a maximum of 1.5 percent of the transaction cost plus 10 percent value added tax (VAT), a transfer fee of PhP100 plus 10 percent VAT and a cancellation fee of PhP20 plus 10 percent VAT.

In response to the withdrawal of the new revenue measure, the Philippine Stock Exchange (PSE) said this is the right thing to do, since a higher transaction cost goes against the national goal of promoting the domestic capital market.

PSE President Francis Lim said the imposition of capital gains tax on block sales will put off investors from transacting in the local bourse given the higher transaction cost and will instead opt for doing business outside the stock market.

"High taxes add to transaction costs and discourage investment in the capital market particularly when taxes on such investments are disproportionate vis-à-vis competing instruments, or where the cost of tax outweighs the gain of the transaction," Mr. Lim was quoted as saying.

Government retains 70 percent cap on input VAT

The Federation of Philippine Industries has expressed concern over the impending implementation of the Expanded Value Added Tax (VAT) law, after the Supreme Court refused to strike down the provision setting a 70 percent cap on input tax when it upheld the constitutionality of the said law.

“We appreciate the need of the government to raise additional revenues but industry leaders are particularly concerned over the impact of Section 110 of the new law which provides for 70 percent limit on input VAT utilization against the previous 100 percent credit claimed by private enterprises,” FPI president Jesus Arranza said.

The Supreme Court has ruled that EVAT law (RA 9337) is constitutional, including Section 110 (B) providing for the 70 percent limit on input VAT utilization. The temporary restraining order issued by the court on July 1 will be lifted once the decision becomes final.

The FPI explained that the 70 percent cap forces all taxpayers to give up to the government, ostensibly in the form of tax, 3 percent of their gross revenue, since they cannot claim anymore the balance of their input VAT credits to offset their output taxes.

It is believed that the household consumers will bear the brunt of the 70 percent cap on input VAT. This early, the Department of Energy has said that domestic fuel prices would further rise by an average of 6.3 percent once



the law is enforced in October. The government expects some PhP30 billion in additional revenues from the VAT on petroleum.

Economy and Business

Jobs up by 889,000

The number of jobs in the Philippines grew by 889,000 year-on-year to 32.521 million in July 2005 on the back of increased job generation in agriculture, industry and services, according to the National Statistics Office (NSO). Subsequently, the country’s unemployment rate fell to 7.7 percent of the labour force in July this year from 8.3 percent in April even as the labour participation rate dipped to 64.6 percent under a new survey methodology of the National Statistics Office (NSO).

According to the NSO, of the 54.583 million Filipinos 15 years old and above as of July 2005, 35.236 million or 64.6 percent were in the labour force. Persons not in the labour force include housewives, students, disabled and retired persons, who totalled 19.3 million or 35.4 percent of the total population 15 years old and above in July 2005.

Around 32.521 million or 92.3 percent of the labour force had jobs during the survey period while 2.715 million or 7.7 percent were unemployed. About half of the total unemployed were 15 to 24 years old. By gender, 60.7 percent of the unemployed were male while 39.3 percent were female.

Composition of RP Labour Force by Sector, July 2005

Agriculture37%

Industry15%

Services48%

The employed population included 6.67 million, representing 20.5 percent or a fifth of the labour force, who were considered underemployed, because they wanted more hours of work.

The number of employed persons in the country actually increased by 889,000 or 2.8 percent to 32.521 million in July 2005 from only 31.632 million a year ago. This was credited to the 4.7 percent increase in employment in the agriculture sector; 1.8 percent growth in the services sector and 1.3 percent rise in the industry sector.

Employment in the agriculture sector, representing 37 percent of the total went up by 540,000 to 11.99 million in July 2005 from 11.45 million a year earlier while employment in the industry sector, accounting for 15 percent of the total, increased by 67,000 to 5 million from 4.93 million.

