the month’s highlights 1

Political FUTURE DEVELOPMENTS FUTURE DEVELOPMENTS More Filipinos see better times over the next 12 months Palace: Rep. Arroyo’s stay at Veterans Memorial Center – SWS, BSP is temporary The percentage of Filipinos expecting improved quality of life Former President Gloria Arroyo will enjoy the relative comfort and economic conditions over the next 12 months (“optimists”) of the Veterans Memorial Medical Center in Quezon City only for rose, while those seeing them worsening (“pessimists”) was as long as her medical condition will require it, an offi cial said. unchanged, resulting in a net personal optimism score of +30% (see story page on p10) on quality of life and +22% in the 3rd quarter, the highest so far in 2011, according to the survey conducted by pollster Social Service Stations (SWS). (see story page on p17) Chief Justice Corona impeached by House of Representatives On Dec. 12, the House of Representatives impeached PH not likely to meet many MDGs Supreme Court Chief Justice Renato Corona on allegations The Philippines almost certainly will not achieve many of the of betrayal of public trust, culpable violation of the Millennium Development Goals (MDGs) by the 2015 deadline. Constitution, and graft and corruption. The Senate, as With only 3 years left before the expiration of the 15-year impeachment court, is set to commence impeachment timeframe, the country is only poised to meet 2 of the 8 goals, proceedings on January 16 upon resumption of session. and is as much as 19 years behind attainment of the targets. (see story page on p11) (see story page on p18)

PAST DEVELOPMENTS Business

SC orders Hacienda Luisita distributed to farmers FUTURE DEVELOPMENTS Voting 14-0, the Supreme Court (SC) on Nov. 22 ordered the distribution to farmers of 4,915 hectares of the Cojuangco Higher property tax to take effect in 2012 family-owned Hacienda Luisita sugar estate, in accordance with Land owners will face higher taxes as more provinces and the land reform program. (see story page on p11) cities are updating their schedule of market values (SMVs) in 2012. This is in response to the circular issued in October 2010 Gen. Dellosa appointed Armed Forces chief requiring all local government units (LGUs) to update property President Aquino has appointed Northern Luzon Command chief valuations used in appraising properties and computing for real Lt. Gen. Jessie Dellosa as Armed Forces’ chief of staff, replacing property taxes. (see story page on p32) Gen. Eduardo Oban Jr., who retired on Dec. 12. (see story page on p12) Negotiations on general review of Pjepa slated for January 2012 Gov’t challenged to speed up massacre trial, as court The Philippines and Japan have agreed to move the 4th meeting of issues new freeze order on Ampatuan assets the Philippines-Japan Economic Partnership Agreement (PJEPA) Two opposition lawmakers on Nov. 21 demanded that the Justice Joint Committee to January 2012. The joint meeting, originally department resolve the Maguindanao massacre case quickly. This, scheduled for December 2011, will tackle the general review as the government succeeds in securing a new 20-day freeze of the trade agreement. (see story page on p33) order on the Ampatuan assets just before the expiration of an earlier freeze order. (see story page on p13) Mining, Oil and Gas

Gov’t intensifi es small-scale mining regulation Economy Amidst the mounting small-scale mining-related issues, several government agencies and local government units (LGUs) have PAST DEVELOPMENTS intensifi ed small-scale mining regulation. With its current dismal performance, the mining industry group may consider banning S&P raises PH rating outlook small-scale mining. (see story page on p33) New York-based credit watchdog Standard & Poor’s Ratings Services upgraded the Philippines’ sovereign credit rating Davao city – mining free outlook to “positive” from “stable” on Dec. 16. In a bid to declare the city mining-free, the Davao city council (see story page on p15) proposed a resolution banning open-pit and underground mining. (see story page on p34) PH ranking on fi nancial dev’t up The Philippines ranked 44th out of 60 economies, a 6-notch improvement from 50th in the previous year, in the World Economic Forum’s (WEF) Global Financial Development Index 2011. (see story page on p16)

Philippine Alert December 2011 2 the month’s highlights

Large-scale miners to embark on social management expansion in plans 2012 AMLA amendments passed in the Lower House Despite numerous industry problems, the large-scale mining The House of Representatives approved on 3rd and fi nal reading industry has earmarked approximately P1.5 billion for social House Bill 4275 amending the Anti-Money Laundering Act of development and management programs (SDMP) as well as 2001 a few days after the legislation was certifi ed as urgent by undertake project development plans in 2012. President Aquino. The bill expands the coverage of the offense (see story page on p35) of money laundering, but is criticized as a diluted version as it excludes a provision allowing the Court of Appeals to authorize IT Update the Anti-Money Laundering Council to probe into suspicious accounts without notifying the account owners. BPO 101 – a new subject for inclusion in the college core (see story page on p56) curriculum The Business Process Association of the Philippines (BPA/P) and the Senate adopts Terrorist Financial Suppression Act Commission on Higher Education (CHEd) signed a memorandum The Senate Committee on Banks, Financial Institutions and of cooperation in November 2011, formalizing their partnership Currencies has adopted in full Senate Bill (SB) 2676 or the for the institutionalization of Service Management subjects in Terrorist Financial Suppression Act of 2011 authored by Senator the college curriculum. Among the subjects is BPO 101, an Edgardo Angara. (see story page on p57) introductory course on the IT-BPO industry that could be included in the core curriculum of any college. (see story page on p36)

Multi-billion peso investments strengthen PH’s telco infrastructure In 2011, dominant carriers PLDT and Globe Telecom embarked on multi-billion peso network improvement programs in preparation for greater bandwidth requirements as more and more Filipinos go online. (see story page on p37)

Infrastructure

1st PPP project bidding: Successful After a delayed start, the banner program of the Aquino administration, the public-private partnership (PPP) infrastructure program, has been fi nally launched with the successful bidding of the 4-kilometer Daang Hari-South Luzon Expressway road link project. (see story page on p49)

Keen interests in Mactan-Cebu Int’l Airport Project ..but the government is uncertain what to do with it. Nevertheless, several of the country’s biggest property developers and infrastructure fi rms are keeping their close eye on the airport project that has been tentatively scheduled for bidding in 1Q2012. However the government is unsure what to do with the project. (see story page on p51)

CongressWatch

House bills approved on 3rd reading Among the key economic/business bills approved by the House of Representatives on 3rd reading are the following: Data Privacy, Rationalization of Fiscal Incentives, and Customs Modernization and Tariffs Act. Before the Congress adjourned on December 17, some 19 additional measures were approved on 3rd reading. Sessions will resume on January 16, 2012. (see story page on p55)

Philippine Alert December 2011 CORPORATE BRIEFS 3

WORD FOR WORD

“A tyranny of the majority.”

Integrated Bar of the Philippines president Roan Libarios on the impeachment case against Supreme Court Chief Justice Renato Corona.

“Those crying for the inhibition of the Chief Justice are trying to be a law unto themselves. They seek no less than the unconstitutional power to determine who will judge what cases. The Constitution does not grant that power to anybody, no matter how strident or self-righteous.”

Sen. Miriam Defensor-Santiago on the clamor from some quarters for Chief Justice Renato Corona to inhibit himself from cases involving Ms. Arroyo due to his alleged close ties to the former president.

“Time is precious but time is running out.”

Mr. Hubert d’Aboville, president of the European Chamber of Commerce and Industry, urging President Aquino to amend the Constitution to open up the economy and make the business climate more favorable to foreign and local investors.

“My response to them is this: if they were aggressive in stealing the peoples’ money in the past, we will triple our speed in holding them accountable.”

President Aquino on accusations that his administration is being ‘too aggressive’ in its campaign against his predecessor, Gloria Arroyo.

Philippine Alert December 2011 4 COMMENTARYCOMMENTARY

s this a re-active government? It seems so, too many of the actions and decisions are in reaction to criticism or Ioutside events, not part of a planned program. The latest case is P1.1 billion to be spent on Manila’s airport after it was ranked as the worst airport in the world to sleep in and the 5th most hated. Yet it’s been known for years that the airport is totally inadequate and desperately in need of improvement. Government has been told many times. Now international derision is there, it need not have been.

The impeachment case against Chief Justice Corona brings in sharp relief to some areas of Philippines society that need change, and not just Philippine society, but many others. And they center on the excesses law has gone to. You can no longer have an accident without an ambulance-chasing lawyer convincing the other party to sue—nowadays in the U.S. for absurdly large amounts of money. The intent of law is to punish the guilty party so he won’t do it again. Well unless you have a special relationship with God, an accident can happen again no matter how careful you are.

It used to be if you played up in school the teacher took you to the headmaster, he gave you 6 across the bottom with a cane, you went back to class and behaved.

Now, the teacher gets suspended aiding and abetting a crime and the principal goes to jail for cruelty to children and sexual harassment.

Not far into the future (if it hasn’t happened already) bussing a girl on the cheek will end you up in the penitentiary.

But that’s just leading up to my main, oft cited, complaint against the law: It’s forgotten its primary role is as a servant of society; it is there to ensure society functions well and for the best of the majority. It is not there to win cases on technicalities.

The goal of lawyers should be to seek the truth, not win the case. I consider a lawyer who defends a client he knows is guilty, and wins, as complicit in the crime.

In the impeachment case it’s now about whether the Chief Justice made decisions favorable to former Pres. Arroyo (although it is that, too), it’s about the fact he accepted a “midnight appointment”.

His defense lawyers will agree that the Constitution does not specifi cally mention the judiciary when it says (Article Vll Section 15): “two months immediately before the next presidential elections and up to the end of his term, a President or Acting President shall not make appointments, except temporary appointments to executive positions when continued vacancies therein will prejudice public service or endanger public safety”.

But the intent of the Constitutions is clear, and social good manners support it. You don’t appoint people just as you leave; you have the courtesy to leave it to the new leader. Well you could expect no less from GMA, but a Justice of the Supreme Court should be above her Machiavellian machinations and politely decline. A SC Justice, particularly the Chief Justice should be of the highest, unquestioned morality, honesty and decency.

By accepting a questionable appointment, Chief Justice Corona failed this test. That’s what it should be all about.

Mind you, even in law Mr. Corona has a weak defense. Back in Ramos’s time, a similar thing happened—President Ramos made appointments to the Regional Trial Court in 1998, at the very tail-end of his term. Mr. Corona himself was being considered for appointment to the SC then. But then Chief Justice Narvasa ruled: No. He ruled that the President was not allowed to make appointments during the election period, before and after, as provided in the Constitution.

Philippine Alert December 2011 6 SPECIAL REPORT

ECONOMIC OUTLOOK FOR 2012

Disappointing performance in 2011

The Philippines faced numerous global challenges in 2011. The political turmoil that wracked the Middle East and North Africa (MENA) drove world oil prices up till the 3rd quarter. During the fi rst half of the year agricultural commodity prices, too, rose dramatically as major producing areas experienced harvest shortfalls due to bad weather. Japan was struck by an earthquake and a tsunami in March, disrupting the manufacturing supply chain especially for electronics and automotive, and weakening the domestic demand in the country. The downgrading of the U.S. credit rating by Standard and Poors in August unnerved international fi nancial markets, which were already feeling anxiety from the debt problems in Europe’s periphery, particularly in Greece, Portugal and Italy. In short, the external environment helped depress Philippine economic performance in 2011.

Predictably, Philippine economic growth slowed. But at a gross domestic product (GDP) growth of only 3.6% during the fi rst 3 quarters, it was a terrible disappointment. Notwithstanding the inevitable fate of exports under harsh global market conditions, the economy would have done better if the government had done its job of pump- priming. Instead, government spending fell for the fi rst time in 2 decades as it only implemented one priority public-private partnership (PPP) project, a reversal of its commitment of providing a growth boost. Reviewing projects for irregularities and revalidating their feasibility took precedence. If infrastructure spending had just remained at its level in the previous year instead of declining by -46.4% as it did, GDP growth would have been at least 5% in the fi rst 3 quarters of 2011.

Nonetheless, consumer spending remained strong with growth at 5.9% due to the government’s conditional cash transfer (CCT) program and other pro-poor subsidies, improved access to credit by households, and sustained growth in net remittance infl ows from overseas Filipino workers (OFWs). Private construction activity, which grew 12.8%, also helped.

Global outlook: cloudy but…

There are increasing concerns that the debt crisis along the periphery of Europe might also affect the major European economies like Germany and France, reinforcing the belief that no one will be spared across the globe as it continues to unfold. At the same time, the U.S. will be grappling with its still unresolved debt issues triggered by the need to save a large number of banks from collapse and to restore market confi dence, so its growth will remain sluggish. In short, the major industrial economies will provide minimal support at best, if not a drag, to Philippine economic performance in 2012.

Philippine Alert December 2011 SPECIAL REPORT 7

One favorable side effect of this predicament, however, is reduced global demand for fuels and commodities, resulting in oil prices settling at lower levels and subdued infl ation rates. This should contribute to a stable macroeconomic environment for the Philippines in 2012.

And although likely to slow down as a result of the weak markets in the West, East Asia will remain the most dynamic area in the world, driven by improving competitiveness and productivity and strong domestic demand. Increasing trade and investments within the region will sustain East Asia’s growth momentum. For the Philippines, being in this neighborhood should partly offset the adversities elsewhere in the world – if it takes advantage of the fact. A by no means certain thing.

GLOBAL OUTLOOK 2010 2011 2012 Real GDP growth, % World 5.1 3.5 3.0 USA 2.9 1.0 1.0 Euro area 1.8 1.0 0.5 Asia/Pacifi c (14) 6.9 4.3 4.7 China 10.3 9.0 8.7 NICS (4) 8.0 4.3 3.4 ASEAN (5) 6.9 4.4 4.9

World trade, % growth 12.8 6.5 4.0 Crude oil, avg of 3 spot crudes, $/bbl 79 87 80 Source: IMA Asia, October 2011 Asia/Pacifi c – Japan, China, Hong Kong, Taiwan, South Korea, Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam, India, Australia, New Zealand; NICS – Korea, Taiwan, HK, Singapore; ASEAN 5 – Indonesia, Thailand, Malaysia, Philippines, Vietnam

Domestic policy thrusts: expansionary

Criticized in 2011 for under-spending, which analysts and business leaders thought was the principal reason for the lower-than-expected growth performance in 2011, the government vowed to pursue expansionary fi scal spending in the coming year. The approved cash budget of P1.85 trillion in 2012 is about 30% higher than the estimated spending in 2011 (although only 8% higher than the target for 2011, but the government was off target by 7%). Almost P200 billion has been allocated for infrastructure, 15% higher than the programmed level this year (and much higher than 15% if based on actual spending given that actual expenditures were below programmed level in 2011), while roughly P360 billion has been budgeted for education and health. This is also 15% higher. Priority public-private participation (PPP) projects will be fi nally implemented.

The Bangko Sentral ng Pilipinas (BSP) will start easing money supply to allow for faster economic growth as infl ationary threats recede with world fuel and commodity prices settling down at lower levels. The low world interest rate scenario and absence of pressure on the peso will also support an expansionary monetary policy stance in 2012.

Faster economic growth

The Philippines will have to rely heavily on its neighbors and on its own domestic drivers for better economic performance in 2012. The country’s Asian neighbors will see sustained growth, so increased trade with countries within this area will be benefi cial. The domestic demand drivers will continue to be the property market boom, buoyant consumer spending and, fi nally an increase in infrastructure spending.

Philippine Alert December 2011 8 SPECIAL REPORT

Property development will draw its strength partly from high-rise residential projects in Metro Manila. Some 60,000 mostly small units of less than 50 square meters are under construction between 2011 and 2013, made even more affordable by low mortgage rates and easy fi nancing terms. The development of roughly 500,000 square meters of new offi ce space is also under way, mostly to meet the demand of the steadily growing business process outsourcing (BPO) industry. There are also close to 60 hotel and resort projects of diversifi ed mix of classes being developed nationwide in 2011/2012 to address the needs of foreign tourists who are expected to nearly double to 6 million by 2015.

The high level of liquidity in the banking system will mean continued access to cheap credit by consumers. Moreover, the budget for the government’s CCT program will increase to P29 billion from P23 billion in 2011. OFW remittances will also remain resilient and grow despite the sluggish world economic prospects. Hence, consumer spending will still grow by 5-6% in 2012. Priority PPP projects are expected to take off, along with a few major ODA projects in 2012. It already started in December with the awarding of the Daang Hari-SLEX Link to the Ayala group. At least two more – the Puerto Princesa airport upgrade and the NLEX-SLEX Expressway Link – will be launched shortly. More projects are expected to be launched as the year progresses.

Exports are seen to fare better in 2012 due to the low base in the previous year and increased trade within the East Asian region, especially with China and ASEAN members. Hence, exports will not pose a major drag as they did in 2011. Other external growth drivers will also remain present, particularly business process outsourcing and creative industries, tourism and OFW remittances.

In short, the key elements for faster growth in 2012 are present – the additional boost from infrastructure spending, a modest pick up in exports, and the resilience of OFW remittances, tourism and BPO. GDP is forecast to grow by around 4.5%, with 5.5% possible as an upper limit. But there is a downside risk if government doesn’t now get its act together.

Stable cost of business

The cost environment will be stable in 2012. World oil prices have already settled down in late 2011 as a result of weak industrial activity in the Western economies, while the spikes in agricultural commodity prices will no longer be experienced as harvests are back to normal. With the absence of signifi cant cost push factors, and domestic demand suffi ciently met by local production and cheaper imports, infl ation will be back down to a modest 3.5-4.5% in 2012. Given the sanguine infl ationary outlook, the BSP will be able to loosen up on domestic liquidity, helping boost spending and growth.

The weak U.S. currency plus the sustained dollar infl ow especially from portfolio investment and OFW remittances will keep the peso-dollar rate almost unchanged at 43-44:$1 in 2012.

The absence of pressure on the peso would be added support to the shift to a more liberal monetary policy, which would mean lower cost of funds (interest rates) as more money is pumped into the system. Reasonably healthy government fi nances will also reduce the risk premium on the government’s benchmark debt issues. More so if the Philippines gets another credit rating upgrade as is possible. Consequently, this will be another factor that will keep interest rates low. The average bank lending rate will remain at 7-8% in 2012.

Philippine Alert December 2011 SPECIAL REPORT 9

PHILIPPINE ECONOMIC FORECAST 2010 2011 2012 % Real growth rate: Gross domestic product (GDP) 7.6 3.5-4 4.5-5.5 Gross national income (GNI) 8.2 2.5-3 5.5-6.5

Consumer spending 3.4 5.5-6 5-6 Government consumption 4.0 -1 to -0.5 4-5 Fixed investment 19.5 1-2 6-7 Export, goods and services 21.0 -3 to -2.5 8-10 Import, goods and services 22.5 3-4 6-8

Agriculture -0.2 4.5-5 3-4 Industry 11.6 1.5-2 4-5 Services 7.2 5-5.5 5-6

Annual averages: Exchange rate (P:$) 45.1 43.3-43.6 43-44 Bank lending rate (%) 7.5 7-7.5 7-8 91-Day T-Bill rate (%) 3.7 2-2.5 2-3 Infl ation (%) 3.8 4.5-5 3.5-4.5

Source: IMA Asia, October 2011

Philippine Alert December 2011 10 POLITICAL

Palace: Rep. Arroyo’s stay at Veterans Memorial Center is temporary Former President Gloria Arroyo will enjoy the relative comfort of the Veterans Memorial Medical Center in Quezon City only for as long as her medical condition will require it, an offi cial said.

“ t is not clear to us how long her stay at the Veterans hospital would last. That would depend on the prosecution on whether Ithey would want to change the status quo,” deputy presidential spokeswoman Abigail Valte stressed. Ms. Arroyo was arrested on Nov. 18 on charges of electoral sabotage in the 2004 polls. The former Chief Executive was confi ned at St. Luke’s Medical Center in Taguig City. She was purportedly planning to leave the country for medical treatment when she was detained. She was fi nally transferred to the Veterans hospital on Dec. 9, accompanied by her husband, Jose Miguel, their son Diosdado, and her spokeswoman Elena Bautista-Horn. Ms. Arroyo has remained in the government hospital since Dec. 9, her request to spend Christmas at her La Vista home denied by the authorities. The fi ling of the charges against Ms. Arroyo defused the brewing constitutional crisis that begun when Justice Secretary Leila de Lima, on Nov. 15, defi ed the Supreme Court’s temporary country because of a warrant of arrest issued against her by restraining order (TRO) issued on the watch list orders that the Pasay City regional trial court (RTC) on the afternoon of prevented the former president from leaving the country. Ms. Nov. 18. According to Supreme Court spokesman and Court Arroyo was seeking treatment for an illness of the spine. On Administrator Jose Midas Marquez, the case pending before the Nov. 8, Ms. Arroyo challenged before the high court the Justice high court was different from the electoral sabotage case fi led department’s watch list orders issued on August and October, against Ms. Arroyo before the Pasay City RTC. Issuance of the claiming these violated her constitutional right to travel as no arrest warrant by the RTC, however, became a “supervening charges had been fi led against her at that time. On Nov. 15, event” that in effect barred Ms. Arroyo from leaving the country. the Supreme Court ruled in favour of Ms. Arroyo and issued The fact that Ms. Arroyo was prevented from leaving and the TRO. A motion for reconsideration was immediately fi led perhaps evading justice was a very big triumph for the Aquino by the Justice Department but denied by the Supreme Court administration, which has made anti-corruption its utmost on Nov. 18. Though the TRO issued by the Supreme Court on priority and main platform of government. Surveys indicate the watch list orders stands, Ms. Arroyo still cannot leave the that President Aquino’s ratings remain high and that majority of

The detention of Ms. Arroyo sends a strong signal that corruption will not be tolerated under this administration.

Philippine Alert December 2011 POLITICAL 11

Filipinos support him in taking Ms. Arroyo to task for her alleged Meanwhile, reactions to the unfolding of the events were transgressions in offi ce. In his 2010 election campaign, then mixed, with some quarters hailing the development, while presidential candidate Aquino vowed to go after “the big fi sh”. critics slammed the undue haste by which the impeachment The detention of Ms. Arroyo is a step in the right direction and was carried out. Still, as surveys reveal, the general public sends a strong signal to the public that corruption by anyone, in appeared in favour of the Aquino administration’s moves. any way, shape, or form will not be tolerated in this administration. For his part, Mr. Corona, speaking before the employees of the Supreme Court, came out swinging against his critics, Chief Justice Corona impeached by House of foremost among them being President Aquino. Mr. Corona accused Mr. Aquino of seeking to impose his will on the Representatives Supreme Court. He announced that he would not resign and vowed to fight the looming “Aquino dictatorship.” On Dec. 12, the House of Representatives impeached Su- The Chief Justice has all the right to defend himself, although preme Court Chief Justice Renato Corona on allegations of some quarters have expressed concern that if he survives betrayal of public trust, culpable violation of the Constitution, impeachment, his recent utterances could compromise his and graft and corruption. The Senate, as impeachment court, participation in future Supreme Court deliberations. He should is set to commence impeachment proceedings on January save his best arguments for his trial. He had won points previously 16 upon resumption of session. for keeping his composure in the face of a frontal harangue by Pres. Aquino, and for saying that he expected a fair trial at the Senate. The House of Representatives has affi rmed the Articles of The Chief Justice should welcome this chance to clear his name. Impeachment fi led against Chief Justice Renato Corona, with almost 2/3 of the members or 188 out of 285 congressmen affi xing their signatures on the complaint. The Articles of Impeachment SC orders Hacienda Luisita distributed to identifi ed 3 grounds for complaint, namely: 1) betrayal of public trust, 2) culpable violation of the Constitution, and 3) graft farmers and corruption. Among the principal allegations against Mr. Corona—a “midnight appointee” of former President Gloria Voting 14-0, the Supreme Court (SC) on Nov.22 ordered the Arroyo—involved his demonstrated track record of protecting distribution to farmers of 4,915 hectares of the Cojuangco the interests of the embattled former President, who is in turn family-owned Hacienda Luisita sugar estate, in accordance the subject of electoral sabotage and plunder cases. Mr. Corona’s with the land reform program. impeachment follows President Aquino’s criticism of the high court, in which he accused the institution of obstructing his According to a palace spokesman, Pres. Aquino, who is a administration’s efforts to exact accountability for corrupt practices, member of the Cojuangco family, has said he would respect the especially those committed under the Arroyo administration. Hacienda Luisita decision—once it became fi nal. The decision While in the Lower House, the impeachment complaint by the high court—which has lately been at odds with Mr. bypassed committee and plenary debates, and was immediately Aquino—amends a ruling made in July allowing more than submitted for resolution. The complaint was then transmitted to 6,000 farm workers to choose whether to get land or shares of the Senate, which on Dec. 14 convened itself into an impeachment stock in Hacienda Luisita, Inc. (HLI), the corporation that runs court with senators taking their oaths as senator-judges. Senate the Hacienda Luisita sugar estate in Tarlac. In its ruling dated Legal Counsel Tina Cruz, spokeswoman for the impeachment court, Nov. 22, the SC said the farmers should just get land instead has said that based on the agreement among senators, proceedings of shares of stock under a government land reform program. are slated to begin on Jan. 16 or when the sessions resume after The 6,296 farm workers in Hacienda Luisita are the break. Actual impeachment trial is expected to commence purportedly split over whether or not they will pay Mr. sometime towards the end of January to early February with the Aquino’s family the P835.55 million “just compensation” Senate President acting as presiding offi cer during the proceeding. for the 4,915-hectare estate to be awarded them. Senators have ample time to prepare for Mr. Corona’s On one hand, Kilusang Magbubukid ng Pilipinas-led Alyansa impeachment trial. As the previous administration showed ng mga Manggagawang Bukid sa Asyenda Luisita (Peasant only too well, impeachment – a power vested in the House of Movement of the Philippines-led Alliance of Farm Workers in Representatives – is a political act, a battle for numbers. But that’s Hacienda Luisita) wants the estate distributed to the farmer- only phase one of the process. The impeachment trial in the Upper benefi ciaries for free. The farmer-leaders say the President’s House must be seen as impartial, with senators voting on the family should instead “indemnify the farmworkers for the more merits of a case rather than on partisan considerations. The trial, than fi ve decades of exploitation and oppression.” On the other if conducted with credibility, can dispel criticisms that Congress hand, the moderate Akbayan-led Farmworkers Agrarian Reform has become a rubber stamp of Malacañang, a dubious distinction Movement (FARM) is willing to pay the Cojuangco family it has earned since the restoration of democracy in 1986. P170,000 per hectare for a total of P835.55 million. Mr. Christian

The trial can dispel criticisms that Congress has become a rubber stamp of Malacañang.

Philippine Alert December 2011 12 POLITICAL

Pres. Aquino must show that he is exerting eff ort to make agrarian reform work, with Hacienda Luisita seen as a test of his political will.

Monsod, the lawyer representing FARM’s 1,200 members, said Gen. Dellosa appointed Armed Forces chief the farm workers were “willing to pay the P170,000 over 30 years as prescribed by law.” He said each farmer-benefi ciary President Aquino has appointed Northern Luzon Com- would get 7,806 square meters or less than a hectare. They mand chief Lt. Gen. Jessie Dellosa as Armed Forces’ chief would be paying P17 per square meter, or P132,702 for the of staff, replacing Gen. Eduardo Oban Jr., who retired on 7,806 square meters. Mr. Monsod said the SC had ruled that the Dec. 12. compensation to the landowners should be based on the Land Bank of the Philippines’ and Agrarian Reform Department’s Both Gen. Oban and Gen. Dellosa belong to the Philippine valuation in November 1989, which was P170,000 a hectare. Military Academy Class of 1979. Before his present assignment, However, his proposal seems skewed and unfair as this would Gen. Dellosa was commander of the Army’s 2nd Infantry Division not refl ect any land value appreciation over the last 22 years. based in Camp Capinpin in Tanay, Rizal. He was also a former Relatives of Mr. Aquino have promised to abide by the latest deputy commander of the Central Command based in Cebu SC decision, which ordered the distribution of the family’s sugar City. During his early years in the service, he spent time with the estate in Tarlac to its tenant-farmers. The unanimous decision, Presidential Security Group serving the late President Corazon from which Justice Antonio Carpio inhibited, amended the Aquino, mother of the incumbent Pres. Benigno Aquino III. SC’s ruling last July that allowed HLI to give its workers the Mr. Dellosa is the 3rd military chief of staff so far to serve option of choosing between land and shares of stock in the the current administration. Both he and his predecessor, Mr. corporation. Mr. Aquino has tried to distance himself from the Oban Jr., served as presidential guards during the 1st Aquino dispute, pointing out that his shares in the country’s largest administration, with Mr. Dellosa serving as a junior aide-de-camp sugar plantation were negligible and he had no role in the of Ms. Aquino. The 1st military chief under the 2nd Aquino management of HLI. Nevertheless, the President has to live administration, Gen. Ricardo David Jr., who was appointed on July with the reality that regardless of the amount of his shares 2, 2010, was also a former presidential guard under Ms. Aquino. in Luisita, Filipinos will always link him to the controversy. The chief of the Armed Forces of the Philippines (AFP) need This was also the case with his late mother, President Corazon to be trusted by the president and commander-in-chief. It’s not Aquino, under whose watch the stock distribution option was surprising that Mr. Aquino, whose Defense secretary Voltaire included in the Comprehensive Agrarian Reform Law that Gazmin headed the Presidential Security Group under Ms. was passed by the landlord-dominated post-EDSA Congress. Aquino, would pick chiefs of staff known to him personally. But The introduction of the stock distribution option, which the President should make sure merit, rather than just membership allowed owners of large agricultural estates to avoid having in his late mother’s personal security detail, is seen by the AFP their lands parcelled out to tenants, was aggravated by the rank-and-fi le as the pivotal factor in promotions and assignments inadequacy of support for making the redistributed land viable. in the military. A merit-based system of promotion and assignment Many small farms under the Comprehensive Agrarian Reform will go a long way in boosting professionalism in the AFP. Program (CARP) suffered from the lack of farm-to-market Mr. Dellosa’s leadership, along with the full support of the roads, marketing support, post-harvest facilities, and fertilizer commander-in-chief, will be crucial in areas in the military assistance. A number of frustrated CARP benefi ciaries sold needing reforms. While the military seems to be rid of the coup their farms, with their plight bolstering the argument that large virus, recent scandals show that other forms of rot still need to agricultural estates are more productive and effi cient. Farmers be excised from the organization. For instance, transparency in can, however, be assisted in setting up cooperatives and putting the AFP procurement system, a long-time problem in the service, together their limited resources to make CARP lands viable. needs to be implemented to prevent a repeat of the scandals that By this time, it may be too late for this in areas where many have led to the indictment of several former military generals of the farmer-benefi ciaries have sold their lands. But there are for corruption. The effort to promote respect for human rights ways of increasing this program’s chances of success. Pres. also needs to be sustained, even as the AFP battles groups that Aquino must show that he is exerting effort to make agrarian are not bound by international conventions governing warfare. reform work, with the case of Hacienda Luisita particularly Meanwhile, Mr. Dellosa has said that beefi ng up the nation’s seen as a test of his political will. The case may not yet be over; external defense capability would be his priority as AFP chief, HLI may appeal the SC ruling. With the court having opened addressing a key concern in one of Asia’s weakest armed forces. the doors, through recent decisions, to endless litigation, the Gov’t challenged to speed up massacre trial, farmers of Hacienda Luisita may still have a long wait ahead as court issues new freeze order on Ampatuan assets before fi nally securing land ownership. What can be done immediately is to intensify efforts to make agrarian reform work for farmers who have already received land under the program.

Philippine Alert December 2011 POLITICAL 13

A merit-based system of promotion will go a long way in boosting professionalism in the AFP.

Two opposition lawmakers on Nov. 21 demanded in Muslim Mindanao. Anti-corruption authorities are looking into that the Justice Department resolve the Maguindanao how local government executives could amass such assets in one massacre case quickly. This, as the government succeeds of the poorest regions of the country, on the modest pay of local in securing a new 20-day freeze order on the Ampatuan offi cials. Those vast assets have allowed the clan to maintain a assets just before the expiration of an earlier freeze order. spirited legal defense in their trial for the Maguindanao massacre, Maguindanao Rep. Simeon Datumanong, a former Justice wherein more than half of the victims were media workers. secretary, said the victims of the Maguindanao massacre deserved swift justice, but it had been 2 years since the carnage and the Justice Gov’t challenged to speed up massacre trial, Department has yet to resolve the case. House Deputy Minority Leader and Zambales Rep. Milagros Magsaysay agreed. Nov. as court issues new freeze order on Ampatuan 23 marks the 2nd anniversary of the brutal slaying of 58 people, assets including the 33 journalists covering the submission of a certifi cate of candidacy of then Vice Mayor Toto Mangudadatu who was Two opposition lawmakers on Nov. 21 demanded that the to run against the powerful Ampatuan clan for the gubernatorial Justice department resolve the Maguindanao massacre case seat. The Ampatuans were allies of former President Arroyo and quickly. This, as the government succeeds in securing a new are accused of aiding the latter in sabotaging the 2004 elections. 20-day freeze order on the Ampatuan assets just before the In related developments, members of the Ampatuan clan are expiration of an earlier freeze order. still prevented from dipping their hands into their assets and bank accounts that were earlier ordered frozen by the Court of Appeals Maguindanao Rep. Simeon Datumanong, a former Justice following their indictment for the Maguindanao massacre. On secretary, said the victims of the Maguindanao massacre deserved June 6, the Court of Appeals issued a freeze order that covered swift justice, but it had been 2 years since the carnage and the 597 bank accounts, 142 fi rearms, 132 motor vehicles, and 113 Justice department has yet to resolve the case. House Deputy houses and lots in the names of 27 members of the Ampatuan clan; Minority Leader and Zambales Rep. Milagros Magsaysay agreed. from the initial 20-day effectivity, the court decided to extend the Nov. 23 marks the 2nd anniversary of the brutal slaying of 58 people, freeze order period to 6 months with expiration on Dec. 2. A day including the 33 journalists covering the submission of a certifi cate before the freeze order lapsed, however, Solicitor General Jose of candidacy of then Vice Mayor Toto Mangudadatu who was Anselmo Cadiz representing the Anti-Money Laundering Council to run against the powerful Ampatuan clan for the gubernatorial (AMLC) fi led a petition for civil forfeiture with immediate prayer seat. The Ampatuans were allies of former President Arroyo and for issuance of a “provisional asset protection order” (PAPO) are accused of aiding the latter in sabotaging the 2004 elections. before a Manila City regional trial court. On Dec. 2, the Manila In related developments, members of the Ampatuan clan are court granted the petition of the Offi ce of the Solicitor General and still prevented from dipping their hands into their assets and bank issued the PAPO, which functions as a 20-day freeze order. The accounts that were earlier ordered frozen by the Court of Appeals new freeze order covers over 200 bank accounts, 110 fi rearms, 77 following their indictment for the Maguindanao massacre. On motor vehicles, and 144 real estate properties. Justice Secretary June 6, the Court of Appeals issued a freeze order that covered Leila de Lima said the government had asked for the freeze of 597 bank accounts, 142 fi rearms, 132 motor vehicles, and 113 the assets which the Ampatuans may have used in committing houses and lots in the names of 27 members of the Ampatuan clan; fraud, such as amassing up to P1 billion in ill-gotten wealth. from the initial 20-day effectivity, the court decided to extend the If not for the vigilance of government agencies and several freeze order period to 6 months with expiration on Dec. 2. A day media groups, members of the Ampatuan clan and several before the freeze order lapsed, however, Solicitor General Jose of their associates would have gotten hold of their assets. Anselmo Cadiz representing the Anti-Money Laundering Council At the eleventh hour, the government managed to obtain a (AMLC) fi led a petition for civil forfeiture with immediate prayer court order, effectively keeping the assets out of the reach for issuance of a “provisional asset protection order” (PAPO) of the principal suspects in the Maguindanao massacre. before a Manila City regional trial court. On Dec. 2, the Manila The AMLC has been seeking more powers from Congress to court granted the petition of the Offi ce of the Solicitor General and carry out its mandate. A watered-down bill has just been passed by issued the PAPO, which functions as a 20-day freeze order. The the House of Representatives, requiring that owners of suspicious new freeze order covers over 200 bank accounts, 110 fi rearms, 77 bank deposits be accorded “due notice and hearing” before the motor vehicles, and 144 real estate properties. Justice Secretary Court of Appeals can freeze such assets and allow the AMLC to look Leila de Lima said the government had asked for the freeze of the into the accounts. The Ampatuans have waged a legal battle to get assets that the Ampatuans may have used in committing fraud, hold of their substantial assets, believed to have been accumulated such as reportedly amounting to P1 billion in ill-gotten wealth. during the decade when they controlled the Autonomous Region

Philippine Alert December 2011 14 POLITICAL

At the eleventh hour, the government managed to obtain a court order, keeping the assets out of the reach of the Ampatuans.

If not for the vigilance of government agencies and several media groups, members of the Ampatuan clan and several of their associates would have gotten hold of their assets. At the eleventh hour, the government managed to obtain a court order, effectively keeping the assets out of the reach of the principal suspects in the Maguindanao massacre. The AMLC has been seeking more powers from Congress to carry out its mandate. A watered-down bill has just been passed by the House of Representatives, requiring that owners of suspicious bank deposits be accorded “due notice and hearing” before the Court of Appeals can freeze such assets and allow the AMLC to look into the accounts. The Ampatuans have waged a legal battle to get hold of their substantial assets, believed to have been accumulated during the decade when they controlled the Autonomous Region in Muslim Mindanao. Anti- corruption authorities are looking into how local government executives could amass such assets in one of the poorest regions of the country, on the modest pay of local offi cials. Those vast assets have allowed the clan to maintain a spirited legal defense in their trial for the Maguindanao massacre, wherein more than half of the victims were media workers.

Philippine Alert December 2011 ECONOMY 15

S&P raises PH rating outlook New York-based credit watchdog Standard & Poor’s Ratings Services upgraded the Philippines’ sovereign credit rating outlook to “positive” from “stable” on Dec. 16.

he upgrade to a “positive” outlook means the credit ratings could be raised in the near term if S&P observes a “material Tprogress in achieving a sustainable structural revenue improvement or further strengthening of the public balance sheet, yielding reduced fi scal vulnerability.” Finance offi cials think the improvement in the ratings is in the bag within the 1st quarter, given the below-ceiling budget defi cit and the likelihood of the defi cit remaining low – as a percentage of GDP – in 2012. But it will likely be one-notch upgrade, so the rating for foreign currency- denominated long-term debt will still be below investment grade. S&P, however, warned that there would be no adjustment of the ratings “in the event of weakened commitment to fi scal consolidation, resulting in upward building of the debt trajectory, or if the external liquidity position deteriorates signifi cantly.” The New York credit rating agency assigns a “BB” rating, or two notches below investment grade, indicating risk of equivalent to 11 months of imports, and favorable growth non-payment in case the economy worsens due to adverse despite formidable global challenges like the debt woes in external factors, on the country’s long-term foreign currency Europe and the sluggish U.S. economy. This offset the negatives, debt. For short-term foreign currency issue, the current particularly the relatively high foreign debt of the public rating is “B” or 3 notches below investment-grade, while sector, 48% of which are commercial borrowings, although the for local currency liabilities, it is “BB+” (one notch below interest burden is now easing, and the still fragile liquidity of investment grade) for long-term issue and “B” for short-term. the fi nancial system notwithstanding its recent improvement. S&P based its favorable action on the outlook on the As S&P credit analyst Agost Bernard explained, the country’s strong external liquidity position, as seen in its revision of the outlook to positive was prompted by the record-high gross international reserves of $76 billion or observation that the “Philippines’ external vulnerability

Finance offi cials think the improvement in the ratings is in the bag within the 1Q12 quarter

Philippine Alert December 2011 16 ECONOMY

SHIFTS IN PHILIPPINE SOVEREIGN LONG-TERM FOREIGN CURRENCY RATINGS: 2000 TO PRESENT MOODY’S INVESTOR SERVICE STANDARD AND POORS’ DATE RATING OUTLOOK RATING OUTLOOK October 2000 Ba1 Negative BB+ Negative February 2002 Ba1 Stable April 2002 BB+ Stable October 2002 BB+ Negative April 2003 BB Stable September 2003 Ba1 Negative January 2004 Ba2 Negative January 2005 BB- Stable February 2005 B1 Stable July 2005 B1 Negative BB- Negative February 2006 BB- Stable November 2006 B1 Stable January 2008 B1 Positive July 2009 Ba3 Stable November 2010 BB Stable January 2011 Ba3 Positive June 2011 Ba2 Stable December 2011 BB Positive Source: Bangko Sentral ng Pilipinas (BSP)

LONG-TERM ISSUE RATINGS DEFINITIONS STANDARD & POOR’S MOODY’S DEFINITION AND FITCH INVESTMENT GRADE AAA Aaa Strongest creditworthiness; capacity to meet fi nancial commitment on the obligation is extremely strong AA Aa Very strong creditworthiness; capacity to meet fi nancial commitment on the obligation is very strong Above-average creditworthiness; somewhat susceptible to adverse economic conditions, but capacity to meet AA fi nancial commitment on the obligation is still strong. Average creditworthiness; adverse economic conditions may lead to weakened capacity to meet fi nancial BBB Baa commitment on the obligation. SPECULATIVE GRADE Below-average creditworthiness; faces major economic uncertainties which could lead to inadequate capacity to BB Ba meet fi nancial commitment on the obligation Weak creditworthiness; adverse conditions will likely impair capacity to meet fi nancial commitment on the BB obligation Very weak creditworthiness; In the event of adverse conditions, u unlikely to have the capacity to meet fi nancial CCC Caa commitment on the obligation CC Ca Extremely weak creditworthiness; highly vulnerable to non-payment Weakest creditworthiness; obligations that are currently highly vulnerable to non-payment, have payment CC arrearages, or subject of a bankruptcy petition Standard and Poor’s uses modifi ers “+” or “–“on ratings from “AA” to “CCC” to show relative standing within the major rating categories; Moody’s appends modifi ers 1, 2 and 3 to each generic rating classifi cation from “Aa” through “Caa” (1 = higher end of the rating category, 2 = mid-range, 3 = lower end of the rating category).

Sources: Standard & Poor’s; Moody’s

has diminished,” which the Bangko Sentral ng Pilipinas PH ranking on fi nancial dev’t up (BSP) said was due to strong external position. These are fi rst upgrades given by credit rating agencies The Philippines ranked 44th out of 60 economies, a 6-notch since 1997. On Nov. 12, 2010, S&P raised the Philippines’ improvement from 50th in the previous year, in the World long-term foreign currency credit rating by one notch to “BB”. Economic Forum’s (WEF) Global Financial Development In January 2011, Moody’s Investor Service revised the country’s Index 2011. outlook rating to “positive,” which was followed on June 15 by a credit rating upgrade to 2 notches below investment- The 6-notch gain was the 2nd best after Peru’s 8- grade from 3 notches below. Fitch also adjusted its credit spot move to No. 40 and was tied with South Korea’s. rating upwards to one notch below on June 23. The Aquino The Philippines’ index score also increased signifi cantly government’s goal is to attain investment-grade ratings by 2013. by 0.17 to 3.13 (highest possible score: 7; lowest: 1). Started 4 years ago, the WEF Global Financial Development Index measures an economy’s fi nancial health in terms of 7 pillars: institutional environment, business environment, fi nancial stability, banking fi nancial services, nonbanking fi nancial services, fi nancial markets and fi nancial access.

Philippine Alert December 2011 ECONOMY 17

FINANCIAL DEVELOPMENT INDEX: SELECTED ASIAN COUNTRIES GLOBAL RANKING SCORE COUNTRY/ECONOMY 2011 2010 2011 CHG FROM 2010 Hong Kong SAR 1 4 5.16 +0.12 Singapore 4 3 4.97 -0.08 Japan 8 9 4.71 +0.05 Malaysia 16 17 4.24 +0.04 Korea, Rep. 18 24 4.13 +0.13 China 19 22 4.12 +0.08 Thailand 35 34 3.32 -0.04 India 36 37 3.29 +0.05 Philippines 44 50 3.13 +0.17 Vietnam 50 46 2.98 -0.05 Indonesia 51 51 2.92 +0.02 Bangladesh 56 56 2.58 +0.03

No. of economies surveyed 60 59 Source: World Economic Forum (WEF), The Financial Development Index 2011

PHILIPPINES: PILLAR RANKS AND SCORES 2011 PILLAR RANK SCORE Institutional environment 42 3.73 Business environment 55 3.39 Financial stability 44 4.13 Banking fi nancial services 36 3.41 Nonbanking fi nancial services 20 2.53 Financial markets 33 2.04 Financial access 50 2.66

Overall index 44 3.13 Source: World Economic Forum (WEF), The Financial Development Index 2011

The boost to the Philippines’ ranking came from nonbanking The world’s Top 10 in fi nancial development in 2011 fi nancial services (# 20; 2.53 index points), with securitization were Hong Kong (#1; 5.16 points), U.S. (#2; 5.15 points), resulting from the development of new investment instruments United Kingdom (#3, 5.00 points), Singapore (#4, 4.97 carved out of a pool of assets, and mergers and acquisition points), Australia (#5; 4.93 points), Canada (#6, 4.86 points), (M&A) activity providing support to the pillar; and fi nancial Netherlands (#7; 4.71 points), Japan (#8; 4.71 points), markets (#33; 2.04 points), lifted in large part by developments Switzerland (#9; 4.63 points) and Norway (#10; 4.52 points). in the international and local bond markets and the derivatives WEF warned that the global economic environment continues to markets. The country, however, fared poorly in business face signifi cant uncertainty. Hence, “countries are facing enormous environment (#55; 3.39 points) due to lack of infrastructure challenges and their policy responses should address not only the and the high cost of doing business; and in fi nancial access immediate symptoms of the crises, but also their underlying causes.” (#50; 2.66 points), given its low level of cash infl ow from foreign direct investment (FDI) and low number of ATMs. More Filipinos see better times in next 12 Despite the improvement in ranking, the Philippines remained well behind most of its Asian neighbors. Hong Kong captured months – SWS, BSP the No. 1 spot from No. 4 previously, dislodging the U.S. which fell to No. 2. Singapore was 4th, Japan 8th, Malaysia The percentage of Filipinos expecting improved quality 16th and South Korea 18th. China rose 3 spots to No. 19. of life and economic conditions over the next 12 months Thailand slipped to No. 35 from No. 34, while India moved up (“optimists”) rose, while those seeing them worsening to No. 36 from No. 37. Only Vietnam at No. 50, Indonesia at (“pessimists”) was unchanged, resulting in a net personal No. 51 and Bangladesh at No. 56 were behind the Philippines. optimism score of +30% on quality of life and +22% in the 3rd quarter, the highest so far in 2011, according to the survey conducted by pollster Social Service Stations (SWS).

The Philippines remained well behind most of its Asian neighbors.

Philippine Alert December 2011 18 ECONOMY

The more updated Consumer Expectations Survey (CES) of the Bangko Sentral ng Pilipinas (BSP) also indicated a steady quarter- to-quarter uptrend in the consumer confi dence index for the next 12 months, reaching a high of 14.6% in the 4th quarter. This means an increasing proportion of consumers see better times ahead in terms of jobs, salaries, prices and investments vs. a decreasing percentage of those who fear worse times ahead. But almost similar to the trend in SWS fi gures, the indices posted in the 2nd half of 2010 were much higher at 33.4% in 3Q10 and 26.9% in 4Q10. And although the consumer confi dence index for the current quarter improved to the year’s high of -18.7% in the 3rd quarter (the minus sign means more people perceived a worsening of family and economic conditions than those who experienced an improvement), it deteriorated again to -20.6% in 4Q11. The results were also better in the 2nd half of 2010 at -14% in 3Q10 and -8.5 in 4Q10. For the CES, the BSP interviewed 5,000 households nationwide on October 3-14, 2011. Both surveys showed a slippage in household confi dence from 2010, but the numbers in 2011, specifically for expectations over the next 12 months, were still in the “high” territory. In short, confi dence is still high although declining.

PH not likely to meet many MDGs

The Philippines almost certainly will not achieve many of the Millennium Development Goals (MDGs) by the 2015 deadline. With only 3 years left before the expiration of the 15-year timeframe, the country is only poised to meet 2 of the 8 goals, and is as much as 19 years behind attainment of the targets.

The Millennium Development Goals (MDGs) are Respondents in the 3rd quarter SWS survey who expected time-bound goals seeking to eliminate extreme poverty the quality of life to improve over the next 12 months reached worldwide. It was established through the United Nations 39% in the 3rd quarter (September survey), up from 36% in the (UN) Millennium Declaration signed by the UN’s 189 2Q11 (June) and 35% in 1Q11 (March). Those who thought it member-states in September 2000. The MDGs are 8 would worsen tallied at 9%, unchanged from 2Q11 but down goals, with 22 quantitative targets and 60 indicators, to from 11% in 1Q11. The net optimism score of +30% (optimists be achieved by signatories within the 15-year timeframe. less pessimists) was an improvement over +27% in 2Q11 and As a signatory to the Millennium Declaration, the Philippines +24% in 1Q11. But it was still lower than the scores on quality is committed to meet the MDGs by 2015. At present, however, the of life expectations posted over the last 3 quarters of 2010. country is on its way to meeting only 2 out of the 8 MDGs. These Respondents who believed in better economic prospects are 1) promotion of gender equality, and 2) reduction of child over the next 12 months advanced to 35% in 3Q11 from 29% mortality. Data show that the country has the highest probability in 2Q11 and 27% in 1Q11. Those who see it deteriorating of eliminating gender disparity in primary education. The ratio retreated to 14% from 16% and 24%. Hence, the net optimism of boys to girls in primary education is 0.9 as of 2008, just a score on economic prospects rose to +22% in the 3rd quarter notch away from the target ratio of 1.0. In terms of reducing child from +14% in the 2nd quarter and +4% in the 1st quarter. Again, mortality, the Philippines has made signifi cant headway: under-5 the numbers during the last 3 quarters of 2010 were better. mortality rate slipped to 33.5% from 80% in 1990, while infant Meanwhile, respondents who said their quality of life mortality has gone down to 24.9% from 57%. Target under-5 improved over the past 12 months (“gainers”) were recorded mortality rate is 26.7%, while that of infant mortality is 19%. at 26%, while those who felt a worsening (“losers”) were 32%, UN resident coordinator Dr. Jacqueline Badcock has, for a net gain of -6% in September, up from -11% in June meanwhile, said that there are 2 goals that the country is least and -14% in March. This was, however, lower than the -2% likely to achieve, namely: 1) universal primary education, in September 2010 and -5% in November (4th quarter) 2010. and 2) improved maternal health. Latest data indicate that The SWS survey was conducted on September 4-7 using net enrolment ratio in primary education was only 85.1% in face-to-face interviews with 1,200 adult respondents nationwide. 2008 compared to the baseline ratio of 84.6% as of 1990, refl ecting slow progress in goal achievement. This dismal pace

Philippine Alert December 2011 ECONOMY 19

PHILIPPINE MDG PROGRESS TIME DISTANCE IN PROBABILITY OF QUALITATIVE TARGETS ACHIEVING TARGET ATTAINING THE TARGET (IN YEARS)

GOAL 1: ERADICATE EXTREME POVERTY AND HUNGER MEDIUM

1. Halving the proportion of population below national poverty threshold -8.4 2. Halving the poverty gap ratio 15.0 3. Halving the prevalence of underweight children 5 years of age -6.0 4. Halving the percent of household with per capita intake below 100% adequacy -10.6 5. Halving the proportion of population below national food threshold -1.3 Goal 2: Achieve universal primary education LOW

6. Increasing the net enrolment ratio in primary education to 100% -17.2 7. Increasing the proportion of pupils starting grade 1 who reach grade 6 to 100% -8.5 8. Increasing the primary -10.2 completion rate to 100% 9. Increasing the literacy rate of 15 to 24 year olds to 100% -9.1

GOAL 3: PROMOTE GENDER EQUALITY AND EMPOWER WOMEN HIGH

GOAL 4: REDUCE CHILD MORTALITY HIGH

10. Reducing the under-5 mortality rate by 2/3 -3.5 11. Reducing the infant mortality rate by 2/3 -3.9 12. Increasing the proportion of 1-year-old children immunized against measles to 100% -16.6

GOAL 5: IMPROVE MATERNAL HEALTH LOW

13. Increasing the proportion of births attended by skilled health personnel to 100% -8.8 14. Increasing contraceptive prevalence rate to 100% -11.1

GOAL 6: COMBAT HIV/AIDS, MALARIA, AND OTHER DISEASES LOW

15. Eliminating prevalence associated with malaria 4.2 16. Eliminating death rate associated with malaria 5.4 17. Eliminating prevalence associated with tuberculosis -18.8 18. Eliminating death rate associated with tuberculosis -10.0 19. Increasing proportion of tuberculosis cases detected under directly observed treatment short course 8.7 (DOTS) to 70% 20. Increasing proportion of tuberculosis cases cured under DOTS to 85% 0.0 21. Proportion of families with access to safe water supply 2.6 22. Proportion of families with access to sanitary toilet facilities 15.0

GOAL 7: ENSURE ENVIRONMENTAL SUSTAINABILITY MEDIUM

GOAL 8: DEVELOP A GLOBAL PARTNERSHIP FOR DEVELOPMENT -NO DATA-

Sources: National Statistical Coordination Board, 2010 Philippines Progress Report on the Millenium Development Goals, United Nations Development Programme

INCIDENCE OF TUBERCULOSIS TIME DISTANCE PROGRESS LEVEL QUANTITATIVE TARGET BASELINE (2001) TARGET (2015) MEASURE (2008) Proportion of tuberculosis (TB) cases detected under Time Lead 8.7 years 53.0% 70.0% 72.0% directly observed treatment short course (DOTS) Proportion of TB cases cured under DOTS On Track 0.0 years 73.0% 85.0% 79.0% Prevalence associated with tuberculosis 246.0 Time Lag -18.8 years 0.0 273.1 (number of cases of TB per 100,000 population) (1990) Sources: National Statistical Coordination Board

Philippine Alert December 2011 20 ECONOMY

The country is on its way to meeting only 2 out of the 8 MDGs.

of progress during the 11-year implementation of the MDG In view of the approaching expiration of the 15-year is compounded by the fact that the target ratio is 100%. As to timeframe, Dr. Badcock has called on the government to maternal health, progress is also at a snail’s pace with maternal address the bottlenecks confronting the country in working mortality ratio to total female mortality at 163 deaths from a towards MDG achievement. She urged the government to baseline of 207 deaths and against a target of 52 deaths (see devise an action plan to identify and effectively respond to the MDG Progress table for the progress level in all 8 MDGs). bottlenecks, reminding that greater scrutiny must be afforded Each MDG has specifi c targets. Here, the poor performance to MDGs with low to medium probabilities of being achieved. of the country is further emphasized. The Philippines is behind While realizing that the Philippines may not meet all 8 schedule in meeting 15 of the 22 targets by at least 1.3 years MDGs by 2015, Dr. Badcock has nonetheless urged the country (halving the proportion of the population below the food to keep the intent of the MDGs and to exert its best efforts threshold); and at most by 18.8 years (eliminating the prevalence on achieving these. She said that “to expect everybody to of tuberculosis cases). Moreover, the few gains the country have dotted the last line by 2015 is not the aim of the MDG.” managed to accomplish (see highlighted targets in MDG Progress Instead, she claims, the objective of the MDGs is the crafting table) tend to be counteracted by inadequate performance in other of the strategies that could ensure sustainable development. targets. For example, the positive performance in the detection “If that is not achieved entirely by 2015, you don’t stop. and cure of TB cases is weakened by the worsening prevalence of You keep going and you fi nd other ways to accelerate.” the disease in the Philippines (see tuberculosis incidence table).

Philippine Alert December 2011 ECONOMIC INDICATORS 21

INFLATION RATE (%), 2006 = 100 DECEMBER INFLATION AT 4.2%

The annual headline infl ation rate decelerated to 4.2% in December from 4.8% in Food and Non- Alcoholic Beverages Clothing November reaching an average of 4.4% for the year 2011. The annual uptick in food Alcoholic Beverages and Tobacco and Footwear and non-alcoholic beverages index improved to 4.1% from 4.8%, while the housing, 2011 2010 2011 2010 2011 2010 water, electricity, gas, and other fuels index improved to 5.1% from 5.7%. Infl ation rate in the National Capital Region (NCR) slowed down to 3% from 3.5%. As for the Jan. 4.9 - 2.9 - 3.0 - Areas Outside the National Capital Region (AONCR), annual price hike also decelerated Feb. 6.0 - 4.0 - 3.2 - to 4.5% from 5.1%. March 6.2 - 4.6 - 3.5 - April 6.2 - 4.9 - 3.4 - May 6.2 - 5.3 - 3.6 - PRICE INDICES June 6.0 3.5 5.9 2.8 3.9 2.4 by commodity July 5.7 3.9 6.0 2.7 4.2 2.5 CPI WHOLESALE RETAIL Aug. 5.1 4.5 6.3 2.6 3.8 3.0 (2000 = 100) (1998 = 100) (1978 = 100) Sept. 5.1 4.3 6.1 2.7 3.9 3.0 2011 2010 2011 2010 2011 2010 Oct. 5.7 3.6 6.2 2.6 3.9 2.9 Jan. 123.3 118.5 220.7 206.2 151.4 146.5 Nov. 4.8 3.9 6.3 2.6 4.0 3.0 Feb. 124.7 119.0 225.4 206.1 152.2 146.1 Dec. 4.1 3.9 6.0 2.6 3.7 3.3 March 125.0 119.3 228.2 206.7 152.1 145.9 April 125.6 120.0 232.1 207.5 153.7 146.3 May 125.9 119.8 229.0 206.1 152.4 146.4 INFLATION RATE June 126.5 120.2 227.9 205.5 152.4 146.8 Furnishing, July 126.6 120.5 226.5 204.3 152.6 146.8 Housing, Water, Household Aug. 126.7 121.0 224.4 205.3 152.5 147.2 Electricity, Gas and Equipment and Health Other Fuels Routine Maintenance Sept. 126.8 121.0 226.0 204.5 152.9 147.5 of the House Oct. 127.3 121.0 226.7 206.8 154.0 148.4 2011 2010 2011 2010 2011 2010 Nov. 127.8 122.0 212.2 154.0 149.8 Jan. 5.0 - 2.2 - 3.1 - Dec. 127.6 122.5 215.1 150.2 Feb. 5.1 - 2.5 - 2.9 -

INFLATION RATE March 4.7 - 2.5 - 3.3 - April 3.9 - 2.4 - 3.2 - Philippines Metro Manila Outside MM May 5.1 - 2.5 - 3.7 - 2011 2010 2011 2010 2011 2010 June 5.9 5.6 2.5 2.5 3.5 3.8 Jan. 4.1 - 3.9 - 4.0 - July 5.4 5.4 2.5 2.7 3.3 3.8 Feb. 4.8 - 4.6 - 4.7 - Aug. 5.1 6.0 2.6 2.5 3.3 3.7 March 4.8 - 3.9 - 5.1 - Sept. 5.7 5.0 2.6 2.5 3.5 3.6 April 4.7 - 3.3 - 5.1 - Oct. 6.5 4.2 2.5 2.6 3.4 3.5 May 5.1 - 4.4 - 5.2 - Nov. 5.7 5.3 2.3 2.5 3.1 3.8 June 5.2 3.6 4.7 3.5 5.4 3.7 Dec. 5.1 5.0 2.5 2.5 3.0 3.8 July 5.1 3.7 4.0 3.8 5.3 3.7 Aug. 4.7 4.0 3.3 4.5 5.1 4.0 Sept. 4.8 3.8 4.2 3.5 5.0 3.9 INFLATION RATE Oct. 5.2 3.3 4.9 2.5 5.3 3.6 Recreation Nov. 4.8 3.7 3.5 4.1 5.1 3.5 Transport Communication and Culture Dec. 4.2 3.6 3.0 4.0 4.5 3.5 2011 2010 2011 2010 2011 2010 INFLATION RATE Jan. 2.5 - 0.1 - 1.1 -

Restaurants and Feb. 4.8 - -0.1 - 0.9 - Education Miscellaneous Goods March 5.3 - -0.2 - 1.1 - and Services April 6.3 - -0.2 - 1.0 - 2011 2010 2011 2010 May 6.6 - -0.2 - 1.1 - Jan. 4.1 - 2.1 - June 6.8 2.8 -0.3 -0.9 1.6 0.6 Feb. 4.2 - 2.4 - July 6.8 2.7 -0.3 -0.9 1.6 0.7 March 4.3 - 2.8 - Aug. 6.9 2.2 -0.4 -0.7 1.5 0.7 April 4.2 - 2.4 - Sept. 7.1 1.9 -0.4 -1.2 1.6 0.5 May 4.3 - 2.8 - Oct. 6.7 2.7 -0.4 -1.2 1.7 0.6 June 5.1 4.5 3.0 2.7 Nov. 6.6 2.5 -0.3 -1.3 1.8 0.6 July 5.2 4.6 2.9 2.7 Dec. 6.0 2.1 -0.4 -1.1 1.8 0.5 Aug. 5.1 4.6 3.2 2.6 Sept. 5.1 4.6 3.2 2.4 Oct. 5.1 4.6 3.1 2.4 Nov. 4.7 4.9 3.3 2.2 Dec. 4.7 4.5 3.2 2.3 Philippine Alert December 2011 22 ECONOMIC INDICATORS

Gross Peso-Dollar Treasury Bill Rate International Exchange rate 91-day, WAIR in Reserve Period Ave. percent (US$B) PESO AVERAGES P43.65:$1 IN DECEMBER (US$B) 2011 2010 2011 2010 2011 2010 The peso market continued to be volatile as it averaged P43.65:$1 in December from P43.27:$1 in November. The highest close for the month was P44.24:$1. Market volatility Jan. 63.54 45.59 44.17 46.03 0.70 3.91 begun in the second half of 2011 after the credit downgrade of the U.S. economy and the risk aversion that emanated from the debt problems in Europe. However, the Feb. 63.89 45.76 43.70 46.31 1.66 3.93 peso’s annual cumulative volatility dropped to 0.524% from 1.112% where peso stood March 65.98 45.60 43.52 45.74 1.08 3.88 stronger against the dollar as it averaged P43.31:$1 in 2011 from P45.11:$1 last year. Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo expects the April 68.49 46.94 43.24 44.63 0.79 3.84 peso to remain stable despite the slowing global economy and reconfi rms that the BSP is maintaining its assumption of a P42-P45: $1 exchange rate for 2012. May 68.85 47.69 43.13 45.60 1.10 3.85

June 69.00 48.70 43.37 46.30 2.68 3.92

July 71.88 49.05 42.82 46.32 2.40 3.97 Php: US$ EXCHANGE RATE GROSS INT'L RESERVES -40 Aug. 75.94 49.91 42.42 45.18 1.53 3.95 80

Sept. 75.17 53.75 43.03 44.31 0.56 3.97 70

Oct. 75.83 56.61 43.45 43.44 - 3.74 60

Nov. 76.21 60.57 43.27 43.49 0.94 2.44 50

Dec. 75.14 62.37 43.65 43.65 1.56 0.78 40

-50 30 '9F A J A O D'10M M J S N '11M M J S D J'09M M J S NJ'10M M J S NJ'11M M J S ND

BSP REFERENCE RATES 91-DAY T-BILL AVERAGE UP AT 1.56% IN DECEMBER Peso equivalent per unit of foreign currency as of December 01, 2011 The 91-day Treasury bill reached an average of 1.56% as investors remained wary of Month % Ave. the European debt crisis and its effect on the Philippines economy. There was only ago Change one auction for the month of December where the highest bid for the benchmark T-bill reached 1.63% while the lowest bid was 1.25%. On the other hand, the 182-day Australian dollar 44.83 44.07 1.7 rate also increased to 1.83% from 1.2% last month, while no bids were accepted for Bahrain dinar 115.74 113.02 2.4 the 1-year T-bill. Brunei dollar 33.91 33.36 1.6 Canadian dollar 42.81 41.86 2.3 E.M.U. euro 58.65 58.38 0.5 Hong Kong dollar 5.61 5.49 2.3 91-DAY T-BILL RATE Indonesian rupiah 0.0048 0.0048 - 5 Japanese yen 0.56 0.54 3.4 4 Kuwaiti dinar unquoted unquoted unquoted

3 Saudi Arabian rial 11.63 11.36 2.4 Singaporean dollar 34.04 33.49 1.6 2 Swiss franc 47.77 48.05 (0.6) 1 Thai baht 1.41 1.38 2.3 0 '09M M J S N '10M M J S N '11M M J S ND UAE dirham 11.88 11.60 2.4 UK pound 68.48 67.96 0.8 US dollar 43.63 42.61 2.4 Others ( not convertible with BSP ) Argentinian austral 10.20 10.07 1.3 Brazilian real 24.18 24.48 (1.2) Indian rupee 0.84 0.86 (3.2) Korean won 0.04 0.04 0.8 Malaysian ringgit 13.73 13.67 0.5 Mexican new peso 3.20 3.13 2.3 New Zealand dollar 33.92 33.84 0.2 Norwegian kroner 7.56 7.53 0.4 Pakistani rupee 0.49 0.50 (0.7) South African rand 5.38 5.28 2.0 Swedish kroner 6.45 6.45 0.1 Syrian pound 0.87 0.86 1.9 Taiwanese nt dollar 1.44 1.42 1.6 Venezuelan bolivar * 10.17 9.93 2.4

* Effective 01 Jan. 2008 Venezuela’s offi cial exchanre rate was changed to 2.15 bolivars per dollar tyo 2,150 per dollar Philippine Alert December 2011 ECONOMIC INDICATORS 23

BALANCE OF PAYMENTS SELECTED INTEREST RATES Average 2 Weeks Ago JJanuaryanuary - September 2011 (in US$ million) Peso Deposit Rates (December 26-29, 2011 ) Growth Saving Deposits 0.10 0.10 2011 2010 rate (%) Time Deposits Current Account 5,058 3,351 50.9 below 1 year 3.01 3.11 Goods and Services (8,096) (4,401) 84.0 1 - 2 years 3.78 4.55 Export 48,216 30,331 59.0 Over 2 years 1.84 3.16 Import 56,312 34,732 62.1 Dollar Deposit Rates ( December 26-29, 2011 ) Goods (10,714) (5,945) 80.2 Saving Deposits 0.31 0.30 Credit: Exports 36,584 23,330 56.8 Time Deposits Debit : Imports 47,298 29,275 61.6 60 days and below 0.83 0.84 Services 2,618 1,544 69.6 61-90 Days 0.92 0.93 Credit: Exports 11,632 7,001 66.1 91-180 Days 1 1.01 Debit : Imports 9,014 5,457 65.2 181 days and above 1.19 1.19 Income 363 (278) -230.6 Bank Lending Rates ( December 26-29, 2011 ) Credit: Receipts 5,148 2,903 77.3 All Maturities 6.72 6.77 Debit : Disbursments 4,785 3,181 50.4 High 7.83 7.87 Current Transfers 12,790 8,030 59.3 Low 5.64 5.67 Credit: Receipts 13,445 8,426 59.6 Treasury Bill Primary Rates ( December 12, 2011 ) Debit : Disbursments 655 396 65.4 91 days 1.556 N.I. CAPITAL AND FINANCIAL ACCOUNT 5,080 309 1544.0 182 days 1.830 N.I. Capital Account 106 51 107.8 364 days N.I. N.I. Credit: Receipts 167 86 94.2 Money Market Rates ( December 26-29, 2011 ) Debit : Disbursments 61 35 74.3 Promissory Note 4.25 4.75 Financial Account 4,974 258 1827.9 Commercial Papers w/o recourse N.T. N.T. Direct Investment 699 332 110.5 Manila Reference Rates ( December 26-29, 2011 ) Debit: Assets, Residents Investment (28) 337 -108.3 MRR 60 3.75 3.75 abroad MRR 90 6.63 6.69 Credit : Liabilities, Non-residents 671 669 0.3 Investment in the Phil MRR 180 6.75 6.75 GOVERNMENT FISCAL PERFORMANCE Portfolio Investment 5,622 (662) -949.2 JAN. TO SEPT. 2011 Data Year-Ago Growth rate Debit: Assets, Residents Investment (595) 1,974 -130.1 (in PM) (in PM) (%) abroad I. Revenues 1,017,088 894,716 0.0% Credit : Liabilities, Non-residents 5,027 1,312 283.2 Tax Revenues 891,360 807,788 10.3% Investment in the Phil Non-Tax Revenues 125,728 86,928 44.6% Other Investment (2,264) 654 -446.2 Debit: Assets, Residents Investment Grants 50 371 -86.5% 3,268 1,705 91.7 abroad II. Expenditures 1,070,082 1,154,504 -7.3% Credit : Liabilities, Non-residents 1,004 2,359 -57.4 III. Surplus/Defi cit -52,994 -259,788 79.6% Investment in the Phil IV. Financing 9,728 309,507 -96.9% NET UNCLASSIFIED ITEMS (410) (523) -21.6 Domestic Financing -50,622 206,331 124.5% OVERALL BOP POSITION 9,721 3,137 209.9 Foreign Financing 60,350 103,176 -41.5% V. Change-in-Cash 11,900 68,628 82.7%

TOTAL EXTERNAL DEBT Data Year-Ago Growth JUNE 2011 (in $M) (In $M) rate (%) By Type of Debt 61,424 60,048 2.3%

Medium and Long-term 54,268 53,753 1.0%

Short-Term 7,156 6,295 13.7% CURRENT ACCOUNT By Borrower 61,424 60,048 2.3% BALANCE OF PAYMENTS

Banking System 9,378 8,186 14.6%

Public Sector 42,035 41,542 1.2%

Private Sector 10,011 10,320 -3.0%

By Institutional Creditor 61,424 60,048 2.3%

Banks & Other Financial Institutions 8,197 7,183 14.1%

Suppliers 3,105 3,236 -4.0%

Multilateral 10,876 10,908 -0.3%

IBRD 2,615 2,583 1.2%

IMF 00

ADB 5,785 5,879 -1.6%

Bilateral 15,702 15,888 -1.2%

Bondholders/Noteholders 22,683 21,861 3.8%

Others 860 972 -11.5% Philippine Alert December 2011 24 ECONOMIC INDICATORS

MERCHANDISE IMPORTS January - September 2011 in US$ million 2011 2010 % Change TOTAL TRADE STANDS AT $91.81Bn for 1st 10 mos. of 2011 CAPITAL GOODS 11,265 6,615 70.3

Total merchandise trade for the January to October 2011 period reached $91.815 Telecom eqpmt & elec’s eqpmt 5,674 3,477 63.2 billion. When compared to year-ago levels, imports grew while exports fell by 12.2% and -4.3%, respectively. The trade defi cit stood at $9.23 billion. Power generating & spec’d eqpmt 2,580 1,171 120.4

For the month of October, exports expanded by 4.9%. Top export Electronic products Offi ce and EDP machine 1,376 1,116 23.3 registered a decrease by 36.5%, with the main product category Components/Devices Transport 428 621 (31.1) (Semiconductors) posting a -38.6% annual growth. Woodcrafts and Furniture registered a 76.5% increase while Articles of Apparel and Clothing Accessories increased by 18.9%. Others 415 230 80.5 Imports, on the other hand, incurred 1.1% decrease from $5.076 billion in September 2011. Electronic products emerged as the leading import but it decreased by 19.9%. RAW MATERIALS & INTER. GOODS 19,196 7,825 145.3 The second top import, Mineral Fuels, Lubricants and Related Materials, increased by 28.4% while Transport Equipment decreased by 9.1%. Semi-processed raw materials 17,279 6,880 151.2 Unprocessed raw materials 1,916 946 102.6