The total number of persons employed in the services sector, representing 48 percent of the total, grew by 282,000 to 15.532 million in July 2005 from 15.25 million a year ago despite the 1.9 percent decline in employment in transportation, storage and communication. Data shows that the number of persons employed in the transportation, storage and communication contracted by 46,000 to 2.419 million from 2.465 million.

Ironically, the Autonomous Region in Muslim Mindanao (ARMM) posted the highest employment rate of 97.6 percent while the National Capital Region had the lowest employment rate of 85.8 percent. This can be



attributed to the fact that most people in the ARMM depend on agriculture for their livelihood and are considered with jobs. While Metro Manila had the lowest employment rate, such employment level is mostly in the industrial and services sectors that provide higher and more regular income than the agriculture sector.

By class of worker, the number of wage and salary workers, accounting for 50.1 percent of the total workforce, decreased by 408,000 or 2.4 percent to 16.3 million from 16.7 million while own-account workers, with 37 percent share, increased by 746,000 to 12.134 million from 11.388 million. The number of unpaid family workers, representing 12.6 percent of the total, also grew by 551,000 to 4.08 million from 3.53 million.

NSO administrator Carmelita N. Ericta said the agency adopted the new survey methodology starting April 2005, based on Resolution No. 15 issued by the National Statistical Coordination Board (NSCB) in October last year. Under the new methodology, the unemployed is defined as those who are 15 years old and above as of their last birthday, who are reported as without work; currently available for work; and seeking work or not seeking work due to valid reasons.

Using the old methodology, which does not factor in the availability criterion, the unemployment rate would have reached 10.9 percent in July 2005, still down from 12.7 percent in April 2005, 11.3 percent in January 2005, 10.9 percent in October 2004 and 11.7 percent in July 2004.

Consumers see improvement in income next year

The quarterly Consumer Expectation Survey conducted by the Bangko Sentral ng Pilipinas (Central Bank) shows that Filipino consumers believe that their family income will decline further in the third and fourth quarters of 2005 but will recover beginning the first quarter of 2006.

According to the results of the survey, most of the 2,193 respondents have raised concern over rising household expenditures as a result of increasing food prices, transport fares, utilities and oil. Most respondents expect their family income to decline by an average of 7.4 percent in the third quarter and 1.6 percent by the fourth quarter but they see their income improving by 2.4 percent next year.

The survey showed that the overall diffusion index (DI) on consumer optimism for 2006 improved to -21.4 percent from -28.4 percent in the previous poll. The DI is the different between the percentage of respondents who answered in the affirmative and the percentage of respondents who answered otherwise. Thus, a negative DI indicates a pessimistic outlook.

The three component indices of the average DI are the Philippine economic condition, family financial situation, and family income.

According to the Central Bank, the respondents’ outlook on the economic condition of the country and on family financial situation improved to -39.3 percent and -25.1 percent, respectively. Family income registered a positive DI of 0.3 percent from -4.7 percent in the previous survey. The respondents said the better outlook for next year was based on expectations of additional income, more jobs, sound government policies, and overseas jobs.

US$1 billion fund for gas sector

Trade and Industry Secretary Peter Favila said the Philippine delegation that accompanied President Gloria Macapagal-Arroyo on her visit to the United States last week has secured a US$1 billion funding from a consortium of US banks for the development of the local downstream gas industry.

While he refused to divulge further details, Secretary Favila said the US banks have also expressed interest in joining in the privatisation of the state-owned National Power Corp.



He said several members of the United States National Bank Association have expressed interest to bankroll about US$1 billion for the downstream natural gas industry in the Philippines.

The Philippine government has earlier said it will need US$2 billion to US$3 billion for its renewable energy projects, including US$1 billion for a liquefied natural gas terminal.

High oil prices to widen RP’s fiscal deficit

Soaring crude oil prices will not only cut economic growth and push up inflation but will also set back the government’s campaign to narrow the burgeoning fiscal deficit. In its Asian Development Outlook 2005 Update, the Asian Development Bank (ADB) said fiscal deficit in the Philippines could further widen by 0.8 percentage point of the gross domestic product (GDP) if oil prices will continue to go up.

This was based on a simulation using the Oxford Economic Forecasting model, on an assumption that oil prices will keep climbing from US$53 per barrel in the third quarter of 2005 to US$70 per barrel in the fourth quarter of 2006. Similar simulation shows that further upward adjustment in oil prices can cut the GDP growth in the Philippines by as much as 1.4 percentage points by 2006, the second largest impact on growth in Asia after Thailand’s 1.8 percentage points. Inflation in the Philippines is also seen to climb to 7.5 percent in 2005.

Impact of US$70 per barrel oil price on GDP and budget balance (Percentage points of GDP)

GDP Growth Budget Balance

Thailand -1.8 -0.7

Philippines -1.4 -0.8

Singapore -1.3 -0.4

India -1.1 -0.9

Indonesia -1.1 0.2

Malaysia -1.1 1.0

China -1.0 -0.1

Hong Kong -0.9 -0.1

Japan -0.5 -0.3

South Korea -0.5 -0.9

Taiwan -0.2 -1.1

Source: Asian Development Outlook 2005 Update, ADB

Its impact on the budget deficit would also be most felt in the two Southeast Asian countries. “Fiscal deficits in the Philippines and Thailand will increase by nearly 1 percentage point of GDP compared to the baseline.” This means that the Philippines would not able to achieve a balanced budget by 2008. The government was originally targeting to limit the fiscal deficit to 3 percent of the GDP in 2005 and bring it down to zero by 2010.

The ADB said that while the Philippine government considers that it may be able to achieve a balanced budget two years ahead of the current target of 2010, “it may well be prudent to consider retaining the initial target.” The Philippines was described as one of the more susceptible countries in the region to high global oil prices as it imports 96 percent of its oil requirements, equivalent to about 5.6 percent of the GDP.

It noted that the country’s oil import bill, representing 5.4 percent of total imports in 2004, jumped by 36 percent to US$2.4 billion in the first 5 months of 2005, even though import volumes declined by 2 percent. “This cuts into its current account surplus, which was 2.4 percent of GDP in 2004,” it said.

The ADB also warned about the risks of subsidizing retail prices of oil products, which, it said, could further bloat the fiscal deficit. “If the retail prices of oil products are subsidized, as they are in many Asian countries, outlays



on fuel subsidies will ratchet up as prices rise. This may prompt cuts in government spending; if it does not, larger fiscal burdens will have to be borne. Indirectly, fiscal balances will respond to changes in income and expenditure,” it said.

Dollar remittances up 26 percent in July

Money remitted by overseas Filipino workers (OFWs) increased by 25.7 percent year-on-year to US$885 million in July. This brought cumulative dollar remittances for the first seven months of the year to US$5.8 billion, up by 22.1 percent from the year-ago level.

The government hopes that the full-year figure will reach US$9.4 billion, up from about US$8.4 billion in 2004. Actual remittances could in fact exceed US$10 billion in 2005, since the Central Bank monitors only those remitted through the banking system. An Asian Development Bank study has estimated that only one of every three remittances to the country goes through the banking system.

The Central Bank said the increasing number of OFWs has been fuelling the growth in dollar remittances to the country. Data from the Philippine Overseas Employment Administration show that the total number of OFWs deployed went up by 5.2 percent to 599,196 in the first seven months of 2005. Overall, there are around 8 million Filipinos who are sending money to their relatives in the country. These include migrants and permanent workers abroad.

Actual FDIs up by 190 percent in first half

Actual foreign direct investments registered with the Bangko Sentral ng Pilipinas (BSP) surged by 190 percent to US$495 million in the first half of 2005 from only US$170 million a year ago. The amount represents the actual flow of money, as monitored in the balance of payments, and is different from commitments and approvals registered with the Board of Investments and Philippine Economic Zone Authority.

According to the Central Bank, the bulk of the FDIs came from Hong Kong and Japan and went to manufacturing, real estate, financial and services, particularly business process outsourcing.