MINERALS, FUELS & LUBRICANTS 9,182 4,042 127.1

Crude petroleum 5,819 2,270 156.3 FOREIGN TRADE 6000 Others 2,921 1,610 81.4 IMPORTS EXPORTS CONSUMER GOODS 5,277 3,313 59.3 5000 Non-durable 2,917 2,212 31.9

4000 Durable 2,359 1,101 114.3

3000 SPECIAL TRANSACTION 640 332 92.7 TOTAL IMPORTS 45,560 22,128 105.9 2000 '09 M M J S N '10 M M J S N '11 M J A

MERCHANDISE EXPORTS January - September 2011 in US$ million 2011 2010 Growth rate %

Total Agro-Based Products 3,015 1,072 181.2 Coconut Products 1,443 566 154.7 Sugar and Products 228 34 571.4 MERCHANDISE BALANCE OF TRADE (in US$ million) Fruit and Vegetables 725 229 216.5 Fish, Fresh or Preserved of which: Exports Imports Surplus/(Defi cit) 261 123 112.2 shrimps and prawn 2011 2010 2011 2010 2011 2010 Forest Products 32 13 142.6 Jan. 4,000 3,579 5,302 4,287 (1,302) (708) Mineral Products 2,043 660 209.6 Feb. 3,865 3,570 4,761 3,904 (896) (334) Copper Metal 970 280 246.6

March 4,353 4,182 5,549 4,556 (1,196) (374) Petroleum Products 533 127 320.2

April 4,302 3,595 5,497 4,568 (1,195) (974) Manufactures 30,292 16,658 81.8 Electronic Products 18,591 11,268 65.0 May 4,108 4,241 4,888 4,812 (780) (570) Garments 1,443 655 120.2 June 4,127 4,555 4,503 4,213 (376) 342 Textile Yarns / Fabrics 135 64 109.8 July 4,429 4,505 4,999 4,679 (570) (174) Furniture & Fixtures 125 61 103.7 Aug. 4,123 4,759 4,925 4,452 (803) 307 Chemicals 1,420 610 132.7 Sept. 3,876 5,325 5,134 4,573 (1,258) 751 Machinery & Transport Equipment 2,255 1,105 104.2 Oct. - 4,776 - 4,890 - (114) Iron and Steel 153 76 100.0 Nov. - 4,146 - 4,944 - (798) TOTAL EXPORTS 37,185 19,167 94.0 Dec. - 4,201 - 4,949 - (748)

Philippine Alert December 2011 ECONOMIC INDICATORS 25

NATIONAL ACCOUNTS PERCENTAGE DISTRIBUTION OF TOTAL FAMILY EXPENDITURE 3rd QUARTER 2011 By major expenditure group Year-ago Year-on- Data level year growth NATIONAL ACCOUNTS In PB In PB 10-11 EXPENDITURE GROUP 2009 2006 GROSS NATIONAL INCOME Percent 100.0 100.0 (at constant prices) 1,856.9 1,828.5 1.6% Food 42.6 41.4 (at current prices) 3,088.5 2,921.0 5.7% Alcoholic Beverages 0.7 0.7 GROSS DOMESTIC PRODUCT (at constant prices) 1,423.8 1,380.2 3.2% Tobacco 0.8 0.9 (at current prices) 2,348.2 2,177.5 7.8% Fuel, Light and Water 7.1 7.6 GNP (at constant prices) by Expenditure Shares Transportation & Communication 7.7 8.2 1. Household Final Consumption Expenditure 988.0 922.6 7.1% a. Food and Non-alcoholic beverages 426.4 385.1 10.7% Household Operation 2.3 2.3 b. Alcoholic beverages, Tobacco 13.9 14.6 -4.5% Personal Care and Effects 3.8 3.7 c. Clothing and Footwear 16.7 16.6 0.2% Clothing Footwear & Other Wear 2.2 2.4 d. Housing, water, electricity, gas and 105.5 107.6 -2.0% other fuels Education 4.3 4.4 e. Furnishing, household equipment and 53.3 49.4 8.0% routine household maintenance Recreation 0.4 0.5 f. Health 24.4 23.6 3.6% Medical Care 2.9 2.9 g. Transport 75.3 77.1 -2.4% Non-Durable Furnishing 0.2 0.2 h. Communication 45.9 44.2 4.0% Durable Furniture and Equipment 2.7 2.7 i. Recreation and Culture 19.5 19.8 -1.3% j. Education 36 31 13.4% Rent/Rental Value of Dwelling Unit 12.8 12.7 k. Restaurants and Hotels 42 39 8.0% House Maintenance and Minor Repairs 0.6 0.6 l. Miscellaneous goods and services 129 114 13.2% Taxes Paid 2.0 1.6 2. Government Final Consumption 140.6 128.5 9.4% Expenditure Special Family Occasions 2.7 2.8 3. Capital Formation 299.4 240.4 24.5% Gifts and Contributions to others 1.4 1.4 4. Exports 726.0 835.2 -13.1% 5. Imports 744.4 740.7 0.5% Other Expenditure 2.9 3.0 GNP (at constant prices) by Industrial Origin Other Expenditures 2.9 2.9 1. Agriculture 151.8 149.2 1.8% TOTAL FAMILY EXPENDITURES 3,239 2,561 2. Industry Sector 446.3 447.1 -0.2% a. Mning & Quarrying 13.6 13.4 1.1% Source: Family Income & Expenditure Survey (FIES) Final Results 04 February 2009 b. Manufacturing 308.9 299.7 3.1% c. Construction 69.4 79.0 -12.2% d. Electricity, Gas and Water 54.4 54.9 -1.0% 3. Service Sector 825.6 784.0 5.3% a. Transport., Comm., Stor 99.1 94.5 4.9% b. Trade, Repair of Motor Vehicles, UNEMPLOYMENT AND 253.9 244.7 3.8% Motorcycle & Household Goods UNDEREMPLOYMENT RATES

c. Financial Intermediation 96.0 92.7 3.6% 30 10 UNDEREMPLOYMENT d. Real Estate, Renting & Business 161.8 150.3 7.6% UNEMPLOYMENT Activities 25 e. Public Administration & Defense: 66.8 63.4 5.4% Compulsory Social Security 20

f. Other Services 148.0 138.4 7.0% 15 8

LABOR AND EMPLOYMENT 10 (New Defi nition) 2010 2011 5

0 6 Apr July Oct Jan Apr Jul '06A J O'07A J O'08A J O'09A J O'10A J O'11A Total labor force 38,517 38,933 39,270 39,196 39,661 39,901 Labor force participation (%) 63.6 63.9 64.2 63.7 64.2 64.3 Employment (%) 92.0 93.0 92.9 92.6 92.8 92.9 Unemployment (%) 8.0 7.0 7.1 7.4 7.2 7.1 OFW DEPLOYMENT Underemployment (%) 17.8 17.9 19.6 19.4 19.4 19.1 hires and rehires 1500

1200

900

600

300

0 '2004 '2005 '2006 '2007 '2008 '2009 '2010

Philippine Alert December 2011 26 philippine regional update

NCR – NATIONAL CAPITAL REGION (METRO MANILA)

Manila Bay clean-up launched The Department of the Interior and Local Government (DILG) launched “One Day One Bay” in November. It is a campaign aimed at reducing pollution in the bay and river systems linked to it by half and to increase vegetation by 25% within 4 years. Metro Manila local governments, led by the city of Manila, will conduct the operations. Which involves the collection of at least 100 trucks of garbage from the bay to be disposed of properly at least once a month in coordination with the Department of Public Works and Highways (DPWH) and the Metropolitan Manila Development Authority (MMDA).

Manila 128th in quality of living Manila was ranked 128th out of 221 cities in the 2011 Quality of Living survey of human resource consultancy Mercer LLC, unchanged from last year. The survey ranked cities based on 39 indicators grouped into 10 categories, including political and social environment, economic conditions, health and sanitation, schools and education, public services and transportation, recreation and housing. Scores were benchmarked to New York City, which was assigned 100 points. In Asia, Singapore (25th), Tokyo (46th), Hong Kong (70th), Kuala Lumpur (76th) and Taipei (85th) led the list. Manila was also outranked by Beijing (109th), Guangzhou (119th) and Bangkok (121st). But it ranked higher than Shenzen (132nd), Nanjing (134th), Jakarta (140th), Bangalore (141st), New Delhi (143rd), Mumbai (144th), Hanoi (147th), Ho Chi Minh City (149th), Riyadh (157th) and Jeddah (159th). Topping the global list were Vienna, Zurich, Dusseldorf, Vancouver, Frankfurt, Geneva, Bern and Copenhagen.

CAR – CORDILLERA ADMINISTRATIVE REGION

Philex supports coffee growing in Padcal Philex Mining Corp. will plant coffee covering 2,000 hectares of its exploration area in Padcal district in Baguio City as part of its sustainable livelihood program. The program’s goal is to keep the mining community economically viable even with the inevitable closure of the mine site once its ore deposits are exhausted in a few years’ time. Although yields from demonstration farms planted to Robusta and Arabica coffee varieties are still low, experts believe this can be raised by 4-5 times with the use of new technology.

Region III – CENTRAL LUZON

5 major projects in Clark in 2012 Clark Development Corp. (CDC) announced the launching of 5 major projects in the Freeport zone in 2012. These projects are the P7-billion mixed-use property development (which includes a retirement village) on a 550-hectare area of Megaworld Corp.; the Clark Sports Training Amusement and Recreation (STAR) area at the Clark Highlands; the Clark Highlands itself, a 10,684-hectare property development project consisting of IT parks, light industrial, agro-industrial and tourism/leisure parks; a $200-million tourism project of Korea’s Donggwang Clark Corporation; and the CDC Corporate Building.

Casino-hotel to rise in Clark airport complex EagleSky Technology and Amusement and Gaming Inc. (ESTAG) held a ground-breaking ceremony for its casino and hotel project inside the Clark international airport complex in late November. The P900-million, 6-storey building project will house a luxury airport hotel, an entertainment complex and an information technology hub.

Manila-Clark railway project study in 2012 The feasibility study on the Manila-Clark express railway line will be conducted in early 2012, according to a Department of Public Works and Highways offi cial. Approval for the project, however, would have to come from the Department of Transportation and Communications (DOTC), which owns the rights to the rail tracks. Once approved by the DOTC, it has to be reviewed by the National Economic and Development Authority (NEDA). The DPWH, nonetheless, believes the project can be implemented in 2012.

Philippine Alert December 2011 philippine regional update 27

Region IV – SOUTHERN TAGALOG

Region IV-A – CALABARZON

Gardenia expanding Gardenia Bakeries (Philippines), Inc. (GBPI) is spending P700 million for its 4th bakery facility, to be constructed beside its existing Laguna plant, to meet rising domestic demand for loaf and other pastries. It will be completed in 2012. The new facility will have a capacity of 150,000 bread loaves per day, increasing production in the Laguna plant by 50%. Gardenia accounts for slightly over half of the Philippine bread market, with sales expected to reach P3 billion by end-2011, up 20% from the previous year.

New Epson plant starts operations Pres. Benigno Aquino III led the inauguration of Epson Precision Philippines Inc.’s new production facility in Lipa City, Batangas in early December. The P4.5-billion new factory will produce 3LCD projectors and inkjet printers for export worldwide.

Region IV-B – MIMAROPA

Puerto Princesa underground river in 7 Wonders list The Puerto Princesa Underground River (PPUR) made it to the list of the New 7 Wonders of Nature global poll conducted by Switzerland-based New7Wonders Foundation based on the announcement of provisional winners on Nov. 12. Final announcement will be made in early 2012, but Puerto Princesa Mayor Edward Hagedorn is confi dent it will remain on the list. PPUR is an awe- inspiring 8.2-kilometer subterranean river that winds through cathedral-like caverns and stalactites and stalagmites before fl owing directly into the sea. The 6 other winners are Argentina’s Iguazu Falls, South Korea’s Jeju Island, Indonesia’s Komodo Island, Vietnam’s Halong Bay, South America’s Amazon rainforest and South Africa’s Table Mountain. The campaign to choose the world’s natural wonders started in 2007 with 440 locations in 220 countries. This was eventually cut into 28 fi nalists last year. Puerto Princesa offi cials expect a boost in tourism as a result of the inclusion of PPUR in the new 7 wonders.

Mindoro island power plant now in place The 6.4-megawatt bunker fuel-based power facility in the island grid of Mindoro started commercial operations in November. Owned and operated by Ormin Power Inc. (OPI), a subsidiary of publicly-listed Jolliville Holdings Corp., the project was largely fi nanced by a P276-million loan from the Development Bank of the Philippines (DBP). Mindoro Island is being envisaged by system grid operator National Grid Corporation of the Philippines (NGCP) to be eventually connected to the main Luzon grid so it can get its supply of power from other Luzon providers at competitive prices.

Cadlao fi eld to be redeveloped The Cadlao oil fi eld in Northwest Palawan, which was plugged in 1991, will be redeveloped for possible production in 2012. The oil fi eld produced up to 11 million barrels in the 1980’s before it was closed down in 1991. With the recent rise in oil prices, it has become economically viable to revive marginal oil fi elds such as Cadlao. A consortium led by Australia-based Blade Petroleum Philippines Ltd., which has 80% equity interest in Service Contract (SC) 6, is now developing the fi eld. The other 20% is owned by VenturOil.

Region VII – CENTRAL VISAYAS

Megaworld builds 2nd IT park in Cebu City Megaworld Corp. will open its second IT Park in January. It is located on a 16-hectare property in Lapu Lapu City, near the Mactan Cebu International Airport. The company opened its fi rst IT Park on a 23-hectare property in Cebu City near the Ayala Business Center, attracting call center locators.

Region IX – ZAMBOANGA PENINSULA (WESTERN MINDANAO)

Dipolog City council authorizes legal action vs. Zamboanga province mining ban The Dipolog City council passed a resolution granting the city mayor the authority to fi le a case against the open-pit mining ban imposed by the Zamboanga del Norte provincial government. The city is planning to fi le a petition with the Zamboanga regional trial court questioning the validity of the provincial ban on open-pit mining. The city government is concerned the ban would affect its extraction of sand and gravel used for projects like schoolbuildings. TVI Resource Development (Philippines), Inc, also fi led a case with the Dipolog City court seeking a temporary restraining order (TRO) on the implementation of the ban, citing it is against the provisions of the Local Government Code and the Philippine Mining Act of 1995.

Philippine Alert December 2011 28 philippine regional update

Region XII – SOCCSKSARGEN (CENTRAL MINDANAO)

South Cotabato plans to reduce corn cultivation area The provincial agriculture offi ce (PAO) of South Cotabato plans to reduce its corn cultivation area by 10% due to surplus production of about 50% for 2 straight years, which has resulted in depressed prices for the crop. The province produces 150,000 metric tons of corn annually. To achieve the targeted area reduction, the PAO is convincing corn farmers to shift to other crops, especially high value vegetables like asparagus, caulifl ower, broccoli and lettuce.

Coffee buying station to be set up in Sultan Kudarat Nestle Philippines, Inc. is considering the establishment of a coffee buying station in Sultan Kudarat province, according to the provincial offi ce of the Department of Trade and Industry (DTI). Sultan Kudarat has the largest coffee cultivation area in the country at 19,000 hectares. Yield, however, is low at 400 kilograms per hectare vs. 1,000 kilos per hectare in Cavite and other high productivity areas.

ARMM – AUTONOMOUS REGION IN MUSLIM MINDANAO

P2.85Bn for road projects The government is allocating P2.85 billion for road projects in the ARMM, Budget secretary Florencio Abad said. The funds will be released through the Department of Public Works and Highways (DPWH), which will be responsible for the rehabilitation and upgrading of national roads and bridges. Of the amount, P1.25 billion is allotted for maintenance, P1 billion for upgrading of roads, and P500 million for rehabilitation of typhoon-damaged roads.

Philippine Alert December 2011 philippine regional update 29

REGIONAL ECONOMY GRDP REAL GRDP POPULATION PERSONS/ GRDP/CAPITA REGION LAND (PM at current prices) Growth Rate ('000) AREA sq km (P) 2009 2008 2009 2008 2009 2008(sq km) 2009 2008 2009 2008 Philippines 7,678,917 7,409,371 1.1 3.7 92,226 90,458 300,000 307 302 83,262 81,910 Metro Manila 2,813,802 2,740,343 -0.4 4.7 11,403 11,253 636 17,929 17,693 246,760 243,521 Cordillera Administrative 149,450 145,790 2.0 1.7 1,660 1,626 18294 91 89 90,030 89,662 Ilocos Region 215,073 207,409 -1.0 2.0 5,073 4,974 12840 395 387 42,396 41,699 Cagayan Valley 138,872 131,905 1.9 1.7 3,307 3,250 26838 123 121 41,993 40,586 Central Luzon 576,550 571,165 -1.4 3.7 9,964 9,770 18231 547 536 57,863 58,461 Calabarzon 964,823 964,242 -1.6 1.9 11,653 11,403 16692 698 683 82,796 84,560 Mimaropa 802,837 801,842 0.8 3.0 2,941 2,866 29621 99 97 272,981 279,777 Bicol Region 161,986 162,400 8.2 4.1 5,605 5,497 17633 318 312 28,900 29,543 Western Visayas 213,099 189,139 5.9 4.3 7,432 7,290 20223 368 360 28,673 25,945 Central Visayas 543,140 501,234 0.8 3.3 6,891 6,754 14951 461 452 78,819 74,213 Eastern Visayas 518,329 507,397 1.8 3.4 4,359 4,273 21432 203 199 118,910 118,745 Zamboanga Peninsula 173,326 165,220 6.8 2.0 3,419 3,351 15997 214 209 50,695 49,305 Northern Mindanao 186,433 173,368 2.9 5.2 4,260 4,174 28328 150 147 43,764 41,535 Davao 389,624 362,106 5.4 3.7 4,292 4,223 31693 135 133 90,779 85,746 Socksacksargen 367,903 336,953 1.3 4.5 3,992 3,904 14571 274 268 92,160 86,310 Autonomous Region of 258,936 250,923 2.6 1.6 3,474 3,396 11410 304 298 74,535 73,888 Muslim Mindanao CARAGA 103,822 99,806 2.7 2.7 2,501 2,454 18847 133 130 41,512 40,671

RATE OF INFLATION FOR ALL INCOME HOUSEHOLDS IN THE PHILIPPINES BY REGION (2000 = 100) 2010 2011

REGIONS Dec. Ave. Jan. feb. Mar. Apr. May. Jun. Jul. Aug. Sep. Oct. Nov. Dec. Ave. PHILIPPINES 3.6 2.14 4.1 4.8 4.8 4.7 5.1 5.2 5.1 4.7 4.8 5.2 4.8 4.2 4.77 METRO MANILA 4.0 2.16 3.9 4.6 3.9 3.3 4.4 4.7 4.0 3.3 4.2 4.9 3.5 3.0 4.16 AOMM 3.5 2.16 4.0 4.7 5.1 5.1 5.2 5.4 5.3 5.1 5.0 5.3 5.1 4.5 4.94 CAR ------3.2 3.3 3.5 2.7 2.9 3.6 3.3 3.0 - I Ilocos ------4.6 3.9 4.3 3.8 3.8 4.4 3.9 4.1 - II Cagayan Valley ------4.8 4.7 4.5 4.1 3.9 5.5 3.3 2.4 - III Central Luzon ------4.8 5.4 5.4 5.3 5.6 6.4 6.1 5.0 - IV-A Southern Tagalog ------5.1 5.6 5.2 5.0 5.2 5.9 5.5 4.8 - IV-B Southern Tagalog ------6.0 6.0 5.3 5.0 4.7 4.5 4.0 3.6 - V Bicol ------4.5 4.9 4.8 4.8 4.9 4.9 5.3 4.2 - VI Western Visayas ------4.3 4.9 4.4 4.6 4.8 5.0 5.1 4.7 - VII Central Visayas ------5.6 5.1 5.0 4.7 3.5 3.0 3.0 2.8 - VIII Eastern Visayas ------5.1 5.2 5.1 5.0 4.8 4.8 4.5 4.0 - IX Western Mindanao ------6.2 6.3 6.5 6.6 6.1 6.5 6.5 6.3 - X Northern Mindanao ------5.3 5.2 5.5 5.5 5.1 5.5 5.8 6.0 - XI Southern Mindanao ------6.8 6.6 6.6 6.6 6.0 5.5 5.0 4.6 - XII Central Mindanao ------5.8 5.4 5.7 5.1 4.5 4.1 4.2 4.1 - ARMM ------6.3 6.9 6.4 6.7 6.3 6.0 6.1 5.8 - CARAGA ------6.9 7.6 8.2 7.6 6.8 6.8 6.7 6.9 -

Philippine Alert December 2011 30 philippine regional update

FLOOR AREA OF PRIVATE BUILDING CONSTRUCTION (IN '000 SQM) 2010 2011

GROWTH GROWTH 2Q 3Q 4Q TOTAL 1Q 2Q TOTAL RATE RATE Philippines 5,599,500 4,895,478 5,264,579 20,887,071 29.6 5,530,024 5,322,724 10,852,748 111.7 Metro Manila 2,428,413 2,011,289 2,149,026 8,451,567 81.5 2,023,736 1,507,032 3,530,768 89.5 Cordillera CAR 69,167 74,543 58,642 266,629 1.1 66,467 63,435 129,902 102.1 1-Ilocos Region 188,620 186,952 161,681 761,883 (3.2) 237,635 249,844 487,479 117.0 2-Cagayan Valley 91,260 78,137 54,077 293,133 13.9 73,026 89,888 162,914 133.9 3-Central Luzon 424,250 415,978 408,093 1,787,452 (10.8) 554,686 592,948 1,147,634 112.9 4A-Calabarzon 1,020,746 836,552 702,527 3,538,432 26.8 926,501 887,364 1,813,865 85.4 4B-Mimaropa 71,293 91,615 78,754 322,014 68.2 95,840 67,564 163,404 103.4 5-Bicol Region 73,303 67,573 86,044 352,842 0.7 96,082 152,681 248,763 97.6 6-Western Visayas 208,770 184,916 194,292 878,054 21.1 183,943 164,366 348,309 20.1 7-Central Visayas 367,441 338,594 465,696 1,463,847 (10.1) 485,016 914,596 1,399,612 379.1 8-Eastern Visayas 66,728 74,888 74,185 298,863 3.9 104,056 73,747 177,803 114.1 9-Zamboanga Penisula 27,580 29,912 43,242 126,137 (14.9) 45,333 51,542 96,875 281.4 10-Northern Mindanao 143,458 121,324 188,782 575,099 27.3 172,037 130,629 302,666 149.0 11-DAVAO 280,087 214,709 330,645 1,068,873 4.6 311,081 210,542 521,623 114.3 12- SOCCSKSARGEN 75,069 72,942 194,990 416,794 30.8 93,181 91,060 184,241 149.7 CARAGA 59,824 94,076 55,653 261,249 21.7 59,601 74,567 134,168 159.5 ARMM 3,491 0 18,250 22,725 27.8 1,803 919 2,722 176.6

VALUE OF PRIVATE BUILDING CONSTRUCTION (IN ‘000) 2010 2011 GROWTH GROWTH 2Q 3Q 4Q TOTAL 1Q 1Q TOTAL RATE RATE Philippines 49,082,281 46,278,769 47,799,354 190,466,918 37.5 52,771,758 55,668,779 108,440,537 129.2 Metro Manila 25,272,525 24,000,788 23,508,923 96,154,464 82.7 25,145,574 25,168,012 50,313,586 115.3 Cordillera CAR 868,713 616,487 504,367 2,564,348 17.2 572,289 591,104 1,163,393 102.4 1-Ilocos Region 1,378,161 1,507,734 1,173,470 5,767,950 (0.2) 1,803,366 1,807,622 3,610,988 111.3 2-Cagayan Valley 476,350 459,112 401,370 1,829,503 4.8 539,370 714,773 1,254,143 154.6 3-Central Luzon 3,429,923 3,496,313 2,835,813 13,470,702 (2.5) 4,257,161 4,548,155 8,805,316 137.4 4A-Calabarzon 8,080,793 6,347,580 5,373,908 27,608,655 30.0 7,226,370 7,704,940 14,931,310 91.3 4B-Mimaropa 485,402 641,237 453,857 2,077,799 55.4 667,922 1,210,366 1,878,288 277.7 5-Bicol Region 522,312 441,084 528,129 2,270,409 4.7 909,237 976,281 1,885,518 142.1 6-Western Visayas 1,746,691 1,679,809 1,810,761 7,139,886 5.6 2,604,344 1,553,300 4,157,644 118.5 7-Central Visayas 2,650,881 2,474,045 3,352,699 10,762,188 (16.0) 3,335,287 6,661,414 9,996,701 337.6 8-Eastern Visayas 509,969 543,017 580,846 2,162,231 11.4 1,005,071 691,264 1,696,335 221.0 9-Zamboanga Penisula 119,194 234,691 390,383 894,875 (5.2) 224,760 235,247 460,007 205.4 10-Northern Mindanao 823,163 831,376 1,185,066 4,039,907 47.1 1,275,285 1,093,487 2,368,772 97.3 11-DAVAO 1,858,021 1,909,641 3,274,545 8,594,891 (2.3) 2,266,339 1,693,821 3,960,160 155.1 12-SOCCSKSARGEN 517,827 461,689 2,080,635 3,493,479 57.9 621,078 554,880 1,175,958 171.4 CARAGA 325,816 623,320 306,837 1,564,074 22.5 308,242 459,797 768,039 149.3 ARMM 16,540 0 37,745 60,711 (28.8) 10,063 4,316 14,379 123.8

Philippine Alert December 2011 philippine regional update 31

EMPLOYMENT RATE BY REGION (IN%) (New Defi nition) 2010 2011 JAN APR JUL OCT JAN APR JUL OCT PHILIPPINES 92.7 92.0 93.1 92.9 92.6 92.8 92.9 93.6 Metro Manila 89.2 88.2 89.1 87.4 88.0 88.4 89.1 89.6 Cordillera CAR 95.0 94.0 95.0 95.6 94.4 95.0 95.3 95.2 1-Ilocos Region 92.1 90.7 91.9 91.4 90.0 90.2 92.1 93.4 2-Cagayan Valley 97.0 94.9 96.1 97.4 96.9 96.7 97.6 97.2 3-Central Luzon 91.0 90.1 92.0 92.0 92.1 91.7 90.4 91.7 4A-Calabarzon 90.5 89.7 90.6 91.0 90.5 90.0 89.6 91.0 4B-Mimaropa 95.8 96.0 95.6 94.9 95.7 96.0 96.2 96.5 5-Bicol Region 94.9 93.4 94.0 94.2 92.9 93.4 94.6 94.7 6-Western Visayas 94.0 90.3 93.4 93.9 93.5 92.4 94.0 93.6 7-Central Visayas 91.9 91.4 94.0 92.3 91.7 93.8 93.7 93.9 8-Eastern Visayas 93.6 95.9 94.7 93.9 93.7 94.3 95.3 96.0 9-Zamboanga Penisula 95.3 96.9 96.0 97.0 96.9 96.8 96.7 96.6 10-Northern Mindanao 94.8 93.6 96.0 95.8 95.1 96.0 94.8 96.1 11-DAVAO 94.0 93.7 94.1 93.9 94.2 94.6 94.2 95.4 12-SOCCSKSARGEN 94.8 95.6 95.8 96.3 96.8 96.0 95.5 96.3 CARAGA 91.9 92.4 94.6 95.1 92.4 95.1 94.1 94.5 ARMM 96.0 95.9 96.0 96.8 96.1 96.3 96.3 97.7

UNEMPLOYMENT RATE BY REGION (IN %) (New Defi nition) 2010 2011

JAN APR JUL OCT JAN APR JUL OCT

Philippines 7.3 8.0 6.9 7.1 7.4 7.2 7.1 6.4

Metro Manila 10.8 11.8 10.9 12.6 12.0 11.6 10.9 10.4 Cordillera CAR 5.0 6.0 5.0 4.4 5.6 5.0 4.7 4.8 Ilocos Region 7.9 9.3 8.1 8.6 10.0 9.8 7.9 6.6 Cagayan Valley 3.0 5.1 3.9 2.6 3.1 3.3 2.4 2.8

Central Luzon 9.0 9.9 8.0 8.0 7.9 8.3 9.6 8.3

Calabarzon 9.5 10.3 9.4 9.0 9.5 10.0 10.4 9.0

Mimaropa 4.2 4.0 4.4 5.1 4.3 4.0 3.8 3.5

Bicol Region 5.1 6.6 6.0 5.8 7.1 6.6 5.4 5.3

Western Visayas 6.0 9.7 6.6 6.1 6.5 7.6 6.0 6.4

Central Visayas 8.1 8.6 6.0 7.7 8.3 6.2 6.3 6.1

Eastern Visayas 6.4 4.1 5.3 6.1 6.3 5.7 4.7 4.0

Zamboanga Penisula 4.7 3.1 4.0 3.0 3.1 3.2 3.3 3.4

Northern Mindanao 5.2 6.4 4.0 4.2 4.9 4.0 5.2 3.9

DAVAO 6.0 6.3 5.9 6.1 5.8 5.4 5.8 4.6

SOCCSKSARGEN 5.2 4.4 4.2 3.7 3.2 4.0 4.5 3.7

CARAGA 8.1 7.6 5.4 4.9 7.6 4.9 5.9 5.5

ARMM 4.0 4.1 4.0 3.2 3.9 3.7 3.7 2.3

Philippine Alert December 2011 32 BUSINESS

Higher property tax to take effect in 2012 Land owners will face higher taxes as more provinces and cities are updating their schedule of market values (SMVs) in 2012. This is in response to the circular issued in October 2010 requiring all local government units (LGUs) to update property valuations used in appraising properties and computing for real property taxes.

he order to revise SMVs came from the Department of Interior and Local Government (DILG) and the Department Tof Finance (DOF) through Joint Memorandum Circular 2010-01. The government has been pushing LGUs to review and update their valuations to improve their revenue generation from property taxes. Increasing their land valuations will have a corresponding increase in property taxes for collection. Real property taxes are local taxes that go directly to LGU coffers. The current administration sees this as an opportunity to improve the tax system at the local level. The government intends to strengthen the capacity of cities and provinces to generate their own revenues that can aid in fi nancing projects. The idea is that increasing the local taxes collected can facilitate faster delivery of services since LGUs will have readily available funds. Similarly, LGUs will not solely depend on their internal revenue allotment (IRA), Sorsogon, Cavite, Bacolod, Bago, Cadiz, Escalante, Himamaylan, which is their share of revenues from the national government. Iloilo, La Carlota, Passi, Roxas, Sagay, San Carlos, Silay, Victoria, Five provinces and ten cities already complied with Lapu-Lapu, Talisay, Zamboanga, Dapitan, Iligan, and Digos the directive after more than a year since the circular was The law provides that LGUs shall revise property classifi cation released. These are the provinces of Pangasinan, Rizal, and valuations every 3 years for accurate appraisal of properties. Cavite, Romblon, and Compostela Valley; and the cities But according to Mr. Salvador Del Castillo, Executive Director of Santiago, Palayan, Antipolo, Tagaytay, Trece Martires, of DOF’s Bureau of Local Government Finance, this has not Calapan, Kabankalan, Bayawan, Zamboanga, and Davao. been fully implemented. Records from DOF showed that only Meanwhile, 12 provinces and 26 cities are set to update their 22% of the cities and 28% of the provinces in the country have land valuations over the next few months – the provinces of Abra, updated their SMVs as of last revision in 2008. A total of 84 Laguna, Camarines Norte, Masbate, Sorsogon, Aklan, Capiz, cities and 29 provinces are still using outdated schedules, the Guimaras, Iloilo, Negros Occidental, South Cotabato and Agusan latest using 2006 as base year. Some LGUs are even using del Sur; and the cities of Parañaque, Vigan, Laoag, Balanga, Tarlac, SMVs as far back as 1993, its fi rst year of implementation.

Updating SMVs will expand the tax base, thus increasing collection of LGUs.

Philippine Alert December 2011 BUSINESS 33

Using outdated SMVs distorts the market and poses problems Aside from provisions relevant to market access, stakeholders for land owners. Properties that have appreciated in value will noted that infl ow of Japanese investments can still be increased to yield lower taxes while owners of land that already depreciated help the Philippines catch up with neighbor countries in securing will have to pay taxes higher than what they should be paying. FDI. In 2007 following the signing of the PJEPA, a 92% surge in Some have expressed concern that revisions in the SMVs investments was recorded by the Board of Investments, Philippine will cause a substantial increase in taxes to be paid by property Economic Zone Authority, Subic Bay Metropolitan Authority, owners. To minimize the impact of the rise in taxes, Mr. Del and Clark Development Corporation in various industries. Castillo suggested that LGUs may impose adjusted tax rates Immediately after the ratifi cation, Japan’s share in the Philippines’ or assessment levels. Moreover, they may offer discounts for total FDI rose to 58% in 2009 from 9% in 2008. However, this those who will submit tax payments earlier than scheduled. level of growth was not sustained and declined to 28% in 2010. Another option is to spread out or implement revisions gradually. Another area of concern is improving labor relations. The DTI has also consulted Filipino nurses in Japan as part of the preparations for the PJEPA review. In a statement, Negotiations on general review of Pjepa slated Undersecretary Cristobal said that both countries have already for January 2012 agreed on some proposals and are exploring other options to address the issue, including replacing certain diffi cult The Philippines and Japan have agreed to move the 4th Japanese expressions with easier words (Furigama beside meeting of the Philippines-Japan Economic Partnership Kanji characters); preparatory Japanese language training; Agreement (PJEPA) Joint Committee to January 2012. The and the creation of a standard working contract including joint meeting, originally scheduled for December 2011, will proposals to improve the living conditions of Filipino nurses. tackle the general review of the trade agreement. Nurse applicants in Japan receive $400 as training allowance. After passing the Japanese board exam, they get an offer The PJEPA was signed in Helsinki, Finland on September of employment of $900-$2,400, which is the typical salary 29, 2006 by former Philippine President Gloria Arroyo range for entry level employees in Japanese health facilities. and former Japanese Prime Minister Junichiro Koizumi Japan faces an aging population, which will require more during the Asia-Europe Summit. The agreement, which workforce in health services. An opportunity for the country’s is the country’s fi rst bilateral trade pact, was entered into health workers, especially with the increasing number of force only in December 2008, 2 months after it was fi nally underemployed or unemployed Filipino nurses. According to ratifi ed by the Philippine Senate. The government deemed the Professional Regulatory Commission (PRC), at least 287,000 the agreement as an opportunity to improve market access for previous nursing board passers are still underemployed. The agricultural goods; increase foreign direct investments (FDI); latest batch of 37,513 nursing board exam passers comprises provide employment for Filipino nurses, caregivers and IT 13% of the population of currently underemployed nurses. professionals; and acquire technical assistance from Japan. The government considers the delay in review to be favorable Under the Article 61 of PJEPA, a general review of the to the country. DTI continues to conduct consultations to agreement was originally scheduled for December 2011. ensure that all issues will be addressed once the general review During the 3rd meeting of the PJEPA Joint Committee, of PJEPA takes place, and is hopeful that the country will preliminary talks for the general review had already started. be able to fully benefi t from the agreement after the review. Three years after the trade deal’s commencement, some stakeholders argued that the country has not maximized the benefi ts from the agreement. Early this year, the Department MINING , OIL, & GAS of Trade and Industry (DTI) launched “One Country, One Voice,” a series of consultations that provide a venue for stakeholders to raise their concerns and recommendations on Gov’t intensifi es small-scale mining regulation the country’s current trade policies and agreements including Amidst the mounting small-scale mining-related issues, PJEPA. The project involved nationwide consultations to gather comments prior to the general review of the agreement. several government agencies and local government units On PJEPA, the consultations covered the issues involving (LGUs) have intensifi ed small-scale mining regulation. With agricultural and non-agricultural goods, investments, and its current dismal performance, the mining study group may movement of nurses and other health workers to Japan. consider banning small-scale mining. Export groups argued that the country’s agricultural products are still unable to reach the Japanese market due to restrictions. Issues surrounding small-scale mining have been damaging According to DTI Undersecretary Adrian Cristobal, although to the country’s mining industry for years. Small-scale mining, there has been an increase in the total volume of trade for the past according to RA 7076 otherwise known as the “People’s Small- 3 years, there is still room to further liberalize trade by revising the Scale Mining Act of 1991,” relies on manual labor and does not provisions in the agreement specifi cally the increase in tariff rate use heavy equipment or explosives to extract minerals. Holders quota for agricultural exports to Japan. Japan was the country’s of small-scale mining contracts are prohibited from entering into top trading partner in 2010, with trade amounting to $14.5 sub-contracts and are required to sell the minerals extracted, billion, accounting for 13.73% of the total trade of the country. specifi cally gold, to the Bangko Sentral ng Pilipinas (BSP) only.