Net reinvested earnings, however, fell by 96.8 percent to US$2 million from US$62 million in the first six months of 2004. "However, it is important to recognize that the 2005 reinvested earnings data include those of local banks only, and do not yet cover those of enterprises," the Central Bank clarified.

RP registers BoP surplus in August

The Philippines recorded a balance of payments (BoP) surplus of US$297 million in August, a turnaround from US$127 million deficit a year ago. The figure was also up from the US$13-million surplus in July.

This brought the country’s BoP surplus to US$2.29 billion in the first eight months of 2005, a huge turnaround from the US$220 million deficit registered during the same period of 2004.

BSP Deputy Gov. Diwa Guinigundo attributed the positive balance to the steady export growth, higher remittances from overseas Filipino workers (OFWs), sustained strong inflows of foreign direct and portfolio investments, and proceeds from the government’s overseas borrowings.

Data show the dollar remittances from OFWs increased by 22 percent in the first seven months of the year to US$5.77 billion while foreign portfolio investments reached US$2 billion at the end of August.

The total wealth of the Philippines

The World Bank has recently published a new report measuring the total wealth of each nation, including the value of natural resources and skills of its people. For the Philippines, it said each Filipino had a total wealth of



US$19,351 as of 2000. This puts the national wealth of the Philippines at US$1.483 trillion, based on a population of 76.627 million in 2000.

In its report titled “Where is the Wealth of Nations” released at the start of the World Summit this week, the World Bank said the amount includes the total actual value of produced capital, natural resources and intangible capital. Intangible capital refers to the value of human skills and capabilities. It also includes social capital or the trust among people in a society and their ability to work together for a common purpose. The residual also includes all those governance elements that boost the productivity of labour.

“Worldwide, natural capital accounts for 5 percent of total wealth, produced capital accounts for 18 percent, and intangible capital accounts for 77 percent,” the report said. The publication said Switzerland has the highest per capita wealth while Ethiopia has the lowest level of per capita wealth. Data show that the per capita wealth in the Philippines was 32 times less than that of Switzerland but eight times more than that of Ethiopia.

Among its Asian neighbours, the per capita wealth in the Philippines is higher than in Indonesia and China but lower than in Malaysia and Thailand. Worldwide, the US$19,351 per capita wealth of the Philippines was below the world average per capita wealth of US$90,000. “The average world citizen owns a total wealth of US$90,000,” the World Bank publication said. “Most of the wealth comes from intangible capital. Tangible assets include produced capital, for an amount of US$16,000, and natural capital, US$5,000.”

The World Bank said it released the report to provide new measures of wealth to capture the social and environmental costs of development decisions. “Including the value of natural resources and our social capital in national accounting is a vital step to achieve economic growth that is equitable and sustainable,” said Achim Steiner, director general of the World Conservation Union.

17 wind-power sites eyed for development

The Department of Energy has identified 17 wind-power sites in the country that have the potential to generate electricity. Energy Secretary Raphael Lotilla said the government would offer the 17 sites for development to interested investors. The sites, he added, have potential for a combined generating capacity of 500 megawatts,

In Luzon, these include Bani and Bolinao towns in Pangasinan province with potentials of 40 megawatts each; Tagaytay City in Cavite province, 30 megawatts; Donsol-Jovellar in Sorsogon, 70 megawatts; Donsol, 40 megawatts; Pilar, 40 megawatts; and Matnog, 10 megawatts.

In the Visayas, the sites include Dumangas town in Iloilo province, 50 megawatts; Siquijor, 10 megawatts; Carmen and Oslob towns in Cebu province, with 20 megawatts and 30 megawatts, respectively; Allen-Lavezares area in Northern Samar, 10 megawatts; and Tomas Oppus town in Southern Leyte, with potential for 10 megawatts.

In Mindanao, the lone site is Gigaquit town in Surigao Del Norte province, with potential for 30 megawatts. The Department of Energy said the Philippines has wind-power potential for a total of 70,000 megawatts.