Philippine Alert December 2011 34 BUSINESS

They are also mandated to comply with environmental protection The issues hounding small-scale mining and its corresponding conservation rules and regulations. But violation of all these measures are among the various mining issues being discussed conditions is rampant. Heavy equipment and explosives are used. by a mining study group in connection with its task to create Many of the mines are operated by unscrupulous companies a new comprehensive mining policy. The mining study group, splitting operations to pretend small-scale and have reportedly which is expected to pass a new mining policy in the fi rst entered into subcontracts with scheming Chinese investors. And 6 months of 2012, is composed of Department of Natural much of the gold is smuggled out of the country as shown by the Resources and Environment Secretary Ramon Paje, Climate large drop of BSP’s gold purchases. DENR Secretary Ramon Change’ Presidential Adviser Elisea Gozun, Environmental Paje stressed, “there is a possibility that gold is being smuggled Protection Presidential Adviser Neric Acosta, and Climate out of the country by small-scale miners to avoid payment Change Commission Chairperson Mary Ann Lucille Sering. of taxes”. Also, small-scale miners have poor environmental Aside from amending the Mining Act and the Indigenous compliance records, whose devastating effects have been blamed Peoples Act, the study group is expected to pursue responsible on responsible large-scale miners. In addition, the Chamber of mining, which can give substantial economic and social Mines of the Philippines (CoMP) stated that “the government loses benefi ts to the country and its local communities. With the at least P2.42 billion in taxes over a 2-year period due to small- current irresponsible performance of the small-scale mining scale miners who deliberately misstated their tax obligations.” industry, the study group is considering a ban on small-scale With these mounting small-scale mining issues, the mining and only allowing responsible large-scale mining. national and regional government agencies with respective local government units (LGUs) have implemented measures to resolve illegal and destructive small-scale mining. Davao city – mining free ¾ The Bureau of Internal Revenue (BIR) has focused its Run In a bid to declare the city mining-free, the Davao city council After Tax Evaders (RATE) program on small-scale gold traders. proposed a resolution banning open-pit and underground An estimated 1,000 small-scale gold traders are currently mining. under investigation, of which 6 have so far been fi led with tax evasion cases. The 6 gold traders incurred an estimated The Davao city council has proposed a local ordinance banning P8.25 billion of total tax defi ciency – hardly small-scale. mining to make the city mining free. Victorio Advincula Jr., city ¾ The DENR, in coordination with the Presidential Anti- councilor of the 3rd district of Davao, and Paolo Duterte, city Organized Crime Task Force, has conducted an investigation councilor and sectoral representative, authored the resolution regarding the huge drop in BSP’s gold purchases from 7,166 entitled, “Prohibiting mining and declaring Davao city as mining- kilograms (P12.32 billion) in the fi rst 9 months of 2010 to free city, specifi cally open-pit and underground mining.” The 1,722 kilograms (P3.55 billion) in the same period in 2011. resolution bans open-pit and underground mining in a bid to ¾ MGB Region 2 has conducted the 1st Mining Summit, where it prevent environmental issues such as soil erosion, contamination directed the reorganization of the Provincial Mining Regulatory of soil and water sources during and after the life of the mine. Boards of Cagayan, Isabela, Quirino, Nueva Vizcaya, and The right of the people to have a balanced and healthful ecology Batanes to ensure the stringent supervision of small-scale is also among the reasons behind the proposal. The resolution, mining. however, exempts quarrying for landfi ll and sand and gravel ¾ MGB Region 7 has conducted the Stakeholders’ Forum on purposes as well as mining activities intended for industrial and Small Scale Mining and Quarrying and Results of Geohazards agricultural purposes such as lime quarrying provided that open- Assessment, which strengthened the partnership with the pit or underground mining is not employed. The resolution had provincial and local government units in Central Visayas to undergone fi rst reading last December 12, 2011 and will be adopted properly regulate small-scale mining activities and landslide in the second reading after committee hearings and deliberations. and fl ood prone areas. When imposed, the ban will be another blow to the country’s mining industry. The fi rst open-pit ban was imposed by the local ¾ MGB Region 10 in cooperation with the LGU of Cagayan government unit of South Cotabato, which is endangering the de Oro has spearheaded the Unifi ed Task Force Iponan to $5.9 billion Tampakan copper-gold project. Aside from potential combat illegal small-scale mining in Iponan river, which economic benefi ts, the Tampakan copper-gold project is expected caused continued water deterioration and discoloration. to help the province of South Cotabato through social development ¾ MGB Region 12 has proposed the total closure of 300 mine and infrastructure programs. Meanwhile, the second open-pit tunnels in Barangay Kematu, T’boli South Cotabato from ban, which was passed by the local government of Zamboanga any mining activity, as these are conducive to landslides del Norte, is being contested in court by TVI Resources Inc., and related incidents. The provincial government of South the operator of the $60 million Canatuan copper-gold mine in Cotabato has closed the tunnels but reopened some recently Siocon, Zamboanga del Norte. When implemented, the open- after several small-scale miners have complied with the pit ban resolution in Zamboanga del Norte will close down the necessary government, environmental, and safety permits.

“There is a possibility that gold is being smuggled out of the country by small-scale miners to avoid payment of taxes. “

Philippine Alert December 2011 BUSINESS 35

The open-pit and underground mining in Davao city, when imposed, will disrupt Holcim Cement’s annual cement production of 7.7 million metric tons and deter its multi-million social development programs per year.

Canatuan mine, which will leave 1,000 Filipinos unemployed, by oppositionists on large-scale mining companies despite that the cut-out an estimated P75 to P100 million worth of social benefi ts large companies are complying with the key environmental and and royalties to the Subanen tribe, and strip the province of social requirements of the Mining Act. The mine sites of Platinum Zamboanga del Norte with approximately P708 million of Group Metals Corporation, Taganito Mining Corporation, environmental protection programs, and P28 million worth of and Taganito HPAL in Surigao del Norte were attacked by social development and management programs. Meanwhile, the members of the national people’s army (NPA) in October 2011 ban on open-pit and underground mining in Davao city, when and destroyed an estimated P3 billion worth of equipment and imposed, will threaten the quarrying operations of Holcim Cement, damaged infrastructure. The moratorium on mining applications which employs open-pit mining to extract limestone and shale, hinders the addition of new mining investments. And the the 2 important raw inputs in making cement. Aside from ending proposal for new mining taxes, which means higher operating the annual social development program (P2.6 million in 2010), costs, worries operating mining companies and sends a wrong the open-pit and underground mining ban will disrupt Holcim’s signal to new mining investors at very much the wrong time. annual cement production of 7.7 million metric tons, which is Despite these problems, the country’s large-scale mining critical in part to realize the country’s infrastructure programs. industry has remained committed to undertake responsible Offi cials from the Mines and Geosciences Bureau XI were mining and accelerate the country’s mining industry. Aside from surprised by the move of the Davao city council to ban open-pit committing an estimated P1.5 billion for social development and underground mining. Edilberto Arreza, regional director and management programs (SDMP), several large-scale mining of MGB-XI stated, “We are very much worried about the companies have scheduled expansion plans in 2012. The P1.5 proposed resolution. We are surprised on why they are planning billion-SDMP will fund human development training, enterprise to ban open-pit mining and underground mining.” An estimated and livelihood programs, and construction of support facilities for 27 mineral production sharing agreements and exploration health, water, power, etc. for an estimated 113 barangays in the permits were earlier endorsed for approval by MGB XI to the country. In particular, Philex Mining, the top mining fi rm in the MGB national offi ce as a result of the “use it, lose it” policy. country, has spent an estimated P61 million for SDMP programs from 2002 to 2006 and has begun to spend what eventually will amount to approximately P130 million from 2009 until Large-scale miners to embark on social dev’t 2013. Planting of coffee, which is one of its SDMP programs, will provide sustainable livelihood to affected communities programs, expansion plans in 2012 and attain a stable supply of coffee in the country. Other large- scale mining companies (includes companies under operation Despite numerous industry problems, the large-scale min- as well as those still at exploratory and feasibility stages) have ing industry has earmarked approximately P1.5 billion for implemented SDMP and community development programs social development and management programs (SDMP) as (CDP), which are expected to continue in 2012 (see table). well as undertake expansion plans in 2012. Meanwhile, in order to hasten the mining industry’s growth, several mining companies have outlined project expansion plans The country’s large-scale mining industry is facing numerous for 2012. St. Augustine Gold and Copper Limited, a Canadian industry problems today. These industry problems hinder the listed mining company, is expected to release the King King attainment of the mining industry’s full potential, which can copper-gold project’s banking feasibility study in the 2Q2012. translate to substantial economic activity, considerable taxes King King copper-gold project has an estimated 10.30 million paid to the Philippine government per year, and thousands of ounces of gold and 5.40 billion pounds of copper, which is much-needed jobs. Ordinance resolutions banning open-pit considered as one of the largest underdeveloped copper-gold mining; issues involving small-scale mining; security of mining deposits in the world. The property fi rm MRC Allied, which investments; moratorium on mining applications; opposition entered the mining industry in November 2010, is planning to from the infl uential Catholic church; and proposal for new develop a gold processing plant in San Miguel Surigao del Norte, mining taxes are among the major problems being faced by the which will cost approximately P800 million. The processing plant large-scale mining industry. The open-pit ban in South Cotabato is expected to produce 2,000 tons of gold per day and eventually is endangering the $5.9 billion Tampakan copper-gold project process copper. Northern Access Mining Incorporated (Nami), while the proposed open-pit bans in the province of Zamboanga which is a junior mining fi rm, will also construct a processing del Norte and Davao City are threatening the operations of plant to process magnetite in Tolosa, Leyte. An estimated TVI’s Canatuan copper-gold project and Holcim Cement, the P600 million will be disbursed for the construction of the country’s leading cement producer. Small-scale mining’s poor plant as well as for the full mining operation in 5 Leyte towns. environmental record and its devastating effects have been blamed

Philippine Alert December 2011 36 BUSINESS

HIGHLIGHTS OF THE COMMUNITY DEVELOPMENT PROGRAM/SOCIAL DEVELOPMENT AND MANAGEMENT PROGRAM OF LARGE-SCALE MINING COMPANIES

HUMAN RESOURCE DEVELOPMENT AND INSTITUTIONAL BUILDING

Aside from being Siocon’s biggest tax payer, TVI helped the local government in solving the unemployment in Zamboanga Peninsula. More than half of TVI’s labor force comes from the host province. Social and economic well-being of employees is well provided through TVI Resource Development its health care programs, training workshops, performance recognition and salaries that are higher than its neighboring regions. With this, TVI was awarded as the “Outstanding Employer” in Region IX in 2011.

ENTERPRISE DEVELOPMENT AND NETWORKING

In 2010, 31 livelihood projects were developed, which includes, high value crops and other Sagittarius Mines Inc. vegetable production, handicrafts, abaca, organic upland rice production and hog and poultry raising, among others.

INFRASTRUCTURE DEVELOPMENT AND SUPPORT SERVICES

An estimated 328 housing units were constructed for the indigenous tribal communities in Rio Tuba. Taganito, and Urbiztondo, Palawan in cooperation with the Gawad Kalinga Nickel Asia Foundation. Meanwhile, the host and neighboring communities in Cagdianao were provided with electrical connection, repair and maintenance of roads, water system, street lighting and school library.

EDUCATION AND EDUCATIONAL SUPPORT PROGRAMS

Aside from the college, secondary, and elementary educational scholarships, which benefi tted an estimated 440 students, Philex also expended for the Alternative Learning System in partnership with the Department of Education. Under this program, 31 local residents were Philex Mines Inc. given secondary education diploma due to their improved reading and writing skills and 18 out of school youths were granted vocational scholarships at the Baguio School of Business and Technology College and the Philippine Institute of Mining and Quarrying.

HEALTH SERVICES, HEALTH FACILITIES AND HEALTH PROFESSIONALS

Since 2009, OceanaGold sponsored 30 medical missions, which provided free medical, OceanaGold Philippines dental and optical consultations and medicines to community members in Nueva Vizcaya. Approximately 8,600 local community members benefi ted from the medical missions.

SOCIO-CULTURAL VALUES

CGA Mining constructed/renovated 5 chapels and supported socio-cultural programs such as CGA Mining/ Filminera patronal fi esta, sinulog festivals and foundation days.

USE OF FACILITIES/SERVICES WITHIN THE MINE CAMP OR PLANT SITE The Lepanto Hospital, which has a 30-bed capacity, offers complete surgical, dental and medical facilities, which includes a family planning clinic, out-patient department, clinical Lepanto Mining laboratory, and Xray/ECG units. Meanwhile, the community center houses a training center, a playground for children and residents, courts for basketball, lawn & table tennis, volleyball and badminton, and a theater. Source: annual reports, press releases and company websites

I.T. UPDATE “We do need help in developing human capital in the Philippines. BPO 101 – a new subject for inclusion in the At fi rst, I was uneasy about pushing our college graduates to work in the BPO industry. But when I was introduced by the association college core curriculum [BPA/P] to the broad nature of the BPO industry, I began to learn about opportunities [that] the industry presents to our graduates in The Business Process Association of the Philippines various fi elds,” CHEd Chairperson Patricia Licuanan explained. (BPA/P) and the Commission on Higher Education (CHEd) Among BPA/P’s proposals is the inclusion of the introductory signed a memorandum of cooperation in November 2011, subject BPO 101 to the core college curriculum. Students formalizing their partnership for the institutionalization of may also have the option of taking Service Management as a Service Management subjects in the college curriculum. minor course. Service Science Management and Engineering Among the subjects is BPO 101, an introductory course (SSME) is tertiary course developed by the (now defunct) on the IT-BPO industry that could be included in the core Commission on ICT, BPA/P and IBM. It has already been curriculum of any college. rolled out in some colleges and universities (see box for list), but BPA/P would like to see its adoption nationwide. Over the next 5 years, BPA/P and CHEd will work together Graduates of SSME are envisioned to be a match for the in institutionalizing changes in the college curriculum in the aim following outsourcing markets: 1) healthcare; 2) fi nance and of producing more IT-BPO-ready graduates. Apart from the accounting (F&A); 3) human resources; 4) IT; and 5) engineering inclusion of Service Management courses, training programs services. The new course draws from academic and research for teachers will also be developed as well as a system for disciplines such as computer science, industrial engineering, evaluating students’ skills and preparedness for IT-BPO work. business strategy, management sciences, social and legal sciences. Philippine Alert December 2011

BUSINESS 37

PILOT SCHOOLS FOR SSME

The development of the service management course began with the signing of a Memorandum of Understanding (MOU) among the CICT, BPAP, and IBM Philippines for the SSME Collaboration Program in August 2008. Pilot schools for the early adoption of the course are:

1) St. Louis University in Baguio 2) Angeles University Foundation in Pampanga 3) Asia Pacifi c College 4) Ateneo de Manila University 5) University of the Philippines-Diliman

“We believe that our partnership with CHEd will give a Globe Telecom, on the other hand, announced its big boost to our efforts to tackle our number 1 challenge of own network improvement program in November 2011. improving the quantity and quality of our talent supply,” BPA/P Estimated at P34 billion, it is a 5-year program where about Chairman Alfredo Ayala said during the memorandum signing. 80% of the funds would be spent during the 1st 3 years of The campaign to institutionalize Service Management courses the program. The Huawei Group won the coveted contract is part of BPA/P’s talent development reforms, and is a key step as technology partner for the modernization program. towards the realization of the industry’s 2011-2016 roadmap goals “This will be the biggest and most significant – $25 billion in annual export sales and 1.3 million IT-BPO jobs. investment that the company has undertaken in the past 2 decades,” Globe president Ernest Cu had noted. Multi-billion peso investments strengthen PH’s “The massive network upgrade is aimed at signifi cantly telco infrastructure improving network quality and customer experience, increase capacity, drive down costs [and] prepare the network to meet In 2011, dominant carriers PLDT and Globe Telecom em- the needs of customers today and in the future,” Mr. Cu added. barked on multi-billion peso network improvement programs Competition in the telecommunications sector has shifted to broadband Internet services, with more users expected to avail in preparation for greater bandwidth requirements as more of these services, whether through their personal computers, and more Filipinos go online. portable notebooks and tablets, or mobile phones. 4G Internet technology, the fastest Internet technology available, is expected PLDT spent an estimated P34 billion in 2011 and is expected to be commercially deployed in 2012, and so the carriers are to spend P33 billion more in 2012 for upgrades in its network. positioning their networks to better provide this technology. The massive capital outlay during 2011 covered, among others, According to PLDT offi cials, “…The PLDT Group is the following: committed to extending broadband coverage to 95% of the 1) Base stations upgrades (HSPA+) in key Philippine cities, to Philippine population in the next 3 years…LTE will help us enable faster broadband Internet connections; accomplish that goal faster and more effectively.” LTE is 4G 2) Start of marine construction work (cable-laying) on the Asia Internet with speed that is seen to reach up to 100Mbps in the future. Submarine-cable Express (ASE) in Daet, Camarines Norte, In the process of these massive network upgrades, where its landing station is being built; telecommunications infrastructure in the country is getting 3) Public tests for its Long Term Evolution (LTE) Internet, a 4G a major upgrade, becoming increasingly world-class and Internet technology, in Metro Manila and in Boracay Island, able to service sophisticated telecommunications needs of in preparation for its commercial launch in 2012; businesses today. For example, PLDT’s participation in the ASE makes internet connection in the Philippines more 4) Further expansion of its Domestic Fiber Optic Network disaster-proof, since the cable system traverses a different (DFON) into more “Next Wave Cities” of the offshoring route from those of the other cable systems PLDT is linked to. and outsourcing (O&O) industry, so that high grade Internet Moreover, the expansion of its DFON into more Next Wave bandwidth is available to locators (see box for more details cities enhances the country’s profi le as an O&O location. on these).

Philippine Alert December 2011 38 BUSINESS

Internet connection in the Philippines more disaster-proof.

PLDT INVESTMENTS IN NETWORK IMPROVEMENTS: 2011 Asia Submarine-cable Express (ASE) The $304-million ASE, expected to be completed by the 3rd quarter of 2012, is an undertaking of PLDT with NTTCom of Japan, StarHub of Singapore, and Telekom Malaysia of Malaysia in partnership with NEC Corp. and Fujitsu Ltd. It will link Japan, the Philippines, Hong Kong, and Singapore, Malaysia. In the succeeding phases, it will also be linked to China, Vietnam, and Thailand. The ASE is a new-generation optical fi ber undersea cable system with the potential to transmit more than 15 Terabits per second, making it the cable system with the biggest capacity that the country is linked to. ASE will increase PLDT’s network resiliency since its cable route differs from that of the other cable systems PLDT is linked to. The agreement for the construction of ASE was signed in January 2011. PLDT’s share of the investment is valued at $55 million, inclusive of a cable landing station in Daet, Camarines Norte. Base Station Upgrades to HSPA+ Smart Communication, a subsidiary of PLDT, tapped the services of 3 major international network supplies (Nokia Siemens Networks, Ericsson, and Huawei) for the simultaneous upgrading of base stations in key Philippine cities. HSPA+ is a progressive version of 3G internet technology, which can deliver aggregate spees of up to 42Mbps. As of mid-October 2011, about 120 cities and municipalities already enjoy HSPA+ coverage, including 50 cities and municipalities in Metro Manila, Rizal and Bulacan. Key locations in Metro Cebu, Metro Davao, Bacolod, Iloilo, Cagayan de Oro, General Santos City and Zamboanga City have also been upgraded to HSPA+ coverage.

Philippine Alert December 2011 BUSINESS 39

PROJECTS APPROVED BY PEZA APRIL TO JUNE 2011

EQUITY INDUSTRY ACTIVITY LOCAL/FOREIGN APPAREL AND TEXTILE MANUFACTURES PIAA GARMENTS PHILS. INC. Engage in knitting yarn/fabrics and manufacture of innerwear garments 99.77% - Korean 67% - Singaporean ZEPHYR FASHION (PH) CORP. Manufacture of embroidered dresses and other garment products 33% - Japanese A-GRADE GARMENTS MANUFACTURING CORP. Manufacture men’s and ladies’ garments such as blazers/jackets, pants and skirts 100% - Filipino FORMOSAGARMENT PRINTING, INC. Printing of Logo/designs on fabrics cut parts 99.88% - Taiwanese AUTOMOTIVE TRADE 99.99% - Japanese SUMI PHILIPPINES WIRING SYSTEMS CORPORATION Manufacture of automotive wiring harness

ORIENTAL MOTOR MOTION SYSTEM MANUFACTURING Manufacture and processing of gearhead (or gearbox) and manufacture of parts related to 99.98% - Japanese (PHILIPPINES) INC. motor DRAKA PHILIPPINES, INCORPORATED Manufacture of FLRY Insulated Wires 99.80% - Dutch Manufacture of Gateway AU210, Gateway AU316 and B8PKO, NCV SAM BMM, NCV2 SAM GMM, TEMIC AUTOMOTIVE (PHILS.), INC. 99.66% - German CRCM R172, CRCM R197, CRCM R231, CGW P3, CGW SFTP, BCM SAAB, SRX, PDM ELECTRICITY, WATER AND GAS Establishment, operation and maintenance of a coal-fi red power plant facilities inside SARANGANI ENERGY CORPORATION 100% - Filipino Kamanga Agro-Industrial Economic Zone (KAIEZ) ELECTRONICS RADIX TELECOM PHILS. INDUSTRIES, INC. Assembly of radar detectors and other related consumer electronic products 99.97% - Korean Manufacture/assembly of security devices such as LED light, CCTV, control panel and other ECOLIGHTING SOLUTIONS INC. 100% - Filipino related security devices JTK ELECTRONIC COMPONENTS Manufacture of transformers, coils, magnetic bars, inductor products and by-products, wire 99.97% - Chinese PHILIPPINES INCORPORATED harness, LED backlight, LED lighting components Assembly and Test of New Products (E0201DFN, ODFN, PLFP, SOT223, Embedded Crystal and CIRTEK ELECTRONICS CORP. 99.95% - British Coil Winding/Hybrid PDIP) YU JIN OPTICAL ELECTRONICS, INC. Manufacture and/or Assembly of “e-LPU” (Electronic-Laser Pick-up Unit) 99.93% - Korean CASTEM FRONTIER CORPORATION CAD-CAM Designing and CAD Die Mould Fabrication 99.99% - Japanese BAG ELECTRONICS, INC. Productionof Electronic Ballasts 99.36% - Dutch Manufacture and assembly of electronic products (SEMICOA Products) for military TONG HSING ELECTRONICS (PHILS.), INC. 99.92% - Taiwanese application ADVANCED ELECTRO DEVICES Manufacturing, processing and assembly of electronic products, parts, devices and 99.96% - Korean PHILIPPINES, INC. components DYNAMIC HARNESS YOUR ELECTRONICS INC. Assembly of various wire harness 99.40% - Korean

REMEC BROADBAND WIRELESS INTERNATIONAL, INC. Manufacture, fabrication and design of microwave and millimeterwave components/systems 100% - American

65% - Singaporean ROHM ELECTRONICS PHILS., INC. Manufacture of Microelectromechanical System (MEMS) Package IC 35% - Japanese WYNTRON, INC. Manufacture of Branchfeeder AFCI (Arc Fault Circuit Interrupter) 99.97% - Malaysian DAE YOUNG MANUFACTURING PHILS., INC. Manufacture/Assembly of Electric Printed Circuit Board and Transformers 99.99% - Korean IONICS EMS, INC. Production of Dual Port Gigabit Ethernet Bypass Adapter; Production of Pole Cabinet 98.12% - Filipino GEMPHIL TECHNOLOGIES, INC. Assembly and Testing of Transformer 100% - Filipino MURAMOTO AUDIO-VISUAL PHILIPPINES, INC. Production of blu-ray single disc player mechanism assembly 100% - Japanese SAMSUNG ELECTRONICS PHILIPPINES Production of SO-112AB (X-BOX 360) 100% - Korean MANUFACTURING CORPORATION REMEC BROADBAND WIRELESS Manufacture, fabrication and design of microwave/emerging technologies components/ 100% - American INTERNATIONAL INC. systems - OIPR (Outdoor Internet Protocol Radio) Manufacturing, selling, exporting or otherwise dealing in transducers and electro SONION PHILIPPINES, INC. 99.97% - Danish mechanical components for hearing instruments and other acoustic devices FOOD AND BEVERAGES Production of dehydrated fruits DOLE PHILIPPINES, INC. 99.88% - American

ACCEL CARRAGEENAN CORPORATION 96% - Filipino Manufacture of Semi-refi ned Carraqgeenan 4% - Taiwanese SAN CARLOS BIOENERGY, INC. Production of syrup from sugarcane 100% - Filipino FURNITURE AND FIXTURES 60% - Filipino IRN TECHNICAL SERV., INC. Provision of Quantity Surveying, Drafting and Design of Furniture and Fixture, Fit-out 20% - British 20% - Australian METAL INDUSTRIES STAHL MATERIALS PHILIPPINES, INC. Manufacture of various stainless and special steel parts 99.94% - Japanese 1) Repair and Maintenance of tools and equipment; (2) Outfi tting of ships; (3) Processing GRT (CEBU) CORPORATION and fabrication of steel, blocks and other metals; (4) Segregation and processing of steel 99.98% - Japanese and copper scraps Manufacture, Process, Convert, Export, of all kinds of Precision Sheet Metals Component, 99.76% - Indian VEER-O-METALS PHILIPPINES INC. Stampings, Fabrications, Machining, Machined Components, Mechanical, Electromechanical,

etc. Philippine Alert December 2011 40 BUSINESS

YOUNGJIN GSK INC. Manufacture of Metal Parts 99.92% - Korean CQS STAINLESS CORP. Manufacture of stainless & carbon steel sheets, coils, plates and other related products 99.03% - Japanese DOHO METAL (PH) CORPORATION (1) Importing/Exporting/Metalworking of Metallic Materials; (2) Precision Metal Slitting/ 99.99% - Japanese Cutting; and (3) Leveller Processing

NITTETSU MICROMETAL CORPORATION PHILIPPINES Manufacture of Micro Solder Ball using Uniform Droplet Spray (USD) Method 100% - Japanese

APPLEGATE PERFORMANCE PRODUCTS, INC. Production of Carbon Fiber/Composite Body Parts, BMU (Building Maintenance Units) 55% - American Fabricated Scaffolding, and Aluminum (AN) Fittings 45% - Filipino Manufacture of CVT Valve Parts (Plug Press Reg, Sleeve Plug Press, Sleeve-Lock-UP, Cont, OGINO PHILIPPINES CORPORATION Plug Lock Up Cont, Sleeve Lock-Up Cont) and Housing Stator G3 and Screw Hollw, Feed Pipe 100% - Japanese Control and Guide Oil Recovery of precious metal from precious metal solution and treatment of the remaining 60% - Filipino OHGITANI PHILIPPINES INC. hazardous solution 40% - Japanese MISCELLANEOUS MANUFACTURES TOP MOST PACKAGING CORPORATION Manufacture of packaging materials and other related products 100% - Filipino Manufacture of esterquat or ingredients for fabric softeners, other quaternaries and tertiary 99.97% - Filipino STEPAN PHILIPPINES QUARTERNARIES, INC. amine derivatives 75% - American PINEAPPLE LITE MANUFACTURING COMPANY, INC. Manufacture of melamine-coated household products 25% - Filipino DIPOLOG COCONUT OIL MILL, INC. Oil Milling for Crude Oil and Copra Cake (by-product) 100% - Filipino Production of individual carton boxes (ICB) used as specialized packaging,as well as other KANEPACKAGE PHILIPPINE, INC. related packaging meterials such as outer carton boxes, pp bags, pad printers and pad 99.87% - Japanese accessories MOATECH MANUFACTURING PHILS., INC. Manufacture of magnets 99.96% - Korean Designing of die parts, metal retainers, plastic retainers and other bearing related products NKC MANUFACTURING PHILIPPINES CORPORATION 100% - Japanese through the use of AUTOCAD software AMERICAN POWER CONVERSION CORPORATION 1) Manufacture of Pinto 1/2/3 (Smart-UPS); and 2) Manufacture of Cougar, Hydra and Lynx 1 100% - American B.V (Smart-UPS online) MSM CEBU, INC. Production of Flat Springs (Pressed Flat) 100% - Japanese Fabrication, conversion and cushioning of packaging foam, carton boxes, printing, EXELPACK CORPORATION 100% - Filipino petrochemical based materials and die cutted materials

AIR LIQUIDE PIPELINE UTILITIES SERVICES, INC. Installation of an Air Separation (ASU) Plant 99.79% - French

OUROKU CORPORATION Manufacture of blocks made of mortar with ducts inserted in it 99.99% - Japanese

HISTOTECH PRECISION (PH) INC. Design, fabricate, manufacture and sell certain component parts and specialized tooling 100% - Malaysian

KOJIMA SPRING PHILIPPINES CORPORATION Manufacture of various types of springs for use in the Automotives and Appliances 99.98% - Japanese

90% - American CRS REPROCESSING PHILIPPINES INC. Slurry processing 10% - Filipino

OFFSHORING AND OUTSOURCING

TRG GLOBAL SOLUTIONS (PHILIPPINES) INC. Business process outsourcing 99.94% - Bermudan DATAFORENSICS INC. Data Analysis and software development 99.75% - American VISHAY (PHILS.) INC. IT Helpdesk Services 99.99% - German PREMIER MENTORING ASIA CORPORATION Call center operations 99.95% - American PSG GLOBAL SOLUTIONS, INC. Business Process Outsourcing 99.95% - American 96% - Australian EMAPTA VERSATILE SERVICES, INC. Call Center Operations 3% - Filipino 1% - Japanese BOYLEN MEDIA MANILA INC. Web design and graphic design 99.301% - Australian WORLD HUB SERVICES CORPORATION Call Center Operations and Software Development 100% - Filipino 75% - Australian AFFINITY ONLINE TECH INC. Web development and online marketing services 25% - American 60% - American SOS PACASIA TECHNOLOGIES, INC. Provision of on-line technical support and monitoring services 40% - Filipino 75% - Filipino JANTY INC. Provide On-line Marketing Services and other Back offi ce Operations 25% - Czech INPHISIA PHILS., INC. Provision of online teaching / English tutorial services 99.89% - Japanese STELLAR PHILIPPINES, INC. business process outsourcing 99.96% - Filipino Provision of administrative, analytical, technical, back offi ce, transactional and customer W.R. GRACE OPERATIONS CENTER, INC. 99.95% - Singaporean services GRACALL INTERNATIONAL MNL, INC. business process outsourcing 99.86% - American GROP INTERNATIONAL SERVICE INC. Online Language Services 99.98% - Japanese TMF PHILIPPINES, INC. Business Process Outsourcing 99.36% - Dutch VISAYA KNOWLEDGE PROCESS 70% - Filipino Back-offi ce processing services OUTSOURCING CORPORATION 30% - American ASSISTASIA PHILIPPINES INC. Software Development for 3D & 2D graphic designing , game character and cellphone games 99.74% - Japanese 30% - Japanese ACCESS E-TALK PLUS, INC. 61% - Filipino On-Line Tutorial Service of English Language and Customer Support 9% - American 60% - Filipino QI PHILIPPINES, INC. Call center operations, technical support, and software development 40% - Malaysian Philippine Alert December 2011 BUSINESS 41

FRONTIER INTERMEDIARY TECHNOLOGY, INC. Designing and translating architectural engineering by CAD 99.98% - Japanese PA EVERYDAY INCORPORATED Business Process Outsourcing 96% - Australian Software development and hardware design for vehicle electronics and business FUJITSU TEN SOLUTIONS PHILIPPINES, INC. 100% - Japanese applications GGS TECHNICAL INFORMATION SERVICES, INC. Business process services, business support functions, and IT-enabled services 99.92% - American ELEVATED PLAY PHILS., INC. Global software development industry 100% - Filipino 50% - British SHORE SOLUTIONS, INC. Call center operations 50% - Australian PROUDCLOUD INC. Web applications design and development, mobile applications development, Software as a 100% - Filipino Service (SaaS) UNITEDHEALTH GROUP GLOBAL 99.99% - Dutch Information Technology Services, Call Centre and Back Offi ce Operations SERVICES, INC. 99.95% - British Virgin RICECASH ASIA PHILIPPINES, INC. Outbound payment processing service Islander CC247 SERVICES INC. 63% - Filipino Business Process Outsourcing 37% - British ESERVE BPO, INC. Business Process Outsourcing 99.96% - Danish BEYOND BUILDING SYSTEMS PTY LTD - BRANCH Provision of support services to its main offi ce in graphic design and outbound marketing 100% - Australian OFFICE IPOINTEAST, INC. Software product development for mobile and rapid frequently identifi cation fl atforms 100% - Filipino CITIGROUP BUSINESS PROCESS SOLUTIONS PTE., Call Center Operations 100% - Singaporean LTD. OSRP, LLC Call Center Operations 100% - American Fully managed service facility for the IT-enabled Call Center and BPO service operations of ANTHEM SOLUTIONS, INC. 100% - Filipino TRG Global Solutions (Philippines) Inc. ANZ GLOBAL SERVICES AND Business Process Outsourcing 99.94% - Australian OPERATIONS (MANILA), INC. CONVERGYS PHILIPPINES SERVICES CORPORATION Business Process Outsourcing 99.98% - American 60% - French TELEPHILIPPINES INCORPORATED Call Center Operations 40 - Dutch APAC CUSTOMER SERVICES, INC. Call center operations 100% - American a) bookkeeping and web-based payroll administration; (b) data encoding, including programming and adaptation of system software and middleware, for business, media, e- MISYS PHILIPPINES, INC. 99.99% - Dutch commerce, and entertainment; and (c) knowledge-based and computer-enabled support services 70% - Singaporean PCCW TELESERVICES (PHILIPPINES) INC. Business process outsourcing 30% - Filipino ADITYA BIRLA MINACS PHILIPPINES, INC. Business Process Outsourcing 100% - Indian IP CONVERGE DATA CENTER, INC. Bandwidth Provision, Internet Service Provider and Application Service Provider 99.93% - Filipino ACCENTURE, INC. Software Development and Business process outsourcing 99.95% - Dutch NCR CEBU DEVELOPMENT CENTER, INC. Call Center Operations 99.75% - Dutch SITEL PHILIPPINES CORPORATION Call Center operations 99.41% - American ADP (PHILIPPINES), INC. Business process outsourcing 99.57% - Dutch PLAYON INTERACTIVE INC. Business Process Outsourcing 99.93% - Hong Kong RMH TELESERVICES ASIA PACIFIC, INC. Call center operations 100% - American CONVERGYS PHILIPPINES SERVICES 99.98% - American Business Process Outsourcing CORPORATION PAPER AND PAPER PRODUCTS HEAVYDUTY PACKAGING CORP. Manufacture of hand-made paper and other similar products 100% - Filipino INTEGRATED PACKAGING LOGISTICS Corrugating of kraft paper into corrugated fi ber boards 100% - Filipino MANUFACTURING, INC. PLASTICS PRODUCTS CLEARWIND INC. Manufacture of Contamination Control Products/Laminated Plastics 99% - Korean MATEX PLANETARY DRIVE INTERNATIONAL, INC. Manufacture of precision-engineered plastic injection products, parts and assemblies 99.98% - Japanese OPTODEV, INC. Manufacture of Plastic Ophthalmic Lenses 99.98% - French Manufacture of Injected and Extruded Plastic Parts; Manufacture of Pneumoclean; ATOMED CEBU, INC. 100% - Japanese Manufacture of Nameband REAL ESTATE AND PROPERTY DEVELOPMENT Amanpulo Resort consisting originally of 40 casitas (hotel rooms), a clubhouse with PAMALICAN RESORT, INC. swimming pool, picnic grove, beach club, tennis court, massage salas and other resort 99.73% - Filipino related facilities. ALPHALAND DEVELOPMENT, INC. Alphaland Bay City- Tourism Ecozone 99% - Filipino STK-PRIME REALTY DEVELOPMENT CORPORATION Dipolog Agricultural Special Economic Zone- Agro- Industrial Ecozone 100% - Filipino VICSAL DEVELOPMENT CORPORATION IT Center 100% - Filipino STRATA 2000 CONDOMINIUM CORPORATION Strata 2000- IT Center 100% - Filipino STRATA CONDOMINIUM CORPORATION Strata 100-IT Center 100% - Filipino SEM-CAL INDUSTRIAL PARK DEVELOPERS, INC. Calaca-Balayan Industrial Park- Special Ecozone 100% - Filipino AURORA ECONOMIC DEVELOPMENT, INC. Sabang Eco-Tourism Zone- Tourism Ecozone 100% - Filipino GYEONGJU DEVELOPMENT CORPORATION GT Times Square Cebu- IT Center 100% - Filipino HANTEX LAND CORPORATION BTTC Center- IT Center 100% - Filipino UNIVERSAL AQUARIUS, INC. Harvester Corporate Center- IT Center 100% - Filipino

Philippine Alert December 2011 42 BUSINESS

TRI INTERNATIONAL PHILIPPINES, INC. Additional/new warehouse to be established at the First Cavite Industrial Estate Inc. - SEZ 100% - Japanese SECURITY LAND CORPORATION SLC Building- IT Center 100% - Filipino E. ROMMEL REALTY & DEVELOPMENT CORPORATION First Industrial Park of Rizal- Special Ecozone 100% - Filipino STK-PRIME REAL PROPERTY DEVELOPMENT Candelaria Agri Special Economic Zone- Agro- Industrial Ecozone 100% - Filipino CORPORATION LITTON & CO., INC. Liberty IT Park-IT Park 100% - Filipino PILIPINAS DEVELOPMENT CORPORATION PDC Information Techno Park- IT Park 100% - Filipino JB REALTY AND DEVELOPMENT CORPORATION JB Building- IT Center 100% - Filipino SUN LIFE OF CANADA (PHILIPPINES), INC. Sun Life Centre-IT Center 99.99% - Dutch ALPHALAND BALESIN ISLAND RESORT CORPORATION Alphaland Balesin Island Resort- Tourism Ecozone 100% - Filipino ALLIANCE MHI PROPERTIES, INC. Foodport Processing Zone- Agro- Industrial Ecozone 100% - Filipino ORTIGAS & COMPANY LIMITED PARTNERSHIP Estancia Mall- IT Center 100% - Filipino APPLEONE PROPERTIES, INC. New Economic Zone IT Facilities Enterprise 100% - Filipino VICSAL DEVELOPMENT CORPORATION Metro Ayala IT Center-IT Center 100% - Filipino DATACOM CONNECT (PHIL.) SDN BHD - PHILIPPINE Additional Site at the IBM Plaza Building, Eastwood City Cyberpark, Quezon City 100% - Malaysian BRANCH FONALITY (PHILIPPINES) INC. New Ecozone I.T. Enterprise 99.99% - American TERADATA GCC (PHILIPPINES) take-over of projects/activities of Teradata Philippines, LLC-Manila Branch Offi ce 99.94% - Dutch 60% - Filipino IWS REALTY CORPORATION New Economic Zone Facilities Enterprise 40% - Japanese UNION MEDICARE CORPORATION New Economic Zone Facilities Enterprise 100% - Korean 23% Non-Filipino (PCD CHINA BANKING CORPORATION China Bank Tower-IT Facilities Enterprise Nominee Corp) 77% Filipino EASTWOOD CYBER ONE CORPORATION Techno Plaza 2.-IT Facilities Enterprise 100% Filipino EZP DEVELOPMENT, INC. New Economic Zone Facilities Enterprise 100% Filipino SEMICYTECH, INC. New Ecozone Export Enterprise 99.88% - Korean RBW REALTY AND PROPERTY, INC. New Economic Zone Facilities Enterprise 100% Filipino CENTEREACH RESOURCES, INC. Economic Zone Facilities Enterprise 100% - Filipino PRIMARY PROPERTIES CORPORATION Economic Zone Facilities Enterpriseenterprises 100% - Filipino TOP-MAR METAL VENTURES CORPORATION New Ecozone Facilities Enterprise- Recovery of ferrous, non-ferrous and other metals 100% - Filipino RECYCLING AND WASTE MANAGEMENT INTEGRATED PACKAGING Recycling of Polystyrene (PS) Scrap 100% - Filipino LOGISTICS MFG. INC. STORAGE, WAREHOUSING AND LOGISTICS SERVICES Warehousing/logistics support services, particularly importation/procurement, storage, FERUSCHE STAINLESS, INC. 100% - Filipino deposit, safekeeping of goods FUJI ELECTRIC PHILIPPINES, INC. Warehousing/logistics services 100% - Japanese VAC 1 INC. Warehousing/Logistics services 100% - Filipino SCHNEIDER ELECTRIC IT LOGISTICS ASIA PACIFIC Distribution, warehousing and logistics function of goods 100% - Singaporean PTE. LTD SYNERGISTICS, INC. Storage, safekeeping of goods, importation, transfer, and distribution 100% - Filipino NICHIVI PHILIPPINES CORPORATION factory/warehouse 99.97% - Japanese TOBACCO MANUFACTURES SILVERFOIL TUBES INTERNATIONAL, INC. Manufacture of Cigarette Filter Tube and Filter Tips 100% - Filipino

Philippine Alert December 2011 BUSINESS 43

FOREIGN DIRECT INVESTMENT BUSINESS CLIMATE INDEX Balance of Payments Concept; JAN-APR 2011 LEVEL (US$ million) YEAR-ON-YEAR Source % CHANGE CURRENT YEAR AGO

TOTAL FDI 779 669 16.44%

of which: equity capital 193 106 82.08%

reivested earnings 223 232 -3.88%

* includes outfl ow of $181 Mn as other capital account.

INDUSTRIAL PERFORMANCE Data Year-on-year Year-to-date OCTOBER 2011 (2000=100) (index) growth growth FDI:BOP CONCEPT Volume of Production Index (VoPI) 94.2 -6.4 8.8 US$ million a. Food 115.4 -27.3 -3.0 b. Beverage 104.2 26.8 21.7 c. Tobacco 7.4 12.1 -32.5 d. Textile 47.8 -1.0 -5.7 e. Footwear and Wearing Apparel 20.6 -18.3 6.6 f. Wood and Wood Products 56.1 -5.1 -21.1 g. Furniture & Fixtures 303.3 144.2 90.8 h. Basic Metals 73.3 -36.6 -10.0 i. Iron and Steel 67.7 -26.2 -17.9 j. Non-ferrous Metals 97.7 -45.8 6.1 k. Fabricated Metal Products 219.0 -8.5 13.0 l. Machinery Excluding Electrical 22.5 -28.3 -34.6 m. Electrical Machinery 62.8 -21.8 2.4

n. Transport Equipment 157.3 17.2 6.4 MOTOR VEHICLE SALES JUNE 2011 Year-Ago Growth rate o. Other Mfg Industries 434.0 66.3 66.7 Data level (%) p. Paper & Paper Products 77.4 -2.5 17.8 Motor Vehicle Sales 93,108 97,122 -4.1% q. Publishing & Printing 50.6 1.8 -8.1 Passenger Car Sales 31,290 32,328 -3.2% r. Leather Products 12.9 416.0 43.3 Commercial Vehicle Sales 61,818 64,794 -4.6% s. Rubber Products 242.7 12.9 10.9 t. Chemical Products 111.0 15.5 19.0 u. Petroleum Products 63.7 8.0 4.5 UNIVERSAL AND COMMERCIAL BANK’S v. Non-Metallic Mineral Products 136.3 13.6 7.7 LOANS OUTSTANDING TO THE REAL ESTATE SECTOR (P Bn)

w. Glass & Glass Products 124.5 -1.8 7.0 % to Total % to Total x. Cement 165.1 19.1 5.4 Jun-11 RE loan Jun-10 RE loan y. Misc. Non-Metalic Mineral 92.5 6.1 15.4 Residential 103.65 29.8 84.52 29.0 Products Commercial 243.84 70.2 206.47 71.0 VALUE OF PRODUCTION INDEX (VAPI) 152.6 1.9 8.1 AVERAGE CAPACITY UTILIZATION 83.1 0.1 83.1

Philippine Alert December 2011 44 BUSINESS BUSINESS CLIMATE INDEX

NO STRIKE IN OCTOBER 2011

No strike was recorded for October 2011, bringing the total number of strikes for the fi rst 10 months of the year to 2. For the same period in 2010, there were 8 strikes LABOR STRIKES Man-days recorded. The 2 strikes in 2011 were declared in January and September. The 2 strikes Strikes declared Workers involved involved 3,828 workers, up from the 3,034 workers involved in strikes during the lost (000) period of January to October 2010. Total man-days lost within the period, however, 2011 2010 2011 2010 2011 2010 dropped from 34,171 days in 2010 to 3,828 days. JAN 1 - 128 - 128 - VISITOR ARRIVALS CLIMB 12.02% FOR THE FIRST 9 MONTHS OF 2011 FEB ------MAR - 1 - 1,800 - 23,400 Visitor arrivals for the period of January to September increased by 12.02% from 2,577,775 in 2010 to 2,887,715 in 2011. Korea retained its position as the largest APR - 2 - 217 - 1,068 source market, still followed by the US and Japan. Arrivals from Korea jumped 29.11%, while that of the US inched up by 4.73%, and Japan by 5.11%. MAY - 1 - 170 - 1,740 JUN ------68.79% HOTEL OCCUPANCY FOR JAN-AUG 2011 JUL ------Average occupancy rate of hotels climbed to 68.79% in the fi rst 8 months of 2011 from AUG - 1 - 47 - 94 68.23% in the same period in 2010. De Luxe hotels still posted the highest occupancy rate at 72.17%, up from 70.53% in 2010. Standard hotels registered the 2nd highest SEP 1.00 - 3,700 3,700 - occupancy rate but slipped from an average of 66.89% in the preceding year to 66.05%. Economy hotels outranked fi rst-class accommodations for the period with an increase OCT - 3 - 800 - 7,869 in occupancy rate from 61.42% to 63.18%. First-class hotels had the least occupancy at NOV ------an average rate of 60.17% from 63.48% in 2010. DEC ------TOTAL 2 8 3,828 3,034 3,828 34,171

STRIKES DECLARED

TOURISM ARRIVALS

MAN-DAYS LOST

VISITOR ARRIVALS JANUARY - OCTOBER 2011 Survey on the Monthly Occupancy Rates & Length of Stay Country 2011 2010 % Change Rank

KOREA 756,863 592,004 27.85 1 2011 2010 ‘11 / ‘10

USA 512,436 493,861 3.76 2 JAN-AUG JAN-AUG GROWTH RATE JAPAN 311,402 300,537 3.62 3 De Luxe Hotels CHINA 195,982 155,579 25.97 4 Occupancy Rates 72.08 70.53 2.20 TAIWAN 153,575 121,679 26.21 5 Length of Stay 3.03 2.74 10.54 AUSTRALIA 133,501 111,817 19.39 6 First Class Hotels CANADA 90,634 80,500 12.59 7 Occupancy Rates 60.18 63.48 -5.20 SINGAPORE 111,200 96,512 15.22 8 Length of Stay 2.46 2.35 4.57 HONGKONG 93,567 114,166 -18.04 9 Standard Hotels UNITED KINGDOM 83,608 76,911 8.71 10 Occupancy Rates 65.68 66.89 -1.81 MALAYSIA 74,826 64,024 16.87 11 Length of Stay 2.35 2.39 -1.67 GERMANY 48,522 46,676 3.95 12 Economy Hotels OVERSEAS FILIPINO 164,499 184,513 -10.85 Occupancy Rates 59.17 61.42 -3.66 OTHERS 455,251 406,794 11.91 Length of Stay 1.93 2.04 -5.45 TOTAL 3,187,877 2,847,583 11.95

Philippine Alert December 2011 CORPORATE BRIEFS 45

ALTERNATIVE FUELS

Eastern Renewables in talks with foreign fi rms for ethanol-cum-biomass facility Eastern Renewables Corporation, the renewable energy unit of local company Eastern Petroleum Corporation, is reportedly engaged in exploratory discussions with potential foreign partners for its proposed bioethanol facility with integrated biomass power component in the province of Negros Occidental province. Discussions on implementation parameters are said to be underway with interested foreign parties such as South Korea’s Hyundai Heavy Industries and Hanwha Corporation, as well as an unidentifi ed Indian consultant. The facility, which is estimated to cost between P1.5 billion and P2 billion, will have a daily production capacity of 100,000 to 125,000 liters of ethanol and a generation capacity of 18 to 20 megawatts. The project is presently on its way towards pre-feasibility phase with project implementation eyed in the near-term.

ELECTRICITY, WATER AND GAS

Manila Water takes over Clark concessionaire Manila Water Co. Inc., the water utility unit of Ayala Corp., has fi nalized a deal for a takeover of Clark Water Corp. (CWC) in Pampanga. Manila Water has completed the sale and purchase agreement for 100% stake in CWC. This was forged with CWC stockholders-- Veolia Water Philippines Inc., Philippine Water Holdings Co. Inc., and Veolia Eau-Compagnie General Des Faux- - in early November and fi nalized by month-end. The deal, which according to Manila Water is less than 10% of its “total book value,” would allow the company to capitalize on the growth potential of the Pampanga area. CWC holds a 25-year concession to serve the Clark Freeport Economic Zone; it serves 1,800 locators, with 83% of sales comprised of industrial and commercial accounts, and has a billed volume pegged at 20 million liters per day. As of the 3rd quarter of 2011, the 9-month asset of Manila Water totaled P64.9 billion.

8 German fi rms looking for PH solar energy investments The German government is spearheading a program for promoting renewable energy in Southeast Asia. In line with this program, 8 German fi rms visited the Philippines to attend to the fi rst Philippine-German Solar energy forum held on November 21 and 24. The companies are hunting for partnerships and projects to explore business opportunities for solar power development. Each of the 8 fi rms, Hoppecke Batterien GmbH & Co. KG, Schott Solar AG, Sonnenwerft, Donauer Solartechnik Vertriebs GmbH, Energiebau Solarstromsysteme GmbH, IBC Solar AG, Inutec Solarzentrum GmbH i.G., and SMA Solar Technology A, export solar technology at about $100 million annually. The fi rst 3 fi rms mentioned have already established operations in Asia in the follow- ing countries: India, China, Indonesia, Japan, Korea, Malaysia, Singapore, Thailand, and Taiwan.

DoE approves Maibarara Geothermal, Inc. project The 20-megawatt Maibarara integrated steam fi eld and geothermal power project in Sto. Tomas, Batangas is now in its con- struction and development phase as the Department of Energy approved its application on November 11. The facility is partly owned by PetroGreen Energy Corporation with a 65% stake while Trans-Asia Oil holds a 25% stake and the Philippine National Oil Company-Renewables Corporation holds 10%. Rizal Commercial Banking Corporation (RCBC) and Bank of the Philippine Islands had provided a P2.4 billion loan for the plant’s construction over the next 2 years, which is payable in 10 years. The P2.4-billion project is located at the western fl ank of Mount Makiling, a part of the Laguna volcanic fi eld. The project is expected to fi nish its construction and start its commercial operation in late 2013.

Montalban Methane Power Corp. to diversify power generation portfolio Montalban Methane Power Corp., a 60-40 joint venture of the Tranzen Group Inc. and Carbon Assets Fund of Cayman Island, plans to concentrate in developing run-of-river hydropower projects in its goal to diversify its power generation portfolio. The company believes that developing hydropower facilities can run economically without relying on feed-in-tariff (FIT) rates. Since FIT rates have not yet been defi ned by the government, the company is concentrating in developing hydropower projects for now. Montalban Methane disclosed that it is preparing to invest P5.2 billion for 3 run-of-river hydropower projects: 1) P516 million for a 4-MW hydropower facility in Rizal (Luzon); 2) P1.29 billion for a 9-MW hydropower facility in Samar (Visayas); and 3) P3.44 billion for a 25-MW hydropower plant in Agusan (Mindanao). Aside from hydropower, the company plans to develop projects in wind and solar power in Luzon.

ELECTRONICS

Cirtek to earn $4Mn in 2012 from new clients Cirtek Holdings Philippines Corp., manufacturer of semiconductors, is expecting additional revenues of $3.5 million to $4 mil- lion for 2012 from the 10 new clients it signed up in the last quarter of 2011. The electronics fi rm has reportedly begun product deliveries to these new clients, which include Spanish appliance manufacturer Fagor, and semiconductor providers Telefunken from Germany and Anadigics from the United States. According to the company, growth in the fi rst quarter of 2012 will likely be driven by sales from its newly-signed clients amid the slowdown in the semiconductor supply chain caused by weaknesses in the global economy. It likewise said that it is well-positioned for growth in 2012 as bulk of its production is focused on wireless applications, considered as a major growth market. Cirtek has earlier given a forecast of its 2012 performance with revenues pegged at $50 million and net income at $5 million. Philippine Alert December 2011 46 CORPORATE BRIEFS

Epson opens new plant in Batangas Epson Precision Philippines Inc. (EPPI), manufacturing subsidiary of Seiko Epson Corp., has recently inaugurated a $110-million printer and projector factory in Lipa, Batangas. Being an expansion project, the new 38,000-square meter facility or Factory 2 is located adjacent EPPI’s existing plant,(Factory 1). EPPI embarked on this expansion project in response to a strong outlook for projector and printer demand. Construction of Factory 2 began on October 2010 and was completed on September 2011,as scheduled. Already in operation, Factory 2 is expected to increase EPPI’s annual projector production capacity to 1 million units and printer production capacity to 6 million units by March 2012, as well as generate 2,000 jobs. Construction of Factory 2 marks the largest expansion in EPPI’s history and the fi rst projector manufacturing plant outside China.

FINANCIAL INTERMEDIATION

Chinatrust delists from local bourse Chinatrust (Philippines) Commercial Bank has obtained shareholder and central bank approval to delist from the Philippine Stock Exchange (PSE). The decision came on the heels of the local bourse’s re-imposition of the 10% minimum public fl oat require- ment with penalties for non-complying fi rms, effective as of November 30. According to Chinatrust, whose public fl oat was only 0.59%, PSE’s rule tightening provided the bank an opportunity to revisit its long-term direction. Chinatrust expressed confi dence that the resulting simplifi ed ownership structure would allow the bank to pursue growth strategies faster. Chinatrust is set to redeem 1.5 million publicly held common shares at P26.14 per share with tender offer period slated on December 27, 2011 until January 27, 2012. Shares of Chinatrust were last traded on December 1, closing at P28 apiece.

SMC acquires minority stake in Skyway operator San Miguel Corp. (SMC), through subsidiary San Miguel Holdings Corp., has acquired a 46% stake in Atlantic Aurum Inc., owner of a controlling interest in Citra Metro Manila Tollways Corp. (CMMTC). CMMTC, local unit of Indonesia’s Citra Group, is the concession holder and operator of the 15-kilometer Skyway elevated toll road stretching from Makati to Alabang. While fi nancial details of the deal have not been disclosed, Citra’s Philippine representative Mr. Alvin Bugtas has said that SMC’s acquisition would support the Group’s aggressive expansion plans in the country. Which is estimated to cost as much as $1.5 billion. The deal, which was initiated upon the invitation of the Citra Group, also includes a continuing option for SMC to acquire up to 51% of Atlantic Aurum at a later date. SMC’s other infrastructure interests include the Tarlac-Pangasinan-La Union Expressway, Caticlan Airport modernization, and the Metro Rail Transit Line 7.

BDO Leasing issues P15Bn in short-term commercial papers BDO Leasing and Finance Inc., a subsidiary of BDO Unibank Inc., is selling P15 billion worth of short-term commercial papers (STCPs) to offset its net loss from matured obligations and lending operations. BDO Leasing states that the net loss is due to the decline in lending and borrowing rates, increase in lending to corporate accounts, and growth of competition. The Philip- pine Rating Services Corporation assigned a PRS 2 minus rating to the proposed amount of STCP line, similarly rated as the P12 billion worth of STCPs issued in 2010. This rating indicates an above average capability of the institution for payment in STCP principal and interest based on capitalization characteristics and synergies.

FOOD AND BEVERAGE MANUFACTURES

Nestle spent P5.4Bn in 2011 capex; Tanauan plant eyed for operations in 2012 Nestle Philippines Inc. (NPI) has announced that it spent P5.4 billion for capital expenditures in 2011. According to NPI executive Daniel Aellen, the company spent P4.8 billion of the total amount for the construction of the new coffee creamer manufacturing plant in Tanauan, Batangas, and the remaining P600 million on equipment and capacity upgrade for existing plants in Laguna, Bulacan, and Cagayan de Oro. NPI’s new plant in Batangas is said to be the fi rst phase of the fi rm’s expansion plans in its 27- hectare Batangas property. It reportedly began construction by late 2010 and is eyed for commissioning in mid-2012. The plant will have an annual production capacity of 80,000 tons of Coffee-Mate coffee creamer, and will serve the domestic market.

MINING AND QUARRYING

Gold Fields to announce decision on acquiring 60% of FSE project In March 2012, Gold Fields Limited, a South African miner, will announce whether will acquire 60% of the Far Southeast (FSE) gold-copper project from Lepanto Consolidated Mining Co. (Lepanto) or not, even if the study is not completely fi nished. Gold Fields signed the options agreement in September 2010 wherein it made its payment of $10 million to Lepanto for options fee and $34 million to Liberty Express Assets, a private holding company, for a non-refundable down-payment. Recently, the com- pany has made its 2nd down-payment of $66 million to continue its exploration as required in the options agreement. Should the company decide to acquire 60% of FSE, it would make a payment of $220 million to Lepanto. The company has started conducting its drilling program and commenced surface geotechnical drilling. It already has 8 underground drill rigs on site. Gold Fields was given 18 months to complete its exploration wherein it plans to deliver a resource report by the 2nd half of 2012.

Philippine Alert December 2011 CORPORATE BRIEFS 47

Philex Mining Corp. gains 27% in its 11-month mining production value Philex Mining Corp., the Philippine’s largest gold producer, gained 27% in the value of its production from the Padcal mine in Benguet for the fi rst 11 months of 2011. It placed the total value of production at P14.9 billion from P11.75 billion a year ago where a large part of the gain came from the 19% increase in the total shipment for copper concentrates within the P12.68 bil- lion worth of total concentrates shipment. Copper concentrates, despite the decrease in price, maintained a production level of around 3.3 million pounds where shipment level is maintained at around 2.7 million pounds. This made copper concentrates a large contributor for the gain in total value of production for the 11-month period against gold and silver, which had fl uctuat- ing levels of production.

PETROLEUM PRODUCTS

Phoenix Petroleum to open 103 stations in 2012 Phoenix Petroleum Philippines Inc., an independent player in the oil industry, is eyeing the construction of 103 service stations nationwide on 2012. Phoenix is planning to construct 43 service stations in the Luzon region, 20 in Visayas, and 40 in Mindanao, as well as depots in Iloilo, Bacolod, and Cebu to support this expansion. Company executive Raymond Zorrilla has disclosed that the expansion program may call for an investment of P500 million, which the fi rm will source from internally generated funds and loans. The program brings with it an expected 25% increase in retail volume. Latest reports indicate that Phoenix currently has 200 operational service stations all over the Philippines, 142 of which are located in Mindanao.

Nido Petroleum and Total team up for PECR4 Nido Petroleum Philippines Pty Ltd, Philippine subsidiary of Australian oil and gas company Nido Petroleum Ltd, has signed a Joint Study and Bid Agreement (JSBA) with United Kingdom’s Total E&P Activités Pétrolières for the evaluation of the 15 blocks offered under the Philippine Energy Contracting Round 4 (PECR4). PECR4 is a competitive bidding system for the country’s onshore and offshore petroleum resource blocks. Nido has a 30% stake in the JSBA, while Total holds the remaining 70% interest. Under the agreement, Nido, in behalf of Total, will undertake technical and commercial evaluations of all 15 prospective petroleum blocks offered under the acreage release. PECR4’s acreage release covers a total of about 10 million hectares, with locations such as Cagayan, Central Luzon, Northwest Palawan, Mindoro-Cuyo, East Palawan, Cotabato, and Sulu Sea. A total investment of about $7.5 million is expected from just the exploration stage of the 15 areas.

REAL ESTATE AND PROPERTY DEVELOPMENT

Meralco to divest of majority stake in Rockwell Land Manila Electric Co. (Meralco), the country’s largest power distributor, is planning to divest of its entire stake in property developer Rockwell Land in order to focus on its core business of power distribution and to develop its power generation portfolio. Meralco owns 51% of Rockwell Land, while the remaining 49% stake is held by First Philippine Holdings Corp. (FPHC). Meralco will exit from the property developer through the declaration of all its shares in Rockwell Land as property dividend to its shareholders ahead of Rockwell’s plans to be listed on the local bourse by way of introduction. Meanwhile, Meralco’s dividend declaration will increase FPHC’s stake in Rockwell Land from 49% to 52%, as FPHC holds a 6.6% stake in the power company. Rockwell Land is the developer of upscale real estate properties such as Rockwell Center in Makati, Rockwell Business Center in Ortigas, and The Grove in Pasig.

Megawide Construction Corp. net income increased by 45.71% in 3Q Megawide Construction Corp. enjoyed a 45.71% gain in the 3rd quarter because of an increase in their booking for projects. Breakdown of net income presented an increase in contract revenues by 49.37%, and a relatively lower increase in contract expenditure by 49.96%. The company is currently working on Filinvest Land, Inc.’s The Linear and Zen Studio projects in Makati and Manila, respectively, and SM Development Corporation’s Jazz Residences Phase 2 in Makati. Megawide is expecting a full- year earning of P750 million and construction contracts worth P5 billion by the end of 2011.

RMACC leases 100 hectares for ‘John Hay Coffee’ Canada’s Rocky Mountain Arabica Coffee Co. (RMACC) and John Hay Management Corp. (JHMC) have signed an agreement in October for a venture in high-quality Arabica coffee to be marketed worldwide as “John Hay Coffee”. In addition to the 60 hectare land leased from the Camp John Hay Development Corp., RMACC has leased another 100 hectares that will be covered by 100,000 trees of high-quality Arabica coffee. This plantation is expected to harvest 300,000 kilograms of premium coffee annually. Bases Conversion and Development Authority (BCDA) President and CEO Arnel Paciano Casanova approved the venture due to its capability to generate employment for the people of Baguio and improve ecosystem of the pine forest within the reserve. Aside from Camp John Hay, RMACC also has plantations in Tuba, Benguet (16ha); Kiamba, Sarangani (100ha); Kitanlad, Libona, Bukidnon (100ha); and Marayon, Talakag, Bukidnon (40ha).

Philippine Alert December 2011 48 CORPORATE BRIEFS

SM Hotels and Conventions Corp. fi nalizes plan to build hotel in MOA SM Hotels and Conventions Corp, a hotel arm of SM Investments Corp., is fi nalizing plans for the Radisson Blu hotel to be located within the Mall of Asia (MOA) complex in the fi rst half of 2012. Radison Blu could be the fl agship hotel of SM Hotels and Con- ventions Corp. The budget for the project has not been revealed yet but the company said that it plans to locate the building between the SMX Convention Center and San Miguel by The Bay restaurant strip, and will house 400 rooms. It aims to serve the MICE (meetings, incentives, conventions, and exhibitions) market. Project completion is seen by 2014.

TRANSPORT SERVICES

PAL suffers $39.4Mn net loss in 2Q Philippine Airlines (PAL) managed a 4.7% increase in total revenue in the 2nd quarter of 2011 from the same period last year. However, their total expenses grew by 22.6% largely because of the increase in average jet fuel prices by 39.05%, from $94.92 per barrel to $131.99 per barrel. This amounted to a $39.4 million net loss. Operating results in the latest months indicated a decline in cargo and passenger traffi c. The decline was partly due to lingering problems on business and leisure travel in the US and European economies, which are experiencing an economic slowdown. The company’s labor dispute issue also affected its operations.

Philippine Alert December 2011 INFRASTRUCTURE 49

1st PPP project bidding: Successful

After a delayed start, the banner program of the Aquino administration, the public-private partnership (PPP) infrastructure program, has been fi nally launched with the successful bidding of the 4-kilometer Daang Hari-South Luzon Expressway road link project.

he 1.956-billion Daang Hari (King’s Road) – South Luzon Expressway (SLEX) road link project has been Tawarded to Ayala Corporation after it submitted the highest bid of P902 million for the 30-year contract to build, operate and maintain the 4-kilometer road project. There were only 2 bidders competing for the road project – the Ayala Corporation partnered with the Spanish engineering fi rm, Getinsa; and the South Expressway Link consortium consisting of San Miguel Corp’s Optimal Infrastructure Development, Inc, Star Infrastructure Development Corp. and Citra Group’s CLGP Philippine Holdings, Inc. The joint venture group of D.M. Consunji Inc. and C.M. Pancho Construction Inc., the only other pre-qualifi ed participant, withdrew from submitting a fi nal bid. There were initially 20 individual fi rms and groups that submitted expressions of interest for the project. Ayala Corporation’s bid of P902 million was superior to acquisition will be completed 6 months after the signing of the P608- million bid submitted by the South Expressway the concession agreement and that commercial operations Link consortium. The government had earlier set a P371- will happen earlier than the expected timeline of August 2013. million fl oor price for the project. The Daang Hari-SLEX The project will complement the Cavite-Laguna East-West road link is the fi rst project to be successfully awarded Highway (CALA Expressway), which is also included in the to the private sector under the Aquino administration’s priority infrastructure PPP program of the national government. flagship public-private partnership (PPP) program. The Daang-Hari-SLEX road link is a strategic component of the Following the successful bidding, the national government Metro Manila Urban Expressway Network Master Plan intended announced that it expects the project proponent to start and to provide a high-standard highway within a 200-kilometer fi nish construction in 2012 and commercial operations to begin radius of Metro Manila. It represents stage 1 of the plan to in 1H2013. However, Ayala Corporation’s own schedule shows complete the circumferential 6 (C-6) road (see project map). that civil works completion will likely be in July 2013. The The road project has long been in the “wish-list” of the DPWH discrepancy in the government and project proponent’s timeline but was not initially included in the priority projects for 2011 was due to the delay in the signing of concession agreement roll-out when the national government launched the PPP program (now expected to happen in the last week of January 2012) last November 2010. The non-inclusion of the road project in the and the right-of-way (ROW) acquisition. Nevertheless, the initial list was due to “project ownership” issues. Prior to the PPP implementing agency of the project, the Department of Public bidding, the contract to construct, operate and maintain the Daang- Works and Highways (DPWH), remains optimistic that ROW Hari-SLEX road link was with Alabang Sto.Tomas Development Philippine Alert December 2011 50 INFRASTRUCTURE

PROJECT TIMELINE Publication of Invitation to Participate and Bid July 20, 27 and August 3, 2011 Pre-qualifi cation (PQ) Conference August 8, 2011 Submission and Opening of PQ documents September 19, 2011 Notice of Pre-qualifi cation September 30, 2011 Pre-bid Conference October 7, 2011 One-on-One meeting with pre-qualifi ed bidders October 18-20, 2011 One-on-One meeting with pre-qualifi ed bidders November 22, 2011 Bid Submission Date of Technical Proposals December 12, 2011 Evaluation of Technical Proposals December 13, 2011 Notifi cation of Bidders December 14, 2011 Opening and Evaluation of Financial Proposals December 15, 2011 Post Qualifi cation December 16, 2011 Endorsement of most responsive post-qualifi ed bidder December 17, 2011 Issuance of Notice of Award December 22, 2011 Signing of Concession Agreement* January 2012 (last week) Design* February 2012 to May 2012 Construction* June 2012 to July 2013 Commercial Operation* August 2013 Compiled by: WBF *- estimates based on interviews and press releases.