Export group optimistic of US$44-billion target

The Philippine Exporters Confederation, Inc. (Philexport) said it remains optimistic that the export sector would be able to achieve its 10 percent growth target to US$44 billion in 2005. Philexport is an umbrella organization of more than 3,000 export-oriented companies in the country.

"Our July figures show that we are still on the track. We are not changing our target of 10 to 12 percent export growth this year," Philexport president Sergio Ortiz-Luis said.

Mr. Ortiz said while electronics remains the country’s top export, accounting for about 60 percent of the total shipments, there has been a decline in the percentage share of electronics in the export volume, because there



are other big sectors whose exports are going up. He said exports have been growing in the agriculture sector, as well as food and resource-based metal fabrication, including wiring harness. Prospects are bright for producers of bananas, pineapples, coconut, and mango, he added.

Domestic air travel posts strong growth in first quarter

Amid high oil prices, domestic airlines are making huge profits this year, on the back of strong tourist arrivals. Figures from the Air Transportation Office (ATO) collated by the National Statistical Coordination Board (NSCB) show that the number of aircraft landings in the country went up by 12.9 percent year-on-year in the first quarter of 2005, owing to the strong growth in the first two months of the year.

From only 40,823 landings in the first three months of 2004, the total number of commercial, general aviation and military landings climbed to 46,093 in the first quarter of 2005. This can be largely attributed to the recovery of the tourism industry. The Department of Tourism earlier reported that foreign visitor arrivals in the country increased by 12.7 percent to 1.286 million in the first half of 2005 from 1.141 million a year ago.

As a result, the national flag carrier, the Philippine Airlines reported a 73-percent increase in its net profit to about US$27.4 million or P1.49 billion in the first quarter of its fiscal year.

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2,000,000

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Air Transport Passenger Arrivals & Departure

2004 2005

Data from the NSCB also show that the total number of passenger arrivals, transit and departure in the Philippines surged by 17.8 percent year-on-year in the three-month period. Passenger movement was up 26 percent in January, 21 percent in February and 8 percent in March. For the first quarter, passenger movement totaled 6.439 million this year, up from only 5.466 million last year.

Cargo movement by air also posted a 3.5 percent increase in the first quarter, particularly due to its strong growth in February. The total number of cargo loaded and unloaded in the country's airports increased to 134.791 million kilos in the first quarter of 2005 from only 130.282 million kilos during the same period in 2004.

Among regions, more than 40 percent of total aircraft landings occurred in Metro Manila. Airports in the National Capital Region also accommodated 60 percent of all passenger arrivals and departure and close to 70 percent of all cargo loaded and unloaded.

The introduction of low-cost airlines operating out of Clark and to other Asian destinations has significantly boosted the local travel industry.



Corporate Briefs

Climax-Arimco seeks partners for copper-gold project

Australian mining firm Climax-Arimco Mining said it is negotiating with Pan Pacific Copper of Japan and LG International of Korea for their possible participation in the US$117-million Didipio copper-gold project in Kasibu, Nueva Vizcaya in Northern Luzon.

At the same time, Climax CEO Robert Thomson said they are expecting to complete negotiations with several foreign financing institutions such as ABN AMRO, Macquarie Bank, NM Rothschild and Sons, Societe Generale Australia Ltd., Standard Bank London Ltd., Fortis Bank, and Invesytec Bank (UK Ltd.) that will initially lend US$100 million to accelerate work on Didipio.

Earlier, Mr. Jose P. Leviste Jr., chair of the Australasian Philippines Mining Inc. (APMI), the local unit of Climax, said the company will invest between US$79 million to US$81 million for open cut establishment, processing plant and installation of infrastructure beginning 2006, and within the next five years, raise an additional US$35 million to US$39 million for its underground mining operations. Mr. Leviste said the fresh investment would be on top of the PhP2 billion that the company had already spent for various exploration projects in the Philippines since 1989.

Telecom firms slash call rates

Innove Communications Inc., the landline telephone unit of Ayala Corp., has reduced its international direct dialing (IDD) rates for its residential and business subscribers, in response to the 75-percent cut in IDD rates by rival Philippine Long Distance Telephone Co. for its digital subscriber line service.

Analysts said the local telecommunication firms had to slash their rates to cope with the new revolution in the telecommunication sector, following the National Telecommunications Commission’s ruling that allowed new players to offer voice over Internet protocol (VoIP), or long-distance calls over the Internet.

Hitachi invests PhP1.58 billion in Laguna

Hitachi has invested additional PhP1.58 billion in its Laguna plant for the production of micro drives. The company said that for the micro drive manufacturing alone, it will employ 2,555 people over the next five years on top of its present workforce of 7,000.

It said has already added 580 new employees as of last August, and is keen on closing the year with 800 more people. Hitachi’s Laguna plant started shipping first batch of the micro drive in April 2005.

Kuwait Petroleum to explore RP for oil

The Department of Energy has allowed the Kuwait Foreign Petroleum Exploration Co. to participate in an oil and gas exploration project currently being undertaken by Japan Petroleum Exploration Co. (Japex) in Tañon Strait between Cebu and Negros islands.

Kuwait Petroleum is set to join the exploration under a farm-in agreement in which it acquired a 35 percent interest in Service Contract No. 46 from Japex, which will now have 65 percent stake in the project. Under the contract, the partners will invest US$12.7 million for a seven-year exploration period over Tañon Strait. Once the reserve is proven to be of commercial quantity, the contractors will be given another 25 years to produce from the field.



AustralAsian to drill for oil

The AustralAsian consortium said it would start drilling for oil and gas reserves in the Northwest Palawan basin before the end of the year. Company chair Rufino Bomasang said they are optimistic that by using new technology, they can produce oil in the field.

AustralAsian, a wholly owned subsidiary of Middle East Petroleum Services (MEP), is focused on oil exploration and production in the AustralAsian region, primarily in the Philippines. MEP is part of the Azerbaijani holding company Azersun Holding, and specializes in transporting oil from Kazakhstan and Turkmenistan. The consortium holds Service Contract 50, which covers 172,000 hectares in Northwest Palawan basin including the South Calauit oil fields, another area with confirmed oil reserves.

ISM plans to takeover Eastern Telecom

Publicly listed ISM Communications Corp. is reportedly planning to acquire Australian Gigahertz Network Phils. (AGNP) to avoid a possible corporate dispute in its takeover bid of Eastern Telecommunications Philippines Inc.

Reports said the acquisition of AGNP, which owns 40 percent of ETPI, is one of ISM’s options in wresting majority control of ETPI. ISM is also reportedly interested in acquiring the government’s 10.2 percent stake in ISM, which has just acquired the 17.7 percent interest of Aerocom Investors & Managers Inc. through a share swap deal.

US$850 million needed to develop Malampaya oil

The consortium running the Malampaya gas field project in the waters of Palawan has warned the government that it would have to spend up to US$850 million for the development cost of the proposed oil rim. It said that with the huge cost involved, it is not commercially viable to develop the oil rim.

Amid the high oil prices, the government said it wanted to pursue the development of the oil rim to lessen the country’s dependence on imported oil. The Philippine National Oil Company (PNOC), which is a part of the Malampaya consortium under Service Contract 38, had indicated that it is willing to undertake the oil rim project on its own if the Department of Energy (DoE) would allow it to do so.

New US$400-M plant eyed in Batangas

First Generation Holdings Corp. (First Gen) said it is eyeing the construction of another 550-megawatt combined cycle, gas-fired plant in Batangas worth around US$400 million.

The company said it plans to build the structure at San Gabriel, on land adjacent to its two existing natural gas plants Sta. Rita and San Lorenzo. It said the location would allow Sta. Rita, San Lorenzo and San Gabriel to be operated on a single contained and secure site and for the three plants to utilize common facilities such as fuel delivery and storage facilities.