THE 2 SEGMENTS OF DAANG-HARI SLEX LINK Total Length: 2.3 kilometers, will start at Km 0 at the Daang Hari–Daang Reyna junction I in Bacoor, Cavite, running generally eastward, Segment 1 passing through the National Bilibid Prison Reservation, and ending at Km 2+300. Civil Works Schedule: June 2012 – December 2012 Total Length: of 1.7 kilometers, will start at the end point of segment 1, Km 2+300, and will end at approximately Km 4+000 to Segment 2 connect with the Susana Heights interchange of the SLEX. Civil Works Schedule: December 2012 –July 2013

PROPOSED TOLL RATES FOR DAANG-HARI-SLEX Class 1 vehicles (jeepneys, pickup trucks, vans and cars) P 17.00 Class 2 vehicles ( light trucks and buses) P 34.00 Class 3 vehicles ( trailers and large trucks) P 51.00

DAANG HARI-SLEX-C6 STAGE 1 & 2 PROJECT

Philippine Alert December 2011 INFRASTRUCTURE 51

WHAT IT’S ALL ABOUT: THE DAAN-HARI-SLEX LINK PROJECT

Project Description and rationale: a new 4 kilometer, 4-lane paved toll road that will pass through the New Bilibid Prison reservation that will connect Bacoor, Cavite to the South Luzon Expressway (SLEX) thru Susana Heights area. The linkage will complement the proposed Cavite-Laguna Expressway (CALA Expressway, also part of the PPP program) and will address the additional requirement for access between Metro Manila and Cavite where rapid urbanization and worsening traffi c is currently being experienced. Project Components: 2 overpasses; 4 local roads; 1 undercrossing; 1 rotunda; and drainage structures. Implementing Agency: Department of Public Works and Highways (DPWH) Mode of procurement: Solicited Total Project Cost: Php 1.956 Billion (US$ 43.5 Million) Government Support: ROW P 177.3 M IC P 10.635 M New Bridge Across SLEX P 70.5 M Expansion of Toll Plaza P 30.0 M TOTAL P 288.435 M

Sources: DPWH and PPP Center

Inc.(ASDI). The ASDI is a company owned by 2 government- has now included in its public-private partnership (PPP) program. owned and controlled corporations (GOCCs), the Philippine However, the various government agencies (the Department National Construction Corp. (PNCC) with 51% ownership; and the of Transportation and Communication and the Mactan-Cebu National Development Corporation (NDC) with 29% ownership. International Airport Authority) involved in the implementation Both PNCC and NDC had hesitated to relinquish ownership of the project have yet to decide exactly what to do with it of the project to the DPWH for inclusion in the PPP program. – whether to sell the existing lot and facilities and move the The ASDI had spent P325 million for the initial road works. entire airport operations to the Municipality of Cordova where Once completed, the road project will decongest traffi c in parts there is more space for future expansion (see map) and then offer of Cavite, Las Piñas and Muntinlupa and will reduce the road the project as a build-operate-transfer (BOT) project; or to stay distance from Daang Hari to the Alabang viaduct by 3 kilometers. in the current location, upgrade the existing facilities through The project will also complement the redevelopment plan for PPP or offi cial development assistance (ODA) fi nancing, the New Bilibid Prison (NBP) (see box for more project details). then privatize operation and maintenance of the facility. For certain companies that have expressed interest (e.g. San Miguel Corporation and Metro Pacifi c Investments Corporation) Keen interest in Mactan-Cebu Int’l Airport whatever way is good. But for some, property developers such as Ayala Land, Inc.; Robinsons Land Inc.; and SM Holdings Project Inc., they prefer the option that requires the transfer of location to have the chance of purchasing the real estate where the ..but the government is uncertain what to do with it. Several of current airport is built for development to other commercial use. the country’s biggest property developers and infrastructure If the government decides to relocate the critical hub to fi rms are keeping a close eye on the Mactan-Cebu Inter- Cordova, the government will likely follow the proposed plan national airport project that has been tentatively scheduled involving the transfer of the Ninoy Aquino International Airport for bidding in 1Q2012. However, the government is unsure to Clark (the money earned from the sale of the old site will be what to do with the project. used to partially fi nance the transfer of operations to the new site). If the government decides to stay, it will follow the same There are several companies eyeing the $180 million pattern it has implemented in the privatization of the Caticlan Mactan-Cebu International Airport Development since it was Airport (currently operated and maintained by San Miguel announced in November 2009 and that the national government Corporation). The government has to decide soon since it has Philippine Alert December 2011 52 INFRASTRUCTURE

PROJECT DETAILS OF THE MACTAN-CEBU AIRPORT Project Description/Rationale: The project involves the redevelopment and upgrading of a passenger terminal building and the essential facilities to cater to international and domestic airline passenger demand, and a new cargo terminal. Due to the steady increase of the traffi c and passenger volume and the introduction of wider-bodied aircrafts coupled with the emergence of modern aviation technology, some airport facilities have become obsolete and inadequate. The Mactan-Cebu Airport Development Project is comprised of the following:

Airfi eld Facilities Terminal Facilities Utilities Runway Extension Power Supply System Passenger Terminal Building and Facilities Taxiways Extension Water Supply System Road (ingress and/or egress) Rapid Exit Taxiways Sewage Treatment Plant Car Park Apron Expansion External Lighting

Implementing Agency: The Department of Transportation and Communication/ Mactan-Cebu International Airport Authority Estimated Project Cost: $180 million Implementation Schedule: 2012 - 2015 Project Timeline: September 2010 – commencement of the $1.4 million feasibility study and master plan preparation for additional terminal and expansion facilities through the KOICA (Korean) assistance. April 2011 – completion of the KOICA-funded feasibility study August 2011 – completion of the KOICA-funded master plan 4Q2011 – Preparation of business cases and bid documents for PPP 1Q2012 – Bidding under PPP 4Q2012 – Contract award

imposed a schedule of 1Q2012 for the bidding of the airport Cebu airport project (see box for details). Apart from being the project. According to the Department of Transportation and busiest and biggest airport complex in the Visayas region, the Communication’s (DOTC) published schedule for the project, if project is the largest airport development on offer under the PPP the bidding for the Cebu airport happens in 1Q2012, it expects program (followed by the Clark Airport Development, whose construction to begin immediately after the contract is awarded, total civil works cost – terminal plus supporting infrastructure –is and the project completed by 2015 (see box for details). With estimated at $150 million). The rest of the airport developments the existing uncertainty however, the tentative schedule of on offer under the PPP program are for privatization through 1Q2012 is unrealistic. In the best-case scenario, the project will the award of the operations and maintenance (O&M) contract. be bidded out in 4Q2012 and awarded in 1Q2013, following the outcome of the privatization of the Laguindingan Airport in Misamis Oriental or the Puerto Princesa Airport in Palawan. There are many reasons why investors are interested in the

Philippine Alert December 2011 INFRASTRUCTURE 53

WHY THE INTEREST IN MACTAN-CEBU AIRPORT? f Passenger traffi c average annual growth is 13.45%. Capacity per annum is 4.5 million. Five local and six international airlines use the airport. Estimated passenger arrivals to grow to 5.8 million in 2020, and 6.4 million in 2025.

f A total of 810,673 foreign and local tourists visited Cebu from January to May in 2011, 10.37% higher than the 734,531 visitors it had for the same period in 2010. f Percentage share of visitor arrivals from Mactan-Cebu Airport grew from 10.49% in 2005 to 12.17% in 2009, making it the second busiest international airport in the country. f 5,631 hotel rooms are expected to open between 2010 and 2013. f Malaspascua and Bantayan Islands in Northern Cebu are fast becoming major destinations for diving and water sports activities. f Investments in accommodation and travel and tour operation are expanding.

Source: Department of Tourism & Department of Transportation and Communication

Philippine Alert December 2011 54 INFRASTRUCTURE

STATUS OF BIG TICKET INFRASTRUCTURE PROJECTS AS OF DECEMBER 2011

IMPLEMENTING FUNDING CIVIL WORKS PROJECT TITLE PROJECT COST STATUS / ISSUES AGENCY SOURCE TIMEFRAME Ayala Corp. won the bidding for the project with a bid offer of P902 million versus South Expressway Link Consortium’s P608-million offer. Ayala set to team up with Spanish Daang Hari-SLEX Link Road Project DPWH PPP 2012 – 2013 P1.96 billion engineering fi rm Getinsa for the project. Construction of Phase 1 is slated to begin on June 2012 and Phase 2 on December 2012. Swiss Challenge scheduled for November did not take place and is now expected by mid-2012 as DPWH awaits ROW confi rmation from DOTC, owner of the air rights over the NLEX-SLEX Connector Road DPWH PPP 2014-2016 P20.18 billion PNR. MPTC-proposed connector road will be constructed over a segment of the railway. Project under negotiation but redesign suggested to accommodate DOTC’s plan for the Manila-Clark express railway. From original rollout schedule of December 2011, the project is now expected to be bid out on the latter part of 2012, with construction eyed on April 2014. CALA Expressway DPWH PPP 2014-2016 P19.98 billion MPIC, meanwhile, has recently reiterated its interest in participating in the bidding for the CALA expressway, among other PPP projects. 80.43% of civil works accomplished as of November 2011; Laguindingan Airport Privatization completion is eyed by January 2012. Rollout is expected on DOTC PPP 2008-2012 P7.85 billion (O&M contract) the 1st half of 2012, while tentative start of operations is slated for 2Q or 3Q2012. Feasibility study including Environmental Impact Assessment conducted by JICA underway as of October 31. Project has been identifi ed as a priority under Sec. Roxas’ hybrid LRT-2 East Extension Construction DOTC/LRTA GP/ODA 3 years $120 million PPP scheme. Under this, low-interest ODA will be used to fi nance project implementation, and once completed, the project’s O&M will be privatized. LRT-2 East Extension Privatization DOTC PPP 20 years $100 million Tentative rollout slated for 2nd half of 2012 (O&M contract) 2011 rollout did not take place. The project, however, has been identifi ed for inclusion in the hybrid PPP scheme with LRT-1 South Extension DOTC/LRTA PPP 4 years P83.25 billion the Korean, Japanese, and Chinese governments reportedly expressing interest in providing funding. Under the new PPP schedule for 2012, the project was LRT -1 Privatization (O&M contract) DOTC/LRTA PPP 3-4 years $171 million relegated to being “in the pipeline” from being in the 2011 initial list for rollout. Project still under review. The BCDA has announced that all infrastructure and development projects in Clark, including the airport terminal project, must go through competitive bidding Clark Airport Development (Terminal) DOTC PPP 2 years P8 billion instead of the unsolicited mode, pursuant to the BOT Law. Pangilinan-led MPTC and unnamed British fi rms reportedly interested. Runway extension and improvement of terminal facilities, Caticlan Airport Development DOTC PPP 2010-2016 P2.5 billion included in Phase 1B, currently underway. Possibility of ODA fi nancing instead of PPP. The Korean Puerto Princesa Airport Development DOTC PPP 2012-2014 P4.4-billion government says it is willing to fi nance the project. NAIA Expressway Phase II DPWH PPP 2012-2015 P10.6-billion Scheduled bidding is set on January 2012. Layouts for the port extension have been presented for the Davao Sasa Port DOTC PPP -- P5-billion project but it is still in its planning stage. P20-billion (not Remains to be a concept. Currently, there are no concrete Balara Water Hub MWSS PPP -- fi nal) plans for the project. Tarlac-Pangasinan-LaUnion Expressway (TPLEX also known as DPWH PPP 2009-2013 P11.6-billion Accomplished 42.52% of the project. TLUTE) To receive OGCC opinion on direction of implementation Bulacan Bulk Water Supply Project MWSS PPP -- -- whether funding source would be PPP or other options. There is a possibility to commence planning stage in 2012. Government issued Supplemental Toll Operation Agreement SLEX Extension to Lucena City DPWH PPP 2013-2016 P9.5-billion (STOA) to SLTC to operate as toll road for recovering investment with rate of return. Team from Singapore’s Changi Airport visited NAIA in NAIA Complex Rehabilitation and December to study the process fl ow and the conduct of Upgrade (includes T1, T2, T3 and DOTC GOP 2012-2013 P1.16-billion daily operations of the terminals. Results of the study Manila Domestic Airport) expected in early to mid-January 2012. Majayjay Water Project LWUA PPP -- -- This is still under preparatory stage. Feasibility study and master plan preparation completed Mactan Terminal 2 Airport in August 2011; Preparation of business caase and bid DOTC PPP 2012-2015 -- Development documents in 4th quarter of 2011; PPP bid by 1st quarter of 2012; Contract award by 4th quarter of 2012.

Philippine Alert December 2011 CONGRESSWATCH 55

House bills approved on 3rd reading Among the key economic/business bills approved by the House of Representatives on 3rd reading are the following: Data Privacy, Rationalization of Fiscal Incentives, and Customs Modernization and Tariffs Act. Before the Congress adjourned on December 17, some 19 additional measures were approved on 3rd reading. Sessions will resume on January 16, 2012.

he Data Privacy Act seeks to protect consumers whose personal data are stored by government offi ces, and even Tcommercial establishments such as banks; promote trust and user confi dence in electronic commerce; and enhance the competitiveness of the Philippines as a hub for the IT-BPO industry. Its counterpart bill in the Senate is currently pending on 2nd reading. The Rationalization of Fiscal Incentives bill seeks to provide an updated and coherent investment policy and harmonizes various incentive-giving laws. A counterpart measure has been filed in the upper Chamber but is still pending in the Committee on Ways and Means. Both the Data Privacy and Fiscal Incentives Rationalization are among the priority measures of the Aquino administration. The following have also been transmitted by the House of Representatives to the Senate for concurrence: ¾ HB 5496 or the Anti-Bullying Act of 2012; 1) Customs Modernization and Tariffs Act; 2) Direct ¾ HB 4936, which decriminalizes vagrancy; Remittance to LGUs of their 40% share from National Wealth Taxes; 3) Intellectual Property Rights Act Amendments; ¾ HB 5509 seeking to provide special polling places for the 4) Lemon law; and 5) Plastic Bag Regulation Act. disabled, the elderly and expectant mothers; Other measures approved by the House of Representatives ¾ HB 5492 granting franchise to the TV Maria Foundation on 3rd reading are the following: Philippines, allowing it to construct, install establish, ¾ House Bill (HB) 5445, which prohibits public and private operate and maintain television broadcasting stations in hospitals from requiring the payment of money from the Philippines; registered nurses who want to gain work experience; ¾ HB 1215, which disallows the granting of parole to ¾ HB 5490 imposing stiffer penalties for the sale of double- persons who were convicted of crimes against minors; dead meat;

Some 18 months into the 15th Congress, only 5 measures have been enacted so far.

Philippine Alert December 2011 56 CONGRESSWATCH

¾ HB 1219 rewarding prisoners with additional special AMLA amendments passed in the Lower time allowance if they exhibit loyalty by not leaving House their places of confi nement during times of calamity or disorder; The House of Representatives approved on 3rd and fi nal ¾ HB 5475, which mandates all government agencies and reading House Bill 4275 amending the Anti-Money private corporations to reserve 1% of all positions for Laundering Act of 2001 a few days after the legislation was qualifi ed persons with disabilities; certifi ed as urgent by President Aquino. The bill expands the ¾ HB 5395 institutionalizing recognizance as a mode of coverage of the offense of money laundering, but is criticized granting the release of an indigent person in custody as an as a diluted version as it excludes a provision allowing the accused in a criminal case. Under the proposed measure a Court of Appeals to authorize the Anti-Money Laundering person charged for a criminal offense punishable with not Council to probe into suspicious accounts without notifying more than 6 years imprisonment, death, reclusion perpetua the account owners. or life imprisonment and does not have the means to put up suffi cient bond or security to avail of the constitutional In a letter to Congress dated December 1, President Aquino right to bail, may be released while their cases are pending called for the immediate enactment of House Bill (HB) 4275 or in court; “An Act Further Strengthening the Anti-Money Laundering Law” ¾ HB 5461 extending the term of the Land Bank of in order to comply with international standards. A few days later, the Philippines and mandating the representation of on December 4, the Lower House passed the bill by a vote of 260-0. cooperatives in the Board of Directors of the state-owned The principal author of HB 4275, Rep. Rufus Rodriguez, has bank; however expressed dissatisfaction over what he calls a “watered down” version of the bill. The measure passed by the Lower House ¾ HB 5471 strengthening the regulation of health facilities struck down an initial amendment to Section 11 of AMLA on the and services in the Philippines; Authority to Inquire into Bank Deposits. The original proposal ¾ HBs 4097 and 5069 declaring October 5 of every year as was for the Court of Appeals to be allowed to issue to the Anti- "National Teacher's Day" and declaring September 3 of Money Laundering Council (AMLC) an authority to inquire every year as special commemorative day to be called the based on the latter’s ex parte application or without need for the National Victory and Liberation Day of the Philippines; Court to notify owners of the suspicious accounts. Instead of this, ¾ HBs 5421 and 5485, which aim to establish an "Adopt-A- however, the chamber adopted the recommendation of Rep. Edcel Wildlife Species Program" providing for the protection, Lagman to replace the ex parte provision with a requirement on rehabilitation, and sustainable management of forest the Court to provide due notice to the account owners. In effect, ecosystem; the amendment upholds the status quo as affi rmed in a 2008 ¾ HB 5431 allowing taxpayers to claim additional tax Supreme Court (SC) decision enjoining the Court to notify the exemption of P50,000 for each physically or mentally account owners before an authority to probe is issued to AMLC. challenged dependent; Thus, the amended Sec. 11 now reads: “…the AMLC may inquire into or examine any particular deposit or investment…upon ¾ HB 5446 strengthening the balanced housing development order of the Court of Appeals, after due notice and hearing…” program. The proposed bill requires the participation of According to Rep. Rodriguez, the exclusion of the ex owners and developers of condominium projects in the parte provision resulted in the “loss of the essence of the government's socialized housing program; and entire amendment” rendering the AMLA “ineffective” and the ¾ HB 2951 amending RA 3326, or the Act to extend the AMLC “toothless”. By replacing the ex parte provision with a prescriptive period for crimes punishable with 6 years to requirement for due notice, the law provides an opportunity for life imprisonment. The prescriptive period refers to the account owners with knowledge of an impending investigation to maximum time that legal proceedings may be initiated. withdraw money from the accounts suspected to be in violation The bill extends to 15 years the prescriptive period for of the AMLA. Former Supreme Court Chief Justice Artemio offenses punishable by 6 years imprisonment and to Panganiban has earlier said that this requirement is “equivalent 20 years for those punishable by life imprisonment. If to telling a thief to hide his loot lest the police discover and seize no legal action is initiated after the expiration of the it.” Rep. Rodriguez has said that he will move for the restoration prescriptive period criminal liability will be put out. of the ex parte provision in the bicameral conference committee. The bills have been transmitted to the Senate for concurrence What remains of the diluted bill is the expansion of the but the Chamber’s action on these measures may have to wait coverage of the AMLA. From covering only transactions as it will convene as impeachment court for the trial of Chief involving proceeds of unlawful activities, the defi nition of Justice Renato Corona when sessions resume on January 16. the crime of money laundering has been expanded to include other acts involving ill-gotten properties (see table for list of amendments). The scope of the AMLA has also been broadened by adding individuals and new institutions to the list of covered entities required to report suspicious transactions, and including more crimes to the list of predicate crimes.

Philippine Alert December 2011 CONGRESSWATCH 57

AMENDMENTS TO THE ANTI-MONEY LAUNDERING LAW HOUSE BILL 4257 SENATE BILL 3009

Covered institutions expanded to include pawnshops, foreign exchange Courts authorized to issue freeze order to include regional trial courts corporations, money changers, money payment, remittance and transfer where the offense was committed or where the property is located, and companies, etc.; as well as casinos, real estate agents, dealers in precious Sandiganbayan, instead of only the Court of Appeals metals and stones, and trust and company service providers Freeze petition to be acted by the court within the day of fi ling or within 24 List of unlawful activities broadened to include terrorism and conspiracy hours (no time frame prescribed under the present law) to commit terrorism, terrorist fi nancing, bribery, fraud, malversation of Restricting authority to issue a temporary restraining order on the freeze order public funds, etc. to the Supreme Court (under the existing AMLA, this authority may also be Defi nition of the money laundering offense expanded to include exercised by the Court of Appeals) conversion, transfer, disposal, movement, acquisition, possession, use, Authority to inquire into deposits amended to allow court’s approval of AMLC’s concealment or disguise of the proceeds petition based on ex parte application or without need to notify account Authority to inquire into deposits amended to require the Court of Appeals owners to notify and hear the pleadings of account owners before granting authority to AMLC

Sources: House of Representatives, House Bill No. 4257; Senate of the Philippines, Senate Bill No. 3009; Republic Act No. 9160, Anti-Money Laundering Act of 2001; and Republic Act No. 9194 amending the AMLA of 2001

SENATE BILLS APPROVED ON 3RD READING SO FAR

SBN – 78 Househelpers Additional Benefi ts and Protection SBN – 480 Replacing the term “spouse of age” with “either spouse” SBN – 1052 Family Code (Divorced Obtained Abroad) SBN – 2486 Foster Care SBN – 2671 Career Executive System Act SBN – 2726 Vagrancy SBN – 2808 Subsidiary Imprisonment SBN – 2811 People’s Survival Fund (Climate Change) SBN – 2817 Involuntary Disappearance Act SBN – 2875 Security of Tenure of casual/contractual employees of the government SBN – 2941 Geology Profession Act

Meanwhile, the Senate has begun deliberations on the Senate adopts Terrorist Financial Suppression counterpart Senate Bill (SB) 3009. Amendments under SB 3009 are focused on Sections 10 and 11 of the AMLA, the former Act referring to the Freezing of Monetary Instrument or Property (see table for list of amendments). Among other things, the The Senate Committee on Banks, Financial Institutions Senate, like the Lower House, is seeking for the inclusion of the and Currencies has adopted in full Senate Bill (SB) 2676 ex parte provision in Sec. 11 of AMLA. According to Senator or the Terrorist Financial Suppression Act of 2011 authored Teofi sto Guingona, sponsor of the bill, SB 3009 is proposing by Senator Edgardo Angara. that the law clearly state the phrase ex parte in describing applications for the authority to inquire. He notes that the Senator Angara lauded the chamber’s move and pushed for 2008 SC decision prohibited ex parte applications not because the immediate enactment of the bill. “(Senate Bill 2676) will this is unconstitutional, but because it is not guaranteed by “a criminalize the act of fi nancing terrorist activities as an independent clear provision in the law” as the phrase is not mentioned in punishable offense.” He added that the measure will empower the AMLA. Sen. Guingona claims that the notice requirement authorities to “thwart terrorists even before they act because that also affords the account owners opportunities to fi le without funding, terrorists will not be able to mobilize their forces.” comments and pleadings impedes the immediate resolution of the The proposed bill gives the government power to look application for authority to inquire, hence posing as an obstacle into the accounts of suspected terrorists even without to AMLC’s efforts to curb money laundering. With Congress a court order and to freeze the accounts immediately. already on holiday break, SB 3009 will most likely be passed These are seen to prevent the concealment or destruction by the Upper House early next year when it resumes session. of incriminating evidence against terrorist financing. Amendments to the AMLA are among the priority Once signed into law the authority of the Anti-Money measures endorsed by President Aquino to the Legislative- Laundering Council (AMLC) will be expanded to allow the Executive Development Advisory Council. These are also body to make pre-emptive and remedial action as well as included in the list of bills supportive to business that Congress request foreign assistance, including extradition of suspects. should prioritize, drafted by the Joint Foreign Chambers.

The exclusion of the ex parte provision resulted in the “loss of the essence of the entire amendment”.

Philippine Alert December 2011 58 CONGRESSWATCH

The Philippines is at extreme risk of terrorist attacks, along with Somalia, Pakistan, Iraq, Afghanistan, South Sudan, Yemen and Congo.

SENATE BILL 2676’S DEFINITION OF TERRORIST ORGANIZATION AND TERRORIST FINANCING

The proposed measure defi nes terrorist organization as any entity owned or controlled by any terrorist group of terrorists that: commits or attempts to commit, acts of terrorism by any means, directly or indirectly, unlawfully and willfully participates as an accomplice in acts of terrorism organizes or directs others to commit acts of terrorism contributes to the commission of acts of terrorism by a group of persons acting with common purpose of furthering the acts of terrorism where the contribution is made intentionally and with the aim of furthering the acts of terrorism Terrorist fi nancing – any person who, directly or indirectly, willfully and unlawfully, provides, collects or uses property or funds or makes available funds to be used: 1) to carry out acts of terrorism; 2) by a terrorist organization; or 3) by an individual terrorist.

The bill also defi nes terrorist entity or organization, terrorist fi nancing and conspiracy to commit terrorist fi nancing (see box). Persons found guilty of terrorist fi nancing and those who conspire to commit the crime will suffer the penalty of reclusion perpetua or jail term of up to 40 years and a fi ne of not less than P500,000 nor more than P1 million. The bill also stipulates that once enacted, the Philippine government should negotiate the inclusion of terrorist fi nancing among extraditable offenses in all treaties it enters into. The measure will take effect 15 days after its publication in the Official Gazette (www.gov.ph) or in at least 2 newspapers of general circulation. Calls for the enactment of an Anti-Terrorist Financing Act intensifi ed after the United Kingdom-based analyst Maplecroft ranked the Philippines 13th among 198 countries in its 2011 Terrorism Risk Index. This means that the Philippines is at “extreme risk” of terrorist attacks, along with Somalia, Pakistan, Iraq, Afghanistan, South Sudan, Yemen and Congo. Senate Bill 2676 was introduced to the plenary on February 7, 2011. It is currently pending on 1st reading. Its counterpart measure in the House of Representatives, HB 753, has been referred to the Committee on Justice and is also pending on 1st reading. The measure has yet to get past 1st reading despite being among the priority bills of the Aquino administration.

Philippine Alert December 2011 CONGRESSWATCH 59

PRIORITY BILLS FOR THE 15TH CONGRESS: AN UPDATE AS OF 02 DECEMBER 2011

STATUS BILL NO. TITLE SALIENT FEATURES HOUSE SENATE AGRICULTURE, ENVIRONMENT AND NATURAL RESOURCES Seeks to amend certain sections of the Comprehensive Agrarian Pending in HB 1726 Pending in Committee CARP Reform Reform Law, such as expanding the defi nition of agricultural Committee on SB 883 on Agrarian Reform lands Agrarian Reform HB 1429 Pending in Pending in Committee Clean Air Act Amendment Seeks to strengthen the Clean Air Act and its implementation Committee on on Environment and SB 2909 Ecology Natural Resources Seeks to consolidate and strengthen the procedure for fi ling Pending in Pending in Committee HB 8 Environmental Impact Assessment and implementing Environmental Impact Assessment and Committee on on Environment and SB 1362 Amendment issuance of Environmental Compliance Certifi cate Ecology Natural Resources Pending in Pending in Committee HB 4 Creates the Land Administration Authority and institutes Committee on Land Administration Reform Act on Environment and SB 2114 reforms in land administration system Government Natural Resources Reorganization Pending in Pending in Committee HB 2717 Mining Act Amendments Seeks to amend various provisions of the Mining Act Committee on on Environment and SB 1365 Natural Resources Natural Resources HB 4840 Seeks to discourage and phase out the use of plastic bags in the Transmitted to the Pending in Committee Plastic Bag Reduction Act SB 1543 retail industry Senate on Trade and Commerce FINANCE AND CORPORATE GOVERNANCE Seeks to exempt employees of the Bureau of Internal Revenue Pending in HB 292 BIR/BOC exemption from Salary and Bureau of Customs from the salary standardization to Pending in Committee Committee on Ways SB 809 Standardization promote the hiring and keeping of professionals within these on Finance and Means offi ces Seeks to expand the authority of the BSP to supervise and Pending in Pending in Committee HB 5394 regulate the operations not just of banks but also quasi-banks Committee on on Banks, Financial BSP Charter amendment SB 708 and other fi nancial institutions that perform quasi-banking Banks and Financial Institutions and functions; grants the BSP ‘tax-exempt’ status Intermediaries Currencies Customs and Tariffs Modernization Seeks to prescribe the guide for customs and tariff Approved on 3rd HB 3224 None Act modernization reading Seeks to establish a Medium Term Fiscal Accord (MTFA), Pending in set caps on national debt and personnel services, ensure Pending in Committee SB 2177 HB 2263 Fiscal Responsibility Act Committee on funding for enacted laws, and strengthen transparency and on Finance Appropriations accountability in government transactions. Pending in Pending in Committee Seeks to enable the insurance industry to adequately address HB 1502 Committee on on Banks, Financial Insurance Code amendment the various issues and challenges in both local and foreign SB 2500 Banks and Financial Institutions and insurance markets Intermediaries Currencies HB 4935 Rationalization of Fiscal Seeks to rationalize the grant and administration of fi scal and Transmitted to the Pending in Committee SB 2142 Incentives non-fi scal incentives Senate on Ways and Means Seeks to provide an uniform and equitable taxation by limiting the allowable deductions for self-employed individuals or Simplifi ed Net Income Taxation Pending in Committee SB 380 professionals and to grant self-employed individuals and None Act on Ways and Means professionals an optional standard deduction of 40% of gross income Pending in Committee Seeks to enhance regulatory environment that will allow the on Banks, Financial SB 2009 Stock Market Competitiveness Act Philippine stock market to grow by taking out unnecessary tax None Institutions and impediments Currencies Pending in Seeks to adopt a just, equitable, impartial and nationally HB 1164 Committee on Pending in Committee Valuation Reform Act consistent valuation based on internationally accepted SB 2360 Government on Ways and Means standards, concepts, principles and practices Reorganization HUMAN CAPITAL DEVELOPMENT AND HEALTH Pending in HB 479 Seeks to ban asbestos in all forms of construction materials to Pending in Committee Asbestos Ban Committee on SB 89 ensure the safety and health of Filipinos on Trade and Commerce Ecology Creative Industries Development Seeks the creation of the Creative Industries Development Pending in Committee SB 1064 None Council Council on Trade and Commerce Pending in Amends the Expanded Government Assistance To Students and Pending in Committee HB 88 Committee on Basic GASTPE Act amendment Teachers In Private Education Act; Provides for an expanded on Education, Arts and SB 2035 Education and voucher or coupon system in secondary and tertiary education Culture Culture Seeks to reinforce the role of labor in Philippine economy by Pending in Committee Pending in HB 3321 Omnibus reform for the Labor amending various provisions of the labor code; calls for partial on Labor, Employment Committee on Labor SB 868 Code amendment to Book V relating to labor cases at the NLRC, and Human Resources and Employment rights of workers to bargain effectively, and the right to strike Development HB 4276 Night Work Prohibition of Women Lifts the ban on night work for women Signed into law Republic Act 10151 SB 2701 Employees HB 4244 Reproductive Health and Seeks to strengthen the people’s right to information on the Pending on 2nd Pending on 2nd reading SB 2865 Populace Development various methods of family planning reading

Philippine Alert December 2011 60 CONGRESSWATCH

INFRASTRUCTURE AND INFORMATION TECHNOLOGY Seeks to bring Philippine telecommunications, broadcast communication, cable television and broadband industry at par Convergence: Telecom Policy Pending in Committee SB 229 with global trends and standards through technology transfer, None amendment on Public Services and to prescribe the entry capital for both foreign and local companies Approved by the Seeks to defi ne and penalize cybercrimes and computer- Committee on HB 85 facilitated crimes, which include data theft, online fraud, Anti-Cybercrime Act Information and Pending on 2nd reading SB 2796 hacking, online pornography, introduction of viruses, and Communications computer sabotage. Technology Seeks to protect consumers, promote trust and user confi dence HB 1554 Transmitted to the Data Privacy Act in electronic commerce, and enhance the competitiveness of Pending on 2nd reading SB 2965 Senate the country as a hub for the BPO industry Upgrades the Commission on Information and Communications Technology (CICT) and seeks to raise public sector focus and Creation of Department of HB 4667 usage of e-governance ; The DICT will be tasked to formulate Approved on 2nd Information and Communications Pending on 2nd reading SB 50 national communication policies, standards, and specifi cations reading Technology (DICT) for telecommunications, automated data processing and management information systems Seeks to achieve a more self-suffi cient energy mix, Pending in Committee SB 2027 Energy Effi ciency Act reduce consumption of oil and coal, and ensure long-term None on Energy sustainability Pending in HB 1291 Seeks to re-commission the Bataan Nuclear Powerplant to allow Pending in Committee Nuclear Power Resolution Committee on SB 1642 its commercial operation on Energy Energy Pending in Committee on HB 2848 Seeks to regulate the use of voice over internet protocol (VOIP) Pending in Committee VOIP Act Information and SB 1067 to avoid abuse and misuse on Public Services Communications Technology Pending in Seeks to consolidate maritime and admiralty laws and to HB 1156 Maritime Law Committee on None modernize the maritime industry Transportation Among the proposed amendmentsare the following: addition of new PPP variants or contractual arrangements, such as Technical Working joint ventures, concessions, and management contracts; HB 4151 BOT Law Amendments Group (TWG) None restructuring and tightening of eligibility requirement for drafting bill unsolicited proposals; and the composition of the approving body at the national and local levels. PUBLIC SECTOR GOVERNANCE Seeks to expand the defi nition of money laundering and include HB 4275 Approved on 2nd AMLA amendments other crimes in the list of predicate crimes for the purposes of Pending on 2nd reading SB 2484 reading money laundering Pending in Committee Pending in HB 588 Seeks to extend the prescriptive period in graft and corruption on Constitutional Anti-corruption amendments Committee on SB 472 cases Amendments, Revision Revision of Laws of Codes and Laws Seeks to defi ne private armies, provide the executive with the Pending in Pending in Committee HB 2111 Anti-private Armies Act power to dismantle them and penalize leaders, protectors, Committee on in Public Order and SB 238 fi nanciers, suppliers and members of such groups Justice Illegal Drugs Seeks to strengthen the drive against anti-smuggling by Pending in HB 46 Pending in Committee Anti-Smuggling Act increasing the penalty and empowering the Commission on Committee on Ways SB 2408 on Ways and Means Audit to perform post-entry audits. and Means Intends to promote a level playing fi eld in trade, industry and all commercial economic activities, and rid the country of HB 3534 Approved on 2nd Pending in Committee Anti-Trust Act abusive monopolies, cartels, and anti-competitive behavior. SB 1838 reading on Trade and Commerce Promotes easier and more effective entry of new players in the market. Pending in Seeks to systematize appointments and promotions in the Committee on Transmitted to HB 2947 Career Executive Systems Act government by providing for a systematized career rank Civil Service the House of SB 2671 progression in the bureaucracy and Professional Representatives Regulation Seeks to ensure public access to offi cial records, documents Pending in Pending in Committee HB 1033 Freedom of Access to Information and any other information of public concern and compel all Committee on Public on Public Information SB 2283 Act government offi ces to comply with requests for information on Information and Mass Media matters of public concern Pending in Committee on Government Classifi cation and Seeks to reclassify positions and compensation of government HB 1027 Civil Service None Compensation Act employees by providing step increments and Professional Regulation Seeks to amend the Intellectual Property Code through the HB 47 Intellectual Property Rights Act integration of comprehensive, swift, effi cient and adequate Transmitted to the Pending on 2nd reading SB 2842 amendments strategies designed to respond to the criminal onslaught of Senate internet piracy. Pending in Pending in Committee HB 3248 Committee Jueteng Act Seeks to legalize jueteng on Games, Amusements SB 2548 on Games and and Sports Amusements

Philippine Alert December 2011 CONGRESSWATCH 61

Seeks to protect consumers in the sale of motor vehicles HB 4841 Transmitted to the Pending in Committee Lemon Law against sales and trade practices which are defective, unfair SB 1310 Senate on Trade and Commerce and inimical to the interests of the consumers and public Pending in Pending in Committee HB 846 Seeks to strengthen the powers of the Offi ce of the Ombudsman Act Amendment Committee on on Justice and Human SB 1447 Ombudsman Justice Rights Pending in Seeks the creation of the Philippine Transportation Security HB 299 Philippine Transportation Security Committee on Pending in Committee Authority which will consolidate civil aviation, maritime, land SB 970 Authority Government on Public Services and rail security programs Reorganization Pending in HB 132 Seeks to set up a system of rewards and protection for Whistleblowers Protection Act Committee on Pending on 2nd reading SB 2860 whistleblowers and their families. Justice Seeks to promote fi nancial viability and fi scal discipline in government-owned or controlled corporations and to HB 4067 Signed into law GOCC Governance Act of 2011 strengthen the role of the state in its governance and SB 2640 Republic Act 10149 management to make the GOCCs more responsive to the needs of the public Appropriates funds for the operation of the government of the General Appropriations Act for HB 5023 Republic of the Philippines from January 1 to December 31, For signing of the President FY 2012 2012 and for other purposes

Philippine Alert December 2011 Regional Update

Asia Pacific Executive Brief

December 201

Editor: Richard Martin ([email protected]) Regional economist: Andrew Hordern ([email protected]) Consulting economist: Kostas Panagiotou

CONTENTS

Overviews Global Outlook Regional Outlook North Asia Japan China Hong Kong Taiwan South Korea Southeast Asia Indonesia Malaysia Philippines Singapore Thailand Vietnam South Asia India Australasia Australia New Zealand

62

Regional Update

Global outlook

Our main 2012 There is little doubt that a Euro area crisis is building and that under all likely scenarios the scenario Euro area (19.4% of global GDP) will contract in 2012. The key issue for global growth is how this affects the US (23.3% of global GDP) and China (9.3%). If it is mainly through a … growth slows loss in export demand then global growth will slow about one third from the rate set in 2011. by a third from A gradual build in the US recovery will lift growth to 2.2% in 2012 and China will pull off a 2011 soft landing with growth of 8.4%. Combining our Euro and China scenarios from Q4 into … with three one main global scenario, we’d give this outlook a 50% chance. The three threats to this risks to watch are contagion from the Euro crisis spreading via banks; political battles in Washington triggering a loss in confidence or a fiscal tightening in the US; and China overshooting in its efforts to curb three big problems (a housing correction, local government debt, and bad loans at banks).

2012 risk is on the The main alternative global scenario is for one or more of the three risks listed above to downside blow up. The greatest risk lies in contagion via banks from an escalating Euro crisis. The latest commentary on the Euro crisis suggests a negative feedback loop is building … with a 40% between sovereign and bank risk, with the capacity for a rapid escalation in risk. The risks chance for a in China are big but they have the money and a plan to fix them (see the China page). The worse outcome US risks stem from a loss of capacity for compromise (the cornerstone of good government), but just 24 hours of common sense is needed to set a course to curb risk. For working purposes, we can give this bundle of risks a 40% probability, with the focus being on Euro area contagion. Under this scenario we face GFC2 next year.

Upside potential In our Q4 meetings we gave the optimistic scenario a 10% probability and doubted its lies in China, the prospects for improvement. But that may be due to a misunderstanding of where the US & emerging opportunity for a better outcome lies. The latest data from the US (see below) and from markets Asia (the following pages) suggests the best case scenario comes from effective ring fencing of contagion issues in the Euro area and stronger-than-expected growth in the US, China, and emerging markets (the latter being pulled up by China and the US). Gains in these areas are quite possible so we should watch for them.

The US is doing The latest data suggests that the US is performing better than expected, even though better than earnings growth is trending down and will likely be hit in 2012 by weakness in Europe. expected Upward revisions to employment growth show an average monthly increase of 132,000 jobs (including provisional estimates) for the five months to November, with the November unemployment rate dropping to 8.6% from 9% as stronger private sector hiring offset the loss in public sector jobs. Auto sales in November climbed a strong 14%yoy to a seasonally adjusted annual rate of 13.6m units, consolidating a rising trend apparent for the last three months. Retail sales growth of 6.7%yoy in November was below expectations but still points to steady expansion.

Inflation should A mild fall in global inflation is expected over the next year as downward pressure on prices ease despite firm from weaker global growth is partly offset by continued firm commodity prices and the commodity prices money sloshing around from quantitative easing by central banks. With signs of a US recovery building, the US Fed is unlikely to opt for QE3 but has reaffirmed that its policy rate will be kept close to zero until mid-2013. High levels of global risk combined with a gradual US recovery suggest a mildly stronger US dollar next year.

IMA Asia’s forecasts 2008 2009 2010 2011 2012 World – Real GDP growth, % 2.9 -0.7 5.1 3.8 3.0 - US 0.0 -2.6 2.9 1.6 2.2 - Euro area 0.4 -4.3 1.8 1.0 -0.5 - Asia/Pacific (14) 2.9 0.7 7.0 4.2 3.9 - NICs (4) 1.8 -0.7 8.1 3.9 2.7 - Developing Asia (7) 8.0 7.4 9.8 8.1 7.4 - ASEAN (5) 4.6 1.5 6.9 4.6 4.1 World goods & services trade volume, % growth 2.7 -10.9 12.8 6.5 4.0 Interest rates, US Fed target rate, year end, % 0.25 0.25 0.10 0.10 0.10 Inflation, CPI, US, year avg., % 3.8 -0.3 1.6 3.0 1.6 Inflation, CPI, Euro area, % 3.3 0.3 1.6 1.5 0.8 Crude oil, avg of 3 spot crudes, US$ 97 62 79 94 97 US$ / Euro 1, year average rate 1.47 1.39 1.33 1.38 1.36 Yen / US$1, year average rate 103 94 88 79 74 The Asia/Pacific 14 = the countries on the forecast summary page. NICs are the newly industrialised countries = Korea, Taiwan, HK, Singapore. The ASEAN 5 = Indonesia, Thailand, Malaysia, Philippines and Vietnam. Developing Asia = Asean 5 + China and India. IMA Asia forecasts.

Richard Martin, IMA Asia ♦ Email: [email protected]

63

Regional Update

Regional outlook

Summary of forecasts in this month’s Asia Brief

GDP (Expenditure), real growth, % 2008 2009 2010 2011 2012 Japan -1.0 -5.5 4.4 -1.0 -1.0 China 9.6 9.2 10.3 9.3 8.4 Hong Kong 2.3 -2.7 7.0 4.6 2.6 Taiwan 0.7 -1.9 10.9 4.6 2.8 South Korea 2.3 0.3 6.2 3.5 3.0 Indonesia 6.0 4.6 6.1 6.4 5.5 Malaysia 4.8 -1.6 7.2 4.5 1.8 Philippines 4.2 1.1 7.6 3.1 2.4 Singapore 1.5 -0.8 14.5 3.8 1.5 Thailand 2.5 -2.3 7.8 1.4 3.8 Vietnam 6.3 5.3 6.8 5.6 4.4 India (CY) 6.2 6.8 10.4 7.3 6.5 Australia 2.5 1.4 2.6 2.0 2.8 New Zealand -0.8 0.1 2.2 1.1 2.6

Inflation, CPI year average, % 2008 2009 2010 2011 2012 Japan 1.4 -1.4 -0.7 -0.3 -1.2 China 5.9 -0.7 3.3 5.8 4.5 Hong Kong (composite CPI) 4.3 0.6 2.4 5.6 3.5 Taiwan 3.5 -0.9 1.0 1.2 1.0 South Korea 4.7 2.8 3.0 3.9 2.3 Indonesia 9.8 4.8 5.1 5.5 4.5 Malaysia 5.4 0.6 1.7 2.9 2.5 Philippines 9.3 3.3 3.8 4.5 3.7 Singapore 6.6 0.6 2.8 5.1 2.5 Thailand 5.4 -0.9 3.3 4.2 4.0 Vietnam 23.1 6.7 9.2 18.0 15.0 India (CY CPI urban non-manual workers) 8.4 10.9 12.0 9.0 7.5 Australia 4.4 1.8 2.8 3.3 2.8 New Zealand 4.0 2.1 2.3 4.3 3.2

Exchange rate to US$1, year avg. 2008 2009 2010 2011 2012 Japan 103 94 88 79 74 China 6.95 6.83 6.77 6.46 6.33 Hong Kong 7.79 7.75 7.77 7.75 7.75 Taiwan 31.5 33.1 31.6 29.5 29.6 South Korea 1,100 1,277 1,159 1,109 1,168 Indonesia 9,757 10,356 9,086 8,821 8,910 Malaysia 3.33 3.52 3.22 3.08 3.14 Philippines 44.5 47.6 45.1 43.4 43.4 Singapore 1.41 1.45 1.36 1.27 1.30 Thailand 33.0 34.3 31.7 30.5 31.1 Vietnam 16,506 17,860 19,151 20,659 21,861 India (FY) 43.8 48.3 45.8 47.0 52.0 Australia 1.20 1.27 1.09 1.01 0.99 New Zealand 1.43 1.60 1.39 1.28 1.31

Sources: CEIC, central banks, and national statistics offices. Forecasts are by country directors and IMA Asia.

64

Regional Update

Regional outlook

Political & policy issues to watch

2012 elections All of North Asia’s leadership could change in 2012. China’s leadership change is the most important for the world and fortunately it remains on track for a stable transition. HK’s … Taiwan’s change is predictable in that a pro-Beijing candidate will win. The presidential polls in Korea needs watching and Taiwan are hard to call, and Taiwan’s January contest bears watching as the result could bring a slowdown in expanding commercial ties with China. An early poll is possible in Japan but with little chance for a reduction in legislative gridlock. Malaysia also appears to be moving to an early poll in 2012 that will likely see a return of a mildly reformist government led by PM Najib.

RISK: India’s Six years of reasonably effective leadership by PM Singh and Sonia Gandhi has broken political vacuum down due to Mrs Gandhi’s illness. This comes at a time of economic stress for India, which will unfortunately magnify country risk until it is resolved.

Most of Asia Pac Unlike advanced markets, much of East Asia has scope for a modest fiscal stimulus in 2012 has scope for to offset weaker global growth. China will not repeat its massive, but high-risk, 2009/10 fiscal stimulus stimulus, but it will aim to ensure strong consumer spending continues while also in 2012 underpinning sufficient construction to prevent a spike in unemployment. Korea, Taiwan, HK, Singapore, Malaysia, and Australia all have scope for fiscal stimulus while Thailand should benefit from post-flood reconstruction, funded mostly by a big insurance payout. Three markets have no scope for fiscal stimulus: Japan, India, and Vietnam.

Asia’s risk Asia’s sovereign risk ratings remain steady, and under our main global scenarios (Euro ratings muddle through and a China soft landing) there is scope for upgrades in the next year for Indonesia, the Philippines, and China. If anything, the inversion of global risk that started in … scope for the 2008/09 GFC has been accentuated by the Euro crisis. Moody’s reports that in early upgrades December the average 5-year credit default swap for China, South Korea, Indonesia, Malaysia, the Philippines, and Thailand had edged up 65 basis points (bp) to 163, but this is … with strong well below the Eurozone average, which (excluding Greece) has jumped 122 to 305. As a capital inflows in result, financing costs for Asian sovereigns and corporates have remained low, with the yield 2012 on 10-year local currency sovereign bonds for Japan, Singapore, and HK under 2% while China, Korea, Malaysia, and Thailand bonds are in the 3-4% range. Even yields for the Philippines (at 5.5%) and Indonesia (at 6.2%) are currently below those for Italy (6.5%). Corporates in emerging Asia have been able to take advantage of this, with a 5.5%yoy lift in the local currency bond market in Q3’11 to US$5.5 trillion according to the ADB. Global investors are likely to reweight in favour of Asian bonds over the next year.

Outlook for the market

Most of Asia Our final Brief for 2011 finds that seven of our 14 markets – China, Korea, Indonesia, faces a mild Malaysia, Thailand, Australia, and NZ - face a mild dip in growth in 2012 with some capable slowdown of surprising on the upside. HK, with its very high exposure to global trade, will likely be helped by China’s support for consumer spending, while the Philippines will benefit from steady inward remittances and a lift in public spending. Taiwan and Singapore are most exposed to weaker trade and 2012 growth will likely halve from 2011. India and Vietnam face significant macro challenges and it may take six months for them to stabilise. Weak currencies in both countries sets them up for a strong export lift through 2012.

A mild monetary Inflation has peaked across Asia and we expect a steady decline over the next year. Lower stimulus inflation will open the way for modest rates cuts, supporting local demand growth.

Weaker Asian With the US$ on a mild appreciation trend, most Asian currencies have fallen back by 5-10% currencies from high points reached around August. Given the weak global trade outlook and the through 2012 unfolding Euro crisis, Asia’s currencies will remain weak on the greenback until a stable global growth cycle emerges in 2H’12. China appears to be signalling that it will slow Yuan appreciation and we’ve cut the 2012 forecast rise from 4% to 2% on the US$. On the cross rates, this will put the Yuan up some 8-10% on other Asian currencies, which will prefer a 5% fall on the US$ through 2012. This suggests a continued realignment of regional manufacturing costs while also amplifying China’s import demand to the advantage of its neighbours. India’s rupee has plunged further and faster than we anticipated but we expect the fall to stabilise in the next month with scope for a slow recovery from 2H’12.

Richard Martin, IMA Asia ♦ Email: [email protected]

65

Regional Update

Japan

Political & policy issues to watch

Japan’s weak More of the same might be one forecast for Japanese politics and policy based on the governments experience of the last 31 years with the exception of PM Koizumi’s reformist and lengthy term (2001-06). This means weak governments with frequent leadership changes (the 14 … it’s hard to other prime ministers since 1990 lasted an average of 13 months each). The policy break the cycle gridlock is captured in a steady rise in gross public debt from 68% of GDP in 1990 to 220% in 2010. Yet the great misfortunes of this year (a soaring Yen, the tsunami, Thailand’s floods, and the Euro crisis) have crystallised two challenges: the government is running out of money; and the options for domestic growth are dwindling.

Many will say we PM Noda, who has been in office for four months, is struggling to provide stability and a are wrong plan. He confronts an opposition LDP, which controls the upper house and is threatening to gridlock parliament in 2012 with the aim of forcing the DPJ-led government into an early … but Japan is poll (the next is not due until late 2013). Noda is attempting to sidestep the controversies little better than stirred up by his stumbling ministers so he can focus on post-tsunami reconstruction and Greece passing a bill by the end of March that would double the sales tax by the middle of this decade to pay for rising pension obligations. This permanent tax hike, along with … facing big temporary direct tax hikes to pay off the bonds for post-tsunami reconstruction, will likely tax hikes & few pass as there is no other option. The opportunity to take this crisis as a chance for reform growth options was raised, briefly debated, and then dropped. A large tax hike without reform is simply a tax shock to the economy, which we believe will undermine trend growth through to 2020.

Outlook for the market

An end to Japan has upgraded its Q3’11 GDP estimate to show stronger growth of 1.4% on the prior Japan’s post- quarter (but down 0.7%yoy). Much of the lift from Q2’11 came from inventory rebuilding, tsunami upturn which will halt if not reverse in Q4 given the weak global outlook. We’ve kept our 2011 GDP estimate of -1% with the same again in 2012 followed by a lift to 1.8% growth in 2013. … as the Euro Consumer spending fell 0.1%ytd for the first three quarters, with no growth for the full year crisis hits in Q4 and 0.4% growth likely in 2012. Fixed investment dropped 0.6%ytd for the first three quarters and is likely to finish the year down 0.5% followed by a bigger fall of 3% in 2012, as cuts to corporate capex outweigh a boost from post-tsunami rebuilding.

Exports will fall October saw exports fall 3.8%yoy (Yen terms) as falling demand from Europe and a strong with a drop in Yen overrode the production recovery from the March tsunami. By contrast, imports rose the trade surplus 17.9%yoy due to big natural gas purchases for power generation as nuclear stations remain offline. As a result, the rolling 12-month trade balance went negative for the first … which will time since the GFC and the second time since 1980. If anything this trend could get lower GDP nastier in 2012 with two implications. First, it will slash the trade surplus and thereby growth reduce the GDP growth rate (Japan’s trade surplus, driven by export manufacturing, has been the main source of growth over the last decade). Second, it will pull down the current … & undermine account surplus, which has averaged 3.4% of GDP for the decade to 2010, thereby the current reducing Japan’s ability to fund massive public debt from domestic savings. At that point account the cost of servicing the debt goes up with the 10-year bond yield rising from sub 1% at present into the 2-3% range. This may well be the shock that changes Japan.

Manufacturing That Japanese manufacturing firms are accelerating their move offshore is quite normal by moves offshore advanced country standards (US, UK and German firms are doing the same and are generally further ahead of their Japanese peers). Overseas production is expected to rise … removing a from 33% of orders this FY to 39% within three years according to the Japan Bank of major source of International Cooperation. This is likely to be mirrored by a reallocation of corporate local growth investment spending and employment. Industrial production grew 0.4% in October but for the year as a whole we expect a 3.7% fall. We forecast a mild annual decline of 2-3% for the foreseeable future.

Deflation and a After three months of slight inflation Japan slipped back into deflation of -0.2%yoy in strong Yen October. We don’t expect Japan to come out of deflation in the forecast period. Yen strength is partly a consequence of deflation and will continue through 2012.

Dec 2011 – JP moves to a 2005 base year 2008 2009 2010 2011 2012 GDP, real growth (2005p), % -1.0 -5.5 4.4 -1.0 -1.0 CPI, year average, % 1.4 -1.4 -0.7 -0.3 -1.2 Overnight call rate, year end, % 0.21 0.10 0.10 0.10 0.10 Yen to US$1, year average 103 94 88 79 74 Sources: 2008-2010 data from the BOJ and government sources; 2011-2012 forecasts by IMA Asia.

66

Regional Update

China

Political & policy issues to watch

On track for a China faces a leadership change next autumn. While little is known about this contest, it is stable change in likely that Xi Jinping will be the next paramount leader. Li Keqiang should become the next leadership in 2012 premier, but an alternative would be reformist Wang Qishan, a protégé of former Premier Zhu Rongji. Wang has a strong resume, having overhauled the financial sector in the 1990s and led the clean-up of the 2003 SARS outbreak in Beijing.

Monetary easing Facing a slowing economy and reports of tight liquidity conditions, the People’s Bank of has started China reversed monetary policy in December, lowering the reserve requirement ratio (RRR) by 50bp to 21% for large banks. While banks may be slow to lift lending as there has been an increase in borrowers falling behind on repayments, further cuts in the RRR are likely and it may drop as low as 16% by the end of 2012.

… as has fiscal China has the money for a sizable stimulus in 2012 as central government debt is around stimulus, which 20% of GDP and tax revenue surged 26.8%ytd for the 11 months to November (against will be aimed at planned revenue growth of 8%). Beijing will, however, want to sidestep the problems consumers created by the massive 2009-10 stimulus, which was driven by a surge in bank lending and focused on infrastructure at the local government level, with some money also spilling into … through tax property development. Up to one third of these loans may go bad and the clean-up will cuts & subsidies take years. Instead, we expect the 2012 stimulus to focus on consumers through tax cuts and subsidies. The process started this September with a lift in the personal income tax threshold from RMB2,000 a month to RMB3,500, alongside an 81% lift in the threshold poverty line in rural China to RMB2,300 a year, which makes another 128m people eligible for subsidies. Rates for direct taxes on individuals and companies may also be trimmed and a trial cut to levies on the services sector in some provinces may go nationwide.

Outlook for the market

Aiming for 8%+ in China faces a slowdown in growth in 2012 as the EU accounted for some 20% of exports 2012 in 2010. Our 2012 GDP growth forecast has been cut to 8.4% from an estimated 9.3% for 2011, mostly due to slower growth in exports and some cuts to fixed investment growth in … managing big construction. It is important to recognise that these two areas have absorbed tens of adjustments in millions of migrant workers over the last decade and Beijing will want to avoid a jump in construction and unemployment. In the construction sector, the key to this will be weeding out bad manufacturing construction (speculative property plays and poorly planned infrastructure) while encouraging good construction (social housing and bankable infrastructure). In the manufacturing sector, the key will be sustaining local consumer confidence and spending so that local demand cushions weaker export growth.

Strong trade to November export growth eased to 13.8%yoy from 22%ytd for the first 10 months while November import growth slowed to 22.6%yoy from 26.8%ytd for the first 10 months. Until August, exports to the EU were up 18.4%ytd but then slipped to single digits, with just 5%yoy … EU demand growth for November. By contrast, export growth to ASEAN, up 21.5%yoy for November, stalls remained close to the pace of the first 10 months (23.6%ytd). Moreover, export growth to … but US the US (18% of exports in 2010) lifted in the last few months, reaching 17%yoy in demand lifts November from 14.6%ytd for the first 10 months. With improving US demand likely, we’ve adjusted our export growth forecast up to 14% in 2012 from 18.5% in 2011 while our import … & ASEAN forecast is for 18% growth in 2012 from 25% this year. China’s measure for industrial demand is steady output grew 12.4%yoy in November, slightly down from the 13-15%yoy pace set through the first 10 months. We expect growth of around 11-13% in 2012.

Good consumer Retail sales growth has been steady around 17%yoy since Chinese New Year. With demand in 2012 inflation dropping to 4.2% in November and fiscal stimulus focused on consumers, we expect retail sales growth in a 15-16% range next year. Property prices are easing, but with a likely 10-12% fall over the next year we don’t expect a big impact on consumer … RMB to slow spending as overall household leverage is relatively small. Commentary from Beijing suggests a slower, possibly negligible appreciation of the RMB for the next 12 months.

2008 2009 2010 2011 2012 GDP, real growth, % 9.6 9.2 10.3 9.3 8.4 CPI, year average, % 5.9 -0.7 3.3 5.8 4.5 PBOC 1-year loan, at Dec., % 5.31 5.31 5.71 6.96 5.96 Yuan to US$1, year average 6.95 6.83 6.77 6.46 6.33 Sources: 2008-2010 data from CEIC and government agencies; 2011-12 forecasts by IMA Asia.

67

Regional Update

Hong Kong

Political & policy issues to watch

The March 2012 Former Chief Secretary Henry Tang has firmed as favourite to become the next Chief CE election Executive on 25 March, following the selection of the 1,200 person election committee. Most selected are pro-Beijing, and will support either Tang or CY Leung, former convenor … Henry Tang of the Executive Council. While Leung so far has been considerably more popular than has an edge Tang in opinion polls, he had one of the lowest vote totals of successful candidates in the China People’s Consultative Conference (CPCC) sector. Leung is generally unpopular among local business leaders, the powerful rural organisation, and civil servants, many of whom are suspicious of his reform plans. Tang’s status quo policies are more popular with these groups and give him an advantage. The pro-democratic camp appear to have enough votes to nominate a candidate, but with no prospect of challenging Tang or Leung.

Offshore RMB China and HK have announced a doubling of their currency swap to RMB400 billion. The expansion of the currency swap is largely symbolic, with the funds only likely to be used … HK’s position during trade flow emergencies. However, the currency swap increase further cements is strengthened China’s commitment to HK as an off-shore RMB centre. This will likely boost RMB deposits in HK, which have been flagging in recent months.

HK has room for HK retains an S&P sovereign risk rating of AAA based on its negligible public debt. Gross stimulus in 2012 if public debt (34.6% of GDP in 2010) is largely offset by fiscal reserves (30% of GDP). Low needed debt provides resources for stimulus, with possible policies including tax rebates, increased infrastructure spending, and a property rates waiver.

Outlook for the market

While trade While HK’s economy is slowing, the decline is occurring at a slower rate than during the growth declines GFC. Overall business sentiment fell 16 percentage points in Q4 to net +2%, about half the rate of decline of Q4 ‘08. Sentiment in the retail (net +22%) and accommodation (net … HK is +16%) sectors remain solid, benefitting from strong growth in mainland tourist arrivals (up supported by 25%yoy in Oct). Import export trade sentiment plunged (down 23 percentage points to net mainland tourists -10%), suggesting recent strength in sea cargo throughput (8%yoy in Oct) will not be sustained. With trade flows expected to remain weak in 1H’12, HK will need to rely on strong demand from China to avoid slipping into recession.

Employment stays Economic activity is slowing in some sectors, but employment levels remain strong. firm, which will Despite the introduction of a minimum wage (HK$28 per hour) in May, unemployment has help consumption fallen 0.3% to 3.3% through to October, with 41,000 new jobs created. A solid job market and large numbers of mainland tourists will provide a solid base for consumption.

The residential HK’s residential property business has slowed significantly, with property loans down property market 54%yoy in October. The HK government has not implemented any policies to support cools housing, preferring to keep policy tight to restrict property price growth (13%yoy in Oct). As property prices ease more supportive policies are expected to be introduced.

… while a tight Low office vacancy rates (8%) pushed up office rents in October, with a 20%yoy rise in office market is Grade A prices and a 12-13% rise in Grade B-C. The slowing HK economy appears set to set to ease ease rent growth in coming months. Over time, the 10 year release of 4mn square metres of premium office space from the Kai Tak airport redevelopment will swamp the market with more office space than Central, Western District, and Kowloon District East combined.

Inflation should Inflation stabilised in the three months to October at about 5.8%. Wage growth and most drop food prices are expected to decline in coming months, cooling inflation. However, HK will likely face rising utility costs after a price review in early 2012. In addition, flooding in Thailand, the world’s largest rice exporter, may raise grain prices, although increased exports from other countries may mitigate this increase.

2008 2009 2010 2011 2012 GDP, real growth, % 2.3 -2.7 7.0 4.6 2.6 Composite CPI (04/05), year average, % 4.3 0.6 2.4 5.6 3.5 Discount window base rate, % year end 0.50 0.50 0.50 0.50 0.50 HK$ to US$1, year average 7.79 7.75 7.77 7.75 7.75 Sources: 2008-2010 from Censtat, HKMA, and CEIC; 2011-2012 by IMA Asia.

Dr. Mark Michelson, Chairman, Asia CEO Forum (Hong Kong) Tel: (852) 2530-1115 ♦ Fax: (852) 2530-1125 ♦ Email: [email protected]

68

Regional Update

Taiwan

Political & policy issues to watch

Presidential polls Taiwan’s presidential election on January 14 is too close to call, but the outcome will have in January 2012 considerable implications for relations with the mainland. President Ma Ying-Jeou of the KMT is facing a strong challenge from Ms Tsai Ing-Wen, head of the pro-independence … too close to DPP. Ma’s KMT party is expected to win the legislative election held on the same day, as call most Taiwanese favour the KMT’s policies of improved economic ties with China. The presidential election, however, has become a personality contest, and Ms Tsai is seen as a fresher and more effective leader than Ma, especially after a strong showing in the first TV debate. A win for Ms Tsai would weaken cross straits business (although she has pledged to be pragmatic and engage with China) and slow legislation as her administration would clash with a legislature that is likely to be controlled by the KMT.

The James Soong The wildcard third candidate in the presidential election is James Soong of the People’s factor First Party, who finished a close second in the 2000 race. Mr Soong’s allegiances make him more likely to take votes from Ma than Tsai. Mr Soong is polling at 5-10% but this … could boost could lift following a good performance in the first TV debate (there is one more debate). A Ms Tsai lift in support for Mr Soong could hand the presidency to Ms Tsai.

Scope for a fiscal With low gross public debt (38% of GDP in 2010), Taiwan’s government has scope to boost in 1H’12 expand public spending to support a slowing economy if required in 2012. So far policies have focused on labour re-training for factory workers who have lost jobs in Q4’11. At present we expect a mild increase in public spending to support the economy in 1H’12 although there is room for a major fiscal stimulus if needed.

Outlook for the market

GDP could fall in Taiwan’s high export dependency (75% of GDP in 2010) leaves it exposed to the global Q4’11 and 1H’12 slowdown. The slump in trade appears to have hit already with export growth slowing from 15.5%ytd for the first 10 months to 1.3%yoy for November (US$ terms). Major companies … as Euro crisis have reduced orders for coming months and are reducing their production targets. There slashes export are some one-off factors at work – Thailand’s floods hitting electronic component supplies growth and a big petrochemical plant coming back on stream – but the overall downward trend is clear. A 10.4%yoy plunge in imports for November, following growth of 18%ytd through …with a soft the first 10 months, suggests a sharp reduction in production over the next few months. upturn in 2H’12 2011 export growth is estimated at 12%, with 5% or less likely in 2012 under our main scenarios. Industrial production growth slowed to 1.4%yoy in October after 10.1%ytd for the first nine months. It is likely to contract for the next 6-10 months with a full year average result of 5.5% for 2011 and 2% for 2012.

Retails sales are The seasonally adjusted unemployment rate jumped to 4.5% in October from 4.1% in about to stall September and factories have started idling workers without pay, both of which will undermine consumer sentiment and spending. October saw Taiwan’s wholesale index spike down by -5.2%yoy, and while the retail index was still positive at a respectable 3.5%yoy, the pattern of a sharp wholesale fall has often preceded a fall for retail.

Tougher funding Even though the central bank’s policy rate is a low 1.875%, local companies may face a for local firms tougher borrowing environment over the next year. Taiwan’s banks will naturally be cautious about loans to exporters in 2012 and they’ll face higher costs in funding from the … despite a low offshore market. Foreign investors also pulled US$16bn net out of Taiwan in Q3’11, which central bank rate contributed to a 16% drop in the local stock market. Reduced investment funds in Taiwan will make both equity and bond funding options more difficult and expensive.

A weaker but The NT$ has dropped 5% from a mid-year peak of 28.6 to the US$ to around 30, with the steady NT$ Central Bank using some foreign reserves to prevent the currency falling further. We expect it to stay at this level in 2012.

2008 2009 2010 2011 2012 GDP, real growth, % 0.7 -1.9 10.9 4.6 2.8 CPI, year average, % 3.5 -0.9 1.0 1.2 1.0 Official discount rate, year end, % 2.00 1.25 1.63 1.88 1.63 NT$ to US$1, year average 31.5 33.1 31.6 29.5 29.6 Sources: 2008-2010 government data and CEIC; 2011-2012 forecasts by IMA Asia. The above forecast is by IMA Asia. Companies seeking local advice and forecasts should contact: Michael Boyden, Managing Director, Taiwan Asia Strategy Consulting Tel: (886 2) 8789 0978♦ Fax: (886 2) 8789 0877 ♦ Email: [email protected]

69

Regional Update

South Korea

Political & policy issues to watch

2012 will be Korea heads to the polls in 2012 with the National Assembly election in April and the dominated by presidential election in December. President Lee Myung-bak of the GNP will finish his election single five-year term facing corruption allegations, concerns about his effectiveness, and a campaigns slide in popular support after he signed the Korea US Free Trade Agreement (the KORUS FTA). The GNP’s presidential candidate, Ms Park Guen-hye, is trying to sidestep Lee’s problems by emphasising her stand against corruption and by calling for increased taxes on the rich. Park is likely to win the election, but will face a strong challenge from Ahn Cheol-Soo, the leading anti-establishment campaigner.

KORUS passes President Lee signed KORUS on 29th November, having forced the legislation through the National Assembly. The FTA will help exports of Korea’s auto parts, textiles and … but the battle electronics industries while opening up the agriculture, pharmaceutical and service sectors continues to greater competition. Opposition politicians and special interest groups oppose KORUS, claiming it favours the US. With tensions running high, 175 judges have placed a motion in the Supreme Court, arguing that KORUS violates Korean judiciary authority. If the Supreme Court agrees, all of Korea’s FTAs would need to be reviewed.

Room for fiscal Facing weak global conditions, Korea is expected to ease fiscal policy in the coming expansion in 2012 months. Currently, the government plans to run small budget deficits of 2% of GDP in 2011 if needed and 1% in 2012. With low net government debt (31% of GDP), Korea can enlarge its debt without risking its A+ S&P sovereign credit rating.

Outlook for the market

A strong 2011 Korea’s export-led growth is set to dip to 3% in 2012 from 3.5% for 2011 with a lift to 3.8% possible in 2013. Exports grew an impressive 14%yoy in November and were up … but exports & 20.5%ytd for the first 11 months. Yet, the breakout data available for October shows the production are approaching downturn: total export growth of 8%yoy in that month relied mostly on Asia about to slow (15.5%). EU bound exports plunged 20.3%, US exports fell 3.6%, and exports to Latin America slowed to 6.1%. We expect full year export growth of some 19% this year to drop … with slower to 6-8% in 2012 before a lift to 8-10% in 2013. Industrial production, which rose 7.4%ytd growth in 2012 for the first 10 months, will likely average just over 6% for full 2011 before dropping to 3-4% for 2012 with a lift to 4-6% in 2013. Our forecast is below the central bank’s November forecast of 3.7% GDP growth in 2012.

Retail sales Consumer sentiment rose in November (+3 to 103 – over 100 indicates positive sentiment) growth will slow but we expect a downturn over the coming months. Unemployment was a low 3.1% as unemployment seasonally adjusted in October from a year high of 4% in February and March. We expect edges up unemployment to rise to 3.7% next year from an average 3.4% this year. Retail sales growth in current terms eased to 6%yoy for October and we expect the full-year average growth rate to be 8% (1H’11 was 9.6%), with a drop to 5% in 2012.

Monetary policy Inflation climbed back to 4.2%yoy in November, above the Bank of Korea’s 2-4% target should ease next band and removing a chance to cut rates before year-end. Inflation should fall in 2012 due year to weaker consumer sentiment and slower global growth. We expect the BOK to cut its policy rate 75 basis points to 2.50% by the end of 2012.

Watch for a The Won has fallen 7% from its 2011 highpoint in July to 1,133 on the US$. This may help weaker won cushion the fall in export demand and tourism over the next year. Given the weak recovery expected in 2013, it is likely that the BOK will favour a weaker currency into 2013 to assist the export recovery.

2008 2009 2010 2011 2012 GDP growth, % 2.3 0.2 6.2 3.5 3.0 CPI, year average, % 4.7 2.8 3.0 3.9 2.3 BOK Overnight call rate, year end, % 3.00 2.00 2.50 3.25 2.75 Won to US$1, year average 1,100 1,277 1,159 1,109 1,168 Sources: 2008-2010 government data (NSO, BOK) and CEIC; 2011-2012 forecasts by IMA Asia. The above forecast is by IMA Asia. Companies seeking local advice and forecasts should contact: Tony Michell, Managing Director, Korea Associates Business Consultancy Ltd Tel: (82 2) 335 7854/2614 ♦ Fax: (82 2) 323 4262 ♦ Email: [email protected]

70

Regional Update

Indonesia

Political & policy issues to watch

A change in Next year could be difficult for President Yudhoyono after failing to get his candidate leadership at KPK chosen by parliament to head Indonesia’s anti-corruption agency (KPK). Instead, Golkar, the leading opposition party, won the vote and made Abraham Samad, who is considered … may bring close to Golkar party leader Aburizal Bakrie, KPK’s new chairman. This may make it problems for Pres. harder for President Yudhoyono to pursue his anti-corruption agenda, which has been his Yudhoyono most popular policy with voters. Abraham Samad may also revive the Bank Century case (a controversial bailout during the 2009 GFC) in an effort to damage Yudhoyono.

Bakrie remains Bakrie remains the best organised and funded of the contenders for 2014. Gerindra’s the front runner Prabowo Subianto is looking for support in the regions, but in order to gain a national for 2014 profile he would need to win the backing of PDIP, another major opposition party. It’s unclear whether PDIP will support Prabowo or stick with Megawati, its leader, who may … others have attempt to win the presidency for the second time. It’s also unclear who will represent PD, yet to emerge the president’s party, although Security Coordinating Minister Djoko Suyanto might run as he played a prominent role during the recent high-profile wedding of the president’s son and the daughter of chief economics minister and PAN chairman Hatta Rajasa.

Scope to lift The government aims to accelerate work on its infrastructure development master plan infrastructure (MP3EI), which includes projects like the US$3bn Puruk Cahu–Bangkuang coal railway in spending in 2012 Central Kalimantan, a US$1.6bn ferronickel plant in Maluku, and the US$1bn Trans-Java railway, all of which should get underway next year. This should support investment growth and domestic demand and provide a buffer for global economic volatility.

Outlook for the market

Surging local Indonesia is finishing 2011 on a surge in domestic growth and sustained export growth demand should thanks to continuing strong demand for commodities. With inflation falling and the central sustain growth in bank trimming interest rates to near record lows, the economy is well positioned to handle 2012 the global slowdown expected under our main scenario (see global page). 2011 should finish with GDP growth of 6.4% following 6.5%ytd through the first three quarters, which included a 7.9%ytd lift in fixed investment and real consumer growth of 4.6%ytd. Given a weak global economy in 2012, we expect growth to slow to 5.4%, which is above the 4.6% posted during the 2009 GFC but below the central bank’s 2012 forecast of 6.3%.

… a surge in We expect fixed investment to grow 8-9% in 2012 with the help of public spending on capex should infrastructure (see above). Plant and equipment spending has been particularly strong, up moderate 17.2%ytd for the first three quarters, and while growth will slow in 2012, we don’t expect a repeat of the 9.2% fall in 2009.

Inflation is Inflation hit a 19-month low of 4.2%yoy in November despite the recent currency dropping as food depreciation. Food prices could rise over the next three months with the start of the prices ease planting season, but with global growth slowing imported inflation should ease. A recent 1.8m tons of rice imports by the state logistics agency (Bulog) should enter the market from December and keep food prices in check.

With a mild fall for After a 3-year climb to a monthly high of 8,532=US$1 for August, the rupiah has weakened the rupiah due to global risk aversion. This has seen a sharp drop in foreign ownership of Bank cushioned by the Indonesia notes (SBI). Bank Indonesia has cautiously spent US$2.5bn in forex reserves central bank since early October to slow rather than halt the rupiah’s decline, bringing total reserves down to a still comfortable US$112bn at end-November. While we don’t expect a big devaluation, the rupiah will likely remain weak through 2012 before a mild recovery into 2013 provided the global economy has stabilised.

2008 2009 2010 2011 2012 GDP, real growth, % 6.0 4.6 6.1 6.4 5.5 CPI, year average, (2007=100), % 9.8 4.8 5.1 5.5 4.5 Central bank policy rate at end-Dec., % 9.25 6.50 6.50 6.00 6.00 Rupiah to US$1, year average 9,757 10,356 9,086 8,821 8,910 Sources: 2008-2010 government data (BPS, BI) and CEIC; 2011-2012 forecasts by IMA Asia The above forecast is by IMA Asia. Companies seeking local advice and forecasts should contact: James Castle, Chairman, CastleAsia Tel: (62 21) 2902 1641 ♦ Fax: (62 21) 2902 1648 ♦ Email: [email protected]

71

Regional Update

Malaysia

Political & policy issues to watch

Watch for an early The ruling UMNO party finished its annual assembly in early-December with a clear pre- election election message (an election is not due until 2013, but an early poll is expected in 1H’12). PM Najib reassured UMNO’s Malay members that their privileges would not be … likely by mid- undermined by his mild reformist agenda. The budget, which was announced in October 2012 and comes into effect in January, is also tuned to an early poll with cash handouts to poor families, bonuses and pay rises for civil servants, and higher public sector pensions.