Ayala Corp secures PhP4.2-billion loan

Leading conglomerate Ayala Corp. has secured a fresh PhP4.2-billion loan from a consortium of financial institutions composed of BDO Capital Corp., First Metro Investment Corp., Insular Investment and Trust Corp. and China Banking Corp. The loan has a maturity of seven years and fixed interest rate of 10.375 per annum.

The company said it will use the fund to prepay its dollar obligations maturing in 2006 consistent with its debt refinancing program. The new borrowing will improve the debt mix of the company to an estimated 40 percent and 60 percent ratio in favour of peso-denominated debt.



Sale of government TV stations approved

The government’s Privatisation Council has approved the joint sale of state-owned television networks Radio Philippine Network (RPN-9) and Intercontinental Broadcasting Corp. (IBC-13).

Finance Undersecretary Jay Singson said the government would soon assign a financial advisor to determine the sale structure for RPN-9 and IBC-13.

The Financial Markets

Combined income of listed firms up 27 percent

The combined net income of companies listed in the Philippine Stock Exchange (PSE) went up by 27 percent to PhP73.84 billion in the first half of 2005 from PhP57.99 billion a year ago.

PSE president Francis Lim attributed the double-digit rise in profits to positive developments early this year, including the passage of the Expanded Value Added Tax Law, improvement in government’s revenue collection, the 4.6 percent gross domestic product growth in the first quarter, a manageable inflation rate and accommodative monetary policy.

He said the higher profits amid political and economic uncertainties reaffirmed the resilient and robust foundation of the Philippine equities market. “Being able to sustain such an encouraging market performance during the first half of the year amid diverse factors staged in the political front reveals that the Philippine equities market has remained resilient, sound and healthy,” Mr. Lim was quoted as saying.

The Philippine Long Distance Telephone Co. topped the list of profitable listed companies with first-half income growing by 35 percent to PhP16.82 billion from PhP12.45 billion a year ago. Other lucrative listed firms in the period were Ayala Corp., Pilipino Telephone Corp. and the Bank of the Philippine Islands.

Bank loans up 4 percent

The Bangko Sentral ng Pilipinas (Central Bank) has reported that the total loans extended by commercial banks amounted to PhP1.546 trillion (US$27.6 billion) as of July on the back of strong demand from developers, financial institutions and business services.

Loans to financial institutions, real estate and business services sector (FIREBS) continued to fuel the growth in bank lending, accounting for 26.7 percent of total loans. Loans to community, social and personal services contributed 15.6 percent while manufacturing activities accounted for 26.7 percent.

The agriculture, fisheries & forestry sector contributed 6 percent; transportation, storage & communication sector, 5 percent; electricity, gas & water sector, 5 percent; wholesale & retail trade, 12.5 percent; construction, 1.8 percent; and mining and quarrying, 0.7 percent.



Market Movements

Strong corporate demand for the US dollars, particularly among oil distributors, has been weighing on the peso, which continues to trade above the 56-to-the-dollar mark. The peso closed at 56.17 against the greenback on September 16, down from the previous week's close of 56.06 to the dollar. Transaction volume, at currency trading, amounts to more than US$200 million each day. The peso, however, traded stronger than the Euro and the British Pound last week. Analysts said anticipation of a hike in US interest rates would add pressures on the peso this week, as investors' interests shift to dollar-denominated assets.

Meanwhile, Manila stocks recovered last week as the local bourse's consolidated income report shows that the combined income of listed companies posted a robust 27 percent growth in the first six months of 2005. The Phisix, the main barometer of the 30-company Philippine Stock Exchange, climbed back to the 1900 psychological level, gaining 28 points to end last week's five-day market trading at 1,909 on September 16, up from the previous week's close of 1,881 on September 9. Local stocks are expected to sustain their gains this week.

The Charts

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Market Movements

Week ending: 16-Sep-05 9-Sep-05

USA ($1.00) 56.17 56.06

Japan (¥1.00) 0.51 0.51

Eurozone (€1.00) 68.47 69.51

UK (£1.00) 101.59 102.95

NEER 11.76 11.69

91-day T-bills 5.62% 5.62%

Repo Rate 9.25% 9.25%

Rev. Repo Rate 7.00% 7.00%

Gold Buy/troy oz. 455.00 446.55

Phisix 1,909.80 1,881.77



Peso-Euro Exchange Rate

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Economic and financial indicators

Human Development Index (HDI), Selected Asian Countries

Asian Countries HDI Rank HDI Value GDP per

capita (PPP US$)

Life expectancy index

Education Index

GDP Index

Japan 11 0.943 27,967 0.95 0.94 0.94

Hong Kong 22 0.916 27,179 0.94 0.87 0.94

Singapore 25 0.907 24,481 0.89 0.91 0.92

Brunei 33 0.866 19,210 0.86 0.86 0.88

Malaysia 61 0.796 9,512 0.8 0.83 0.76

Thailand 73 0.778 7,595 0.75 0.86 0.75

Philippines 84 0.758 4,321 0.76 0.89 0.63

China 85 0.755 5,003 0.78 0.84 0.65

Vietnam 108 0.704 2,490 0.76 0.82 0.54

Indonesia 110 0.697 3,361 0.7 0.81 0.59

India 127 0.602 2,892 0.64 0.61 0.56



Source: Human Development Report 2005, UNDP

Employed Persons by Industry (In Thousands)

Jul-04 Jul-05 % Growth

Agriculture 11,450 11,990 4.7%

Agri, Hunting & Forestry 10,082 10,595 5.1%

Fishing 1,368 1,395 2.0%

Industry 4,933 4,999 1.3%

Mining & Quarrying 114 111 -2.6%

Manufacturing 3,056 3,068 0.4%

Electricity, Gas & Water 110 111 0.9%

Construction 1,653 1,709 3.4%

Services 15,250 15,532 1.8%

Wholesale & Retail Trade, Repair of Motor Vehicles, Motorcycles & Personal & Household Goods

5,901 6,064 2.8%

Hotels & Restaurants 805 859 6.7%

Transport, Storage & Communication 2,465 2,419 -1.9%

Financial Intermediation 348 358 2.9%

Real Estate, Renting and Business Activities 691 715 3.5%

Public Administration & Defence, Compulsory Social Security

1,414 1,497 5.9%

Education 976 1,005 3.0%

Health & Social Work 375 380 1.3%

Other Community, Social & Personal Service Activities 782 714 -8.7%

Private Households with Employed Persons 1,491 1,520 1.9%

Extra-Territorial Organizations & Bodies 2 2 0.0%

TOTAL 31,632 32,521 2.8%

Source: Labour Force Survey, National Statistics Office

Written and prepared by the Research Department of the Philippine Business Leaders Forum Inc.

For comment on any article that appears in this edition of the Philippine Business Leaders Brief please contact:

Dr. Michael Clancy President and CEO, Philippine Business Leaders Forum Inc An associate of Corporate Network, a service of the Economist Intelligence Unit.

Tel (63) 2 812 7830 Fax: (63) 2 889 6054 E-mail: [email protected]

For further information on our range of services please visit our website: http://www.philippinesforum.com



Disclaimer

The information contained in this report was obtained from sources that we believe to be reliable. The Philippines Business Leaders Forum Inc. furnishes the information without warranty of any kind.

Philippine Business Leaders Forum Inc Suite 808, Richmonde Plaza, 21 San Miguel Avenue, Ortigas City P.O. Box 2737 Makati City, Metro Manila, Philippines Tel: (63 2) 812 7830: Fax: (63 2) 889 6054 E-mail: [email protected] Web: http://www.philippinesforum.com

Document Name: PBLB_050919_232 Document Printed: Monday, 19 September 2005

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