UMNO’s coalition While we expect the government to win the 2012 election (Najib’s first as party leader), it should win may not recover the two thirds majority lost in the 2008 poll. A fragmented opposition should hold its ground, with the central issue for voters being corruption in UMNO and the … but without a government’s bias against Malaysians of Chinese and Indian descent. The government is strong mandate attempting to limit opposition rallies with a new bill, which has already won approval in the lower house, which restricts the right of public assembly. The outcome of opposition leader Anwar Ibrahim’s highly questionable sodomy trial may also be known in December.

An end to gas There are signs that Petronas, the state-run national oil company, is tiring of its political subsidies via obligation to do “national service”. The company, which is widely regarded as one of the Petronas? world’s best run national oil companies, is the largest source of government revenue in addition to providing subsidised gas to industrial users, including the national power company Tenaga. But recent gas shortages have forced it to compensate Tenaga and to announce the construction of a fourth gas import terminal and a second floating liquefied natural gas plant. Its CEO recently called for an end to subsidised gas sales to industrial users, but this is unlikely ahead of the 2012 elections.

Outlook for the market

A mild downturn Malaysia’s growth is expected to slow to around 2% in 2012 from 4.5% for 2011 as a sharp in 2012 drop in exports in partly offset by steady local demand, which will be supported by the government’s election spending. The latest quarterly data shows the strength of local … a big fall in demand with consumer spending surging to 7.4%yoy growth in Q3’11 while government manufactured consumption jumped by 21.8%yoy and fixed investment was up 6.1%yoy. We expect local exports demand to remain strong into 1H’12. By contrast, we expect exports (in current M$ terms) to fall by 5%yoy in Q4’11 after rising 8.4%ytd for the first nine months. The export … offset by local contraction will likely continue through Q1’12 before a gradual recovery through the next demand and three quarters of 2012. This should be a much milder downturn than the 2008/09 commodity contraction as commodity prices are likely to hold up this time. Manufacturing output, exports which was up 5.2%yoy in Q3’11, will likely fall by as much as 5-10%yoy in Q4’11 and Q1’12 before a soft recovery in 2H’12. The GDP growth number for the next few quarters is likely to be pulled down by a large inventory rundown in the electronics sector.

Scope for capex Fixed investment growth could remain positive in 2012 even though it fell by 5.6% in 2009 growth in housing during the GFC. The government will attempt to launch a number of big infrastructure and infrastructure projects announced over the last year to offset a slump in manufacturing investment. Housing construction may also remain steady in 2012 despite concerns over speculative building around KL over the last year fuelled by cheap finance. Housing approvals have lifted from a low of 76,750 in March 2009 to 152,336 in October 2011 while houses under construction and completions have just started lifting from multi-year declines.

Low inflation with Early action by the central bank to lift interest rates in 2010 helped keep inflation low this a mild rate cut & a year and contributed to a firm M$. CPI inflation likely peaked at just 3.5%yoy in June and weaker M$ should continue falling from the 3.4%yoy reported for October, which should allow an interest rate cut of some 50 basis points through 2012. This should cause the M$ to give back some of its spectacular gains of the last two years.

2008 2009 2010 2011 2012 GDP, real growth, % 4.7 -1.7 7.2 4.5 1.8 CPI, year average (2010=100), % 5.4 0.6 1.7 2.9 2.5 Central bank overnight policy rate, Dec, % 3.25 2.00 2.75 3.00 2.50 Ringgit to US$1, year average 3.33 3.52 3.22 3.08 3.14 Sources: 2008-2010 government and Bank Negara data plus CEIC; 2011-2012 forecasts by IMA Asia. The above forecast is by IMA Asia. Companies seeking local advice and forecasts should contact: Datuk Paddy Bowie, Managing Director, Paddy Schubert Sdn. Bhd. Tel: (60 3) 2078 4031 ♦ Fax: (60 3) 2078 7034 ♦ Email: [email protected]

72

Regional Update

Philippines

Political & policy issues to watch

Aquino’s push to President Aquino is 17 months into his single 6-year term, which has been notable for two end corruption achievements. His first has been retaining popular support, which underpins the administration’s authority and should help with legislation (the Q3 SWS survey shows a … also slows very strong net satisfaction rating for the government of +53%). This is directly linked to public spending his second achievement, which has been a campaign against corruption. This ensured he had public backing in over-ruling the Supreme Court to ensure that ex-President Arroyo didn’t leave the country in November to avoid prosecution. Yet, if his administration fails to win a conviction of Mrs Arroyo in 2012 on some of the allegations against her, its support among voters would slide. The campaign against corruption is also partly responsible for a slowdown in public sector spending. While this has helped lower the budget deficit, it has also setback badly needed repairs and expansion for infrastructure.

Infrastructure An effort to use public-private partnerships (PPPs) to finance and build infrastructure has projects stall stalled. Extensive due-diligence exercises to combat the corruption is a factor but so too is a decision by Transportation Secretary Manuel Roxas to change course and explore if … 2012 will be a cheaper funding might be available via loans from the World Bank, ADB, and foreign critical year governments. 2012 will be a critical year and if the government fails to get projects underway its support from business will quickly diminish.

Mining also faces A second development to watch for in 2012 will be a tender for 30 coal exploration sites in hurdles the central and northern provinces in Q1. These projects could lead to investment of US$600m, lift coal supply, and reduce energy imports (in 2010 the country produced 7.3m … a 2nd key tonnes of coal and imported 10.9m tonnes). Yet mining faces many hurdles in the challenge for 2012 Philippines. Bans have been imposed on open pit mining by regional governments in Mindanao (Canada’s TVI Pacific Inc, which operates an US$60m copper-zinc mine in the area, has asked the central government to overturn the local mining ban). The much larger US$5.9bn Tampakan copper-gold mine could also be affected by bans.

Outlook for the market

Domestic With exports plummeting, the economy must rely on domestic spending to avoid a spending will recession in 2012. There is a good chance of this happening as private consumption, counter the fall of which accounts for massive 70% of GDP, should continue growing with the support of exports in 2012 remittances from offshore Filipino workers (OFWs, up 7.1%ytd by September). Unlike other key GDP components, private consumption growth has been accelerating since Q3’10, posting an impressive 7.1%yoy rise in Q3’11. Moreover, there is scope for increased public spending in 2012, as the budget deficit fell to 2.6% of GDP in 2011 from an original target of 3%. The government announced a P92bn (US$2.2bn) stimulus package in October and more stimulus measures are likely to follow.

Trade deficit to Exports fell 14.9%yoy while imports grew 9.1%yoy in Q3’11, which led to a swift widening expand, but of the 12-month rolling trade deficit to US$10bn in September 2011 from a recent low of current account to US$2.4bn in September 2010. This is bigger than the peak trade deficit of US$8.7bn stay in surplus during the GFC (June 2008) and it is likely to get bigger. Fortunately, the merchandise trade deficit should be mostly offset by strong services exports as the Philippines is well positioned as a low-cost supplier of business process outsourcing (BPO).

Lower CPI to CPI inflation eased to 4.7%yoy in November from a 2-year high of 5.3%yoy in October. make room for With inflation expected to continue easing, the central bank is likely to lower its policy rate interest rate cuts from the current 6.50% to 5.75% by end-2012. In line with most other Asian currencies, the Peso climbed on the US$ from late-2008 to a 2-year high of 42.2 in August. But further gains are unlikely in 2012, as the global environment has turned more risky.

2008 2009 2010 2011 2012 GDP growth, % 3.7 1.1 7.6 3.1 2.4 CPI, annual average, % 9.3 3.3 3.8 4.5 3.7 Central bank overnight loan rate, year end 7.50 6.00 6.00 6.50 5.75 Peso to US$1, annual average 44.5 47.6 45.1 43.4 43.4

Sources: 2008-2010 BSP data and CEIC; 2011-2012 forecasts by IMA Asia. The above forecast is by IMA Asia. Companies seeking local advice and forecasts should contact: Peter Wallace, Managing Director, The Wallace Business Forum Tel: (63 2) 810 9606 ♦ Fax 810 9610 ♦ Email: [email protected]

73

Regional Update

Singapore

Political & policy issues to watch

Cooling the Foreign buyers (many from neighbouring countries) have become are big players in the property market local property market, accounting for 19% of all residential purchases in 2H’11 (from 7% in 1H’09) and contributing to a potential property bubble (home prices have been in record … with a big territory since Q2’10). To counter this trend the government has just introduced an extra hike in stamp duty 10% stamp duty for property purchases by foreigners (individuals and companies), 3% for permanent residents buying a second or subsequent property, and 3% for citizens buying a … which may third or subsequent property. These increases are on top of current rates of 1% on the first see prices drop by S$180,000, 2% on the next S$180,000 and 3% for the rest of the property price. Land 30% over 3 years supply will also be increased. Local property analysts think these measures will lead to a 30% fall in home prices over the next three years.

Yet there is also Faced with weak exports in 2012, the big question is whether Singapore can once again scope for a boost rely on a surge in construction to support growth. In 2009, it was a fortuitously timed to construction in gamble on constructing two integrated casino-resorts alongside some big infrastructure 2012 work. This time the construction stimulus may come from the deal stuck in mid-2011 with Malaysia (after decades of bickering) for the return of a big block of land on the edge of Singapore’s CBD that had been used by Malaysia’s railway. Singapore and Malaysia’s state-owned investment companies, Temasek and Khazanah, will jointly develop hotels, apartments, offices and shops on 5.4m square feet of land. The overall project is valued at S$11bn with local banks currently working on a syndicated loan worth S$5bn.

Local banks are in Fitch Ratings has reiterated its AA- rating with a stable outlook for local banks SBS, OCBC good shape and UOB based on strong balance sheets, diversified loan books, and good risk management. The average loan-to-deposit (L/D) ratio for the three rose to 88% at end- September from 82% at end-2010, which is not considered excessive. Tight US$ liquidity needs to be watched, as the L/D ratio for all three banks' US$ books exceeds 100%.

Outlook for the market

Little growth in The government has slashed its 2012 GDP growth forecast to 1-3% on the back of a weak 2012 global economy. This is understandable given the economy’s huge exposure to capital flows and international trade (exports and imports each account for more than 200% of … with a small lift GDP). As in 2009, we expect the government to use its vast fiscal resources to cushion in unemployment the downturn when clever targeting of the stimulus helped cap unemployment at a GFC- high of 3.3% in Q3’09 before a steady improvement to the current 2%.

Exports will fall The weak export outlook for 2012 was heralded by a 16.2%yoy fall in non-oil domestic for several exports (NODX) in October. This key measure of export manufacturing performance is quarters volatile and one or two better months are possible but overall we expect NODX to fall by 5- 10% in Q4’11 with a similar fall in Q1’12 before a weak recovery from mid-2012. Industrial production will likely contract for three quarters from Q4’11 with full-year growth dropping from a 29.7% rebound in 2010 to 4.6% this year and -2 to 1% next year.

Consumers will Given the potential for a prolonged fall in house prices, the consumer outlook bears also pull back examination. Fortunately, households do not appear to be over-leveraged, which should mute the impact of weaker property prices on consumer spending. Nevertheless, real growth in consumer spending will slow from the 7.1%yoy surge reported for Q3’11 to 2.5% for 2012, which is considerably better than the 0.2% recorded in 2009.

Lower inflation & CPI inflation eased to 5.4%yoy in October from 2-year high of 5.7%yoy in August. The mild weakness for MAS expects inflation to fall within a 2.5-3.5% range in 2012 and may further ease the S$ monetary policy as the global downturn becomes clearer. Monetary easing started in October 2001 when the MAS adopted a slower S$ appreciation on an undisclosed basket of currencies. This saw the S$ soften on the US$, after hitting an all-time-high of 1.21 in August. We expect the currency to remain soft until the global outlook improves.

2008 2009 2010 2011 2012 GDP, real growth, % 1.5 -0.8 14.5 3.8 1.5 CPI, year average, % 6.6 0.6 2.8 5.1 2.5 3 month interbank interest rate, Dec, % 1.00 0.69 0.44 0.44 0.44 S$ to US$1, year average 1.41 1.45 1.36 1.27 1.30 Sources: 2008-2010 government data and CEIC; forecasts for 2011-2012 by IMA Asia.

74

Regional Update

Thailand

Political & policy issues to watch

Political risk Thailand has avoided a return to large-scale protests during December with ex-PM Thaksin remains high telling his supporters not to push for a royal amnesty on the occasion of the King’s birthday. Interestingly, one opinion poll (by Abac) finds that 68% of Thais expect turmoil if … uncertainty Thaksin returns while 48.5% want him to be Thailand’s leader again, which underscores over Thaksin’s the deep divisions in the country. Nevertheless, we expect Thaksin to look for an game plan opportunity to return within six months. Rumours of a cabinet reshuffle emerged in December and it is Thaksin, rather than PM Yingluck, who would determine the changes.

A large rebuilding The full cost of the flood damage is put at US$25-43bn (7-12% of GDP in 2011) with gross stimulus is likely loss estimates from the insurance and reinsurance sector already exceeding $10bn. Added to this the government has budgeted an extra B13bn ($433m) for work roads, … funded mostly utilities, temples, schools and irrigation systems. Another B6.8bn ($226m) will be spent by by insurance six ministries to help communities adjust to their losses. The combined insurance payout and extra government spending is likely to come to 3-4% of GDP in 2011.

Delaying a lift in The B300 minimum wage commitment, which was to start on January 1 in some provinces, minimum wages has been slid back to April 1 when it will apply to Bangkok and six neighbouring provinces. The scheme to support prices paid to rice farmers, which went into effect on October 7 with … while paying government purchases at B15,000 ($480) a ton (almost double the market price of B8000 rice farmers more at that time), will continue in 2012 to help farmers recover from the floods. Global rice prices have risen only modestly as India has re-started exports from its large stocks.

More foreign The government plans to allow more foreign banks to set up in Q1’12 from countries with banks will be which Thailand has free trade agreements (ASEAN plus Korea, India, Australia, NZ, Japan allowed in and China). This amends a commitment made to foreign banks that supported Thailand during the 1997 Asia Crisis that no new entrants would be allowed until 2014.

A push for energy In an effort to reduce its reliance on natural gas for electricity generation, Thailand will diversification invite bids from independent power producers (IPPs) with a focus on coal-fired power plants. Natural gas accounts for 72% of all fuel used in power generation, followed by coal … favouring at 20%, hydropower at 5% and imported power from Laos at 2%. The government will coal present a new national energy master plan for the period 2012-2032 within the next month.

Outlook for the market

Growth falls for After growth of 3.1%ytd for the first three quarters, Thailand’s economy will likely contract two quarters by 5-10% in Q4’11 with a fall of 2-5%yoy in Q1’12 before spending on rebuilding kicks in and lifts growth into positive territory. GDP growth for 2011 is now put at around 1.4% with a lift to 3.8% in 2012 as rebuilding gets underway from Q2’12.

… with a weak Industrial production plunged 35.8%yoy in October or by 38.9% from the previous month, a export lift in 2012 steeper fall than the 24.6% peak-to-trough decline during the GFC. Exports, which rose 25.5%ytd for the first nine months (US$ basis), grew just 0.4%yoy in October, compared to a healthy 16.9%ytd increase in September. Full-year export growth is now likely to be under 10% this year with growth of 0-5% next year. Industrial production, which actually fell by 0.9%ytd over the first nine months, will likely finish 2011 down 3-5% with growth of just 1.5% in 2012, mostly in 2H’12. Sales of big ticket items such as cars, motorcycles, and commercial vehicles plunged by 30-40%yoy in October.

A cautious cut to The Bank of Thailand (BOT) cut its interest rate from 3.5% to 3.25% in late November. The interest rates and small cut reflects the BOT’s concern about inflation, which has been hovering just over a steady Baht 4%yoy in the eight months to November. The Baht showed resilience despite the economic devastation of the floods and it may even get a small boost from insurance money flowing into the country when rebuilding begins.

2008 2009 2010 2011 2012 GDP, real growth, % 2.5 -2.3 7.8 1.4 3.8 CPI (2002 index), year average, % 5.4 -0.9 3.3 4.2 4.0 Central bank, policy rate, year end, % 2.75 1.25 2.00 3.25 2.75 Baht to US$1, year average 33.0 34.3 31.7 30.5 31.1 The above forecast is by IMA Asia. Companies seeking local advice and forecasts should contact: Christopher Bruton, Consultant, Dataconsult Ltd Tel: (66 2) 233 5606/7 ♦ Fax: (66 2) 236 8143 ♦ Email: [email protected]

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Regional Update

Vietnam

Political & policy issues to watch

A commitment to The key policy issue in the outlook is whether Hanoi will respond to recent calls to ease stick with tight monetary policy in order to boost growth or continue with tight monetary and fiscal policy monetary policy settings aimed at bringing down inflation, which eased to 19.8%yoy for November from a recent high of 23% in August. In a recent meeting with foreign aid supporters the government committed to continuing with its “Resolution 11” strategy, launched in February to bring inflation under control.

A bank sector High interest rates and a falling property market have exposed weaknesses in the bank crisis unfolds sector with many of the 42 local banks (including 5 state-owned) struggling with insufficient capital and poor risk controls. Non-performing loans (NPLs) are expected to jump from … triggering 3.3% of total loans to 5% and possibly as high as 10%. Three private banks in Ho Chi consolidation Minh have just been taken over by the government, which announced plans in November plans for a three-tier bank system, dominated by 15 “big” lenders, including two lead banks that would match major local banks in neighbouring ASEAN states. A second tier will consist of healthy smaller banks while the third tier will include firms facing financial difficulties. Partial privatisation of state-owned banks will be accelerated.

Tougher steps to The central bank has stepped up its campaign to force households and companies to use force use of the the Dong rather than gold or US dollars in contracts and transactions. The government Dong has also tightened controls on overseas investments by Vietnamese companies as the outflow has weakened the Dong.

A big commitment The government hopes that a big commitment to nuclear power will solve chronic power to nuclear power shortages. It plans to build as many as 13 nuclear stations with a combined capacity of 16,000 MW over the next 20 years. Russia will lend Vietnam US$8-9bn to build its first, a 2,000-MW nuclear power plant, with construction scheduled to start in 2014. A number of other countries have expressed interest in participating in Vietnam’s nuclear power development, including China, S. Korea, Japan, US and France.

Outlook for the market

Exports will help Despite its macro problems Vietnam should grow by 4-5% in 2012. Being a low-cost sustain growth in export manufacturer, it tends to benefit when Western buyers want cheaper products. This 2012 pattern has been reinforced in 2011 as new factories have come on stream, particularly in electronics assembly. While exports across much of East Asia slumped from October, Vietnam’s grew by 34.8%yoy followed by 25.9% in November. This lifted industrial production growth to 7%yoy in November from a July low of 1.5%yoy. Next year we expect export growth of around 20% (from 30% this year).

Scope for steady Consumer demand growth does not appear to have been undermined by the slump in consumer house prices or inflation. This may be partly because households tend to hold their demand in 2012 savings in gold. Moreover, employment in a fast-growing manufacturing sector is lifting household incomes. A 15.5%ytd lift in visitor arrivals to 5.3m for November also helped keep retail sales growth at 23.5%ytd for November.

A steady fall in We expect CPI inflation to drop from 19.8%yoy in November to 12% by Q4’12. The 12- inflation with a month rolling trade deficit also reached a 20-month low of US$10bn in November from a rate cut by Q3’12 high of $17.3bn in March 2010. Provided that the fall in inflation and the trade deficit continue, there will be scope for lower interest rates by Q3’12.

Dong continues to The Dong decreased 7.2% on the US dollar by early December, and with inflation likely to fall remain above 10% through 2012, a fall of 5-7% must be expected. There is a risk of a bigger fall as foreign portfolio investors pull their money out of local banks and property companies, which have seen share prices tumble this year.

2008 2009 2010 2011 2012 GDP, real growth, % 6.3 5.3 6.8 5.6 4.4 CPI, yoy, % (2005=100 from 2007) 23.1 6.7 9.2 18.0 15.0 Central bank refinancing rate, year end, % 9.50 8.00 9.00 15.00 13.00 Dong to US$1, year average 16,506 17,860 19,151 20,659 21,861 Source: 2008-2010 data from the IMF and CEIC; 2011-2012 forecasts by IMA Asia.

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Regional Update

India

Political & policy issues to watch

A collapse in India’s political outlook has grown uncertain through 2011. The central problem is a leadership collapse in leadership at the top of the government due to the illness of Sonia Gandhi, who is leader of the Congress Party and the ruling coalition. Without her active support PM … sees a key Singh, who is her nominee and has no power in his own right, has no capacity to run reform rolled back government. As a result, the landmark opening of retailing to majority foreign ownership … with little sign announced in late November was rolled back within days. Strategists for Congress Party of improvement in suggest that Sonia’s son, Rahul Gandhi, will be elevated to lead the coalition by mid-2012, 2012 provided the party does well in the Uttar Pradesh (UP) state elections in May (Mr Gandhi is running the campaign to win back the state). But that victory is uncertain as is Mr Gandhi’s leadership capacity.

A legislative log- With civil activist Anna Hazare set to launch another agitation if the Lokpal (anti-corruption jam will hold back agency) Bill is not passed to his liking, a parliamentary log-jam looks inevitable. Some 30 other reforms stalled bills and 24 proposed bills are unlikely to be passed. With an eye to the UP elections, Congress will likely aim to pass the Lokpal and the Food Security bills, with other bills being relegated to the backburner. This includes a new mining law, a new biotech regulator, the Companies Bill, and a nuclear power regulator.

Bad fiscal choices Congress may use the Finance Budget, due in February, to rebuild popular support as the are a risk in 2012 UP elections approach. Populist spending programs would push a worrying budget deficit further into the red while also undermining efforts to curb inflation.

Outlook for the market

Weaker growth India’s growth rate has steadily eased from a high of 9.4%yoy in the March quarter of 2010 into 2012 to 6.9%yoy for the September quarter of 2011 (on the commonly used production measure of GDP). The main cause has been a 350 basis point (bp) lift in interest rates by the … before mild Reserve Bank of India (RBI) in an effort to pull inflation down. Despite the rate hikes and a rate cuts allow a big drop in growth for industrial production and consumer spending, inflation has been modest recovery stuck above 9%yoy for most of the last 24 months. We expect a gradual easing in inflation over the next year, but with fiscal policy doing little to help (see above), the interest rate cut cycle is likely to be modest and the upturn in growth that emerges by the June quarter will be much milder than the sharp recovery of 2009.

A sharp fall for the A sharp fall in December puts the rupee at 54 to US$1 from a 2011 high of 45.3 for August. rupee as foreign The fall is associated with a large exodus of foreign funds, which has contributed to a stock funds exit market fall of 23%ytd. As India is running a current account deficit of some 3% of GDP, this immediately put the rupee under pressure. So far the Reserve Bank of India (RBI) has … watch for focused on easing an associated tightening in credit conditions. Two other risks it must uncovered forex manage are upward pressure on inflation (still over 9% in November) and problems at risks at banks & banks and corporates with large offshore borrowings. It is under pressure from politicians corporates to defend the rupee and will shortly make a statement on forex policy. Forex reserves stood at US$316bn at end-October, which is close to the pre-GFC highpoint in May 2008 … we expect the ($314bn), after which the currency slid from 40=US$1 to 51 by March 2009 with some fall to stabilize in $65b in forex reserves being spent to cushion the fall. A similar strategy is expected over a repeat of the coming months, but with external liabilities of almost US$130bn due for renewal over the 2008/09 slide next nine months, it must count on a sharp improvement in the trade deficit as imports are crunched down and exports kept strong. We expect the rupee to be close to its low point and we’ve cut our 2012 year average forecast to 52=US$1 with scope for a mild rise as 2012 ends and India’s recovery picks up, global risk eases, and global funds seek out growth opportunities.

Calendar year starting January 2008 2009 2010 2011 2012 GDP (Production), real growth, % 7.5 7.0 8.6 7.1 6.6 GDP (Expenditure), real growth, % 6.2 6.8 10.4 7.3 6.5 Inflation - WPI, year average, % 8.5 2.2 9.4 9.3 6.4 Inflation - CPI, Indust workers, yr avg, % 8.4 10.9 12.0 9.0 7.5 RBI lending (repo) rate, year end, % 6.50 4.75 6.25 8.75 7.75 Rupee to US$1, RBI Ref Rate, yr avg. 43.8 48.3 45.8 47.0 52.0 Sources: 2008-2010 data from the government (NCI, RBI) and CEIC. 2011-2012 forecasts by IMA Asia with guidance from IMA India. The above forecast is by IMA Asia. Companies seeking local advice and forecasts should contact: Adit Jain, Chairman, IMA India Tel: (91 124) 459 1200 ♦ Fax: (91 124) 459 1250 ♦ Email: [email protected]

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Regional Update

Australia

Political & policy issues to watch

Labor closes 2011 After surviving for a year with a one-seat majority in the lower house, which includes the in a stronger support of three independents and one Green MP, PM Julia Gillard has strengthened her position Labor government with a surprise manoeuvre in parliament that placed a rebel opposition MP in the non-voting Speaker’s chair. The appointment lifts Labor to a three-seat majority … but looks set with two MPs needing to desert before it would fall, which will strengthen Gillard’s hand in to lose the 2013 dealing with independent MPs on policy issues. A week later, Gillard reshuffled her election cabinet to strengthen her position against Foreign Minister Kevin Rudd, who would clearly like to regain the prime ministership. Gillard’s government should run much of the rest of … while Rudd its two years although an opposition victory is likely at the next election as the Coalition has may try to topple widened its lead over Labor (57% vs 43%), with opposition leader Tony Abbott leading Gillard in 2012 Gillard as preferred PM (46% vs 42%). If the gap widens further in 2012, Labor’s caucus may dump Gillard and give Rudd a second go at PM.

Big policy moves Having passed both the national broadband network (NBN) and the carbon tax bills, PM on carbon, mining Gillard will push her third big initiative, the mining tax, through the senate in early 2012 (it and broadband has already passed in the lower house). The extra A$11bn in revenue will fund a lift in … with an superannuation contributions, a drop in company tax, and infrastructure building. uncertain outlook Opposition leader Tony Abbott has said that he will repeal the mining and carbon taxes and cancel the broad-band network, which creates some uncertainty for businesses.

Monetary stimulus By aiming to return the budget to surplus in 2012/13, the government has left room for the kicks in Reserve Bank (RBA) to ease monetary policy with a 25 basis point (bp) cut in both November and December. Banks are passing the rate cuts through to consumers and this … with scope should help ease the slump in consumer spending in the densely populated eastern states. for fiscal stimulus If the global economy slows more than expected, the government’s low public debt level in 2012 if needed (7.7% of GDP) and AAA credit rating (just upgraded by Fitch) give it room to switch to a fiscal stimulus strategy.

Outlook for the market

Resources capex Despite a weak global outlook, the investment side of Australia’s economy is very strong will lift growth in and will underpin national growth of 2.8% in 2012 from an estimated 2% in 2011. However, 2012 Australia will still be very much a two-speed economy. GDP growth of 2.5%yoy in Q3’11 included a jump in growth in the resource rich states of Queensland (QLD, 9.3%) and … but still very Western Australia (WA, 8.4%). New capital expenditure for the quarter soared 30.3%yoy much a 2-speed led by WA (44.4%) and QLD (62.7%), with much weaker growth in the large population but economy resource poor states of New South Wales (NSW, 4.4%) and Victoria (6.7%). At best, lower interest rates will bring a modest lift in capex on the eastern seaboard while committed projects point to continued rapid capex growth in the resource states in 2012.

A mild lift in retail The variation in performance flowed through to retail sales, with the weak national average in eastern states growth rate of 2.8%yoy for October bridging the mining state of WA (9.6%) and NSW in 2012 (1.8%) and Victoria (2.3%). The RBA’s rate cuts should help nudge up retail sales in the eastern states in 2012 but the lift is likely to be modest.

… + a mild High interest rates saw house building activity drop for 18 straight months while apartment housing upturn building has contracted for 19 months. Lower interest rates may allow a mild revival in 2012 but hopes for a shot of fiscal stimulus are likely to be disappointed.

A volatile A$ The A$ is driven by global investor views of China, commodities, interest rate differentials, through 2012 and global risk. As such it will remain volatile over the next year before returning to a mild appreciation trend once global growth stabilises.

Year ending December 31 2008 2009 2010 2011 2012 GDP, real growth, % 2.4 1.4 2.7 2.0 2.8 CPI, year average, % 4.4 1.8 2.8 3.3 2.8 RBA cash rate, year end, % 4.25 3.75 4.75 4.25 4.00 A$1 = US$, year average 0.83 0.79 0.92 0.99 1.01 US$1 = A$, year average 1.20 1.27 1.09 1.01 0.99

Source: 2008-2010 data from the ABS; 2011-2012 forecasts by IMA Asia. Andrew Hordern, Regional Economist, IMA Asia Tel: +61-2-9252 4336 ♦ Email: [email protected]

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Regional Update

New Zealand

Political & policy issues to watch

National Party PM John Key won a second 3-year term on November 26 although the mixed member wins a 2nd term proportional (MMP) voting system, which that makes achieving majority government hard, left Key’s National Party two seats short of a majority. It will bridge this gap with the … with support support of ACT (1 seat), United Future (1 seat) and the Maori Party (3 seats). In return for from minor parties their support, Key has agreed to introduce government spending limits (albeit with no penalty if breached) and to sell a maximum of 51% of its equity in state-owned firms.

Fiscal restraint Key aims to return the budget to surplus by 2014/15, fund infrastructure with the help of and asset sales partial asset sales (four energy companies and Air NZ), and restructure welfare benefits to move recipients back into the workforce. The opposition Labour party suggests that it may repurchase some of the sold assets if they win the next election, but this seems unlikely.

Keeping the MMP The election coincided with a referendum on whether to retain the MMP voting system. voting system 58% of voters favoured retaining the system, which - as intended - forces the two main parties to bring minor parties into government. Some amendments may be made to the system under a review to be held in 2012.

Outlook for the market

A weak recovery NZ ends 2011 in a mixed state. Retail sales grew strongly at 6%yoy in Q3 with help from held back by a retailing tied to the World Rugby Cup. Manufacturing GDP fell in quarter-on-quarter terms slump in building but grew a solid 2.2% in year-on-year terms, led by the meat and dairy sector (4%yoy). The main problem is the property sector with residential construction falling in Q3’11 to its lowest level in 18 years, dragging total building activity down 14%yoy. Despite this, a mild upturn is expected by mid-2012 with the help of earthquake related reconstruction in the Canterbury area.

Good export Export growth will ease next year but a big fall in unlikely under our main scenario as demand from growth in demand from Australia and China, the two biggest export destinations, should dip China & Australia only slightly. In the three months to October, exports grew by 8%yoy, down from 10%yoy in the first seven months of the year.

A weak recovery Domestic demand growth that is reliant on bank loans needs watching next year as NZ in lending has banks are dependent on the global wholesale market for one quarter of their lending and started problems in Europe may see the cost of offshore funds climb quickly during a Euro area crisis. A weak recovery in consumer lending has started with growth rising from 1.6%yoy in …the risk of September to 2.2% in October. The recovery was largely due to a 2.6%yoy lift in consumer offshore funding product loans, although housing loans also grew by 2.2%yoy. Housing loans should lift by local banks further in 2012 as demand for residential housing recovers. Total business borrowing grew 3.4%yoy in October. While borrowing for primary industry businesses fell 0.3%yoy, strong retail sales encouraged 5.8%yoy growth in retail trade loans.

Rates to stay on With headline inflation expected to remain within the RBNZ’s 1-3% band in Q4, the RBNZ hold until 2H’12 left its policy rate, which was cut after the last earthquake to support growth, at 2.5% in December. Given the weak global outlook it will likely remain at this rate through 1H’12 before the RBNZ considers whether the strength of the local recovery warrants a rate hike in 2H’12. At present we expect a rate increase of 50 basis points by end 2012.

A weaker NZ$ Given heightened global risk and continued low interest rates at home the NZ$, which has during 2012 drift down form a 30-year peak of 85 US cents for July to 77 cents in early December, is likely to remain weak through most of 2012. Stronger local growth with higher interest rates could mildly lift the currency into 2013.

Calendar years 2008 2009 2010 2011 2012 GDP(Expenditure), real growth, % -0.8 0.1 2.2 1.1 2.6 GDP(Production), real growth, % -0.1 -2.0 1.7 1.0 2.2 CPI, year average, % 4.0 2.1 2.3 4.3 3.2 Official cash rate, year end, % 5.00 2.50 3.00 2.50 3.00 NZ$1 = US$, year average 0.70 0.62 0.72 0.78 0.76 US$1 = NZ$, year average 1.43 1.60 1.39 1.28 1.31 NZ$1 = A$. year average 1.19 1.26 1.27 1.27 1.32 Source: 2008-2010 data from Statistics NZ; 2011-2012 forecasts by IMA Asia.

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Regional Update

Asia Brief contributors

The Asia Pacific Executive Brief is produced by a unique network of in-country experts who run briefing and advisory programs that are designed to help senior executives monitor and anticipate critical business developments through timely insights and analysis. Further information on the markets and the peer group briefing programs is available from the Country Directors listed below.

Asia & Singapore: Richard Martin, Managing Director, IMA Asia ♦ Web: www.imaasia.com Global Mob: (65) 9023 9642 ♦ Email: [email protected]

Australia Sydney: Katie Tucker, Client Support Manager, IMA Asia ♦ Web: www.imaasia.com Tel: (61 2) 9252 4336 ♦ Fax: (61 2) 9252 4339 ♦ Email: [email protected]

China Shanghai: James Loudon, China Representative, IMA Asia Tel: (86) 186 0165 5179 ♦ Email: [email protected]

Hong Kong Hong Kong: Mark Michelson, Chairman, Asia CEO Forum, Hong Kong Tel: (852) 2530 1115 ♦ Fax: (852) 2530 1125 ♦ Email: [email protected]

India New Delhi: Adit Jain, Chairman, IMA India ♦ Web: www.ima-india.com Tel: (91124) 459 1251 ♦ Fax: (91124) 459 1250 ♦ Email: [email protected]

Indonesia Jakarta: James Castle, Chairman, CastleAsia♦ Web: www.castleasia.com Tel: (62 21) 2902 1641 ♦ Fax: (62 21) 2902 1648 ♦ Email: [email protected]

Japan Canberra: Chris Nailer, Associate Director, IMA Asia & Director MBA program, ANU Tel: (61 2) 9252 4336 ♦ Fax: (61 2) 9252 4339 ♦ Email: [email protected]

Malaysia Kuala Lumpur: Datuk Paddy Bowie, Managing Director, Paddy Schubert Sdn. Bhd. Tel: (60 3) 2078 4031 ♦ Fax: (60 3) 2078 7034 ♦ Email: [email protected]

Pakistan Karachi: Babar Ayaz, Managing Director, Mediators (Pvt) Ltd Tel: (92 21) 565 6113 ♦ Fax: (92 21) 565 6112 ♦ Email: [email protected]

Philippines Manila: Peter Wallace, President, The Wallace Business Forum ♦ Web: www.dataphil.com Tel: (63 2) 810 9606 ♦ Fax 810 9610 ♦ Email: [email protected]

South Korea Seoul: Tony Michell, Managing Director, Korea Associates Business Consultancy Tel: (82 2) 335 2614 ♦ Fax: (82 2) 323 4262 ♦ Web: www.kabc.co.kr Email: [email protected]

Singapore Singapore: Richard Martin, Managing Director, IMA Asia ♦ Web: www.imaasia.com Tel: (65) 6332 0166 ♦ Fax: (65) 6332 0170 ♦ Email: [email protected]

Taiwan Taipei: Michael Boyden, Managing Director, TASC Taiwan Asia Strategy Consulting Tel: (886 2) 8789 0978 ♦ Email: [email protected] ♦ Web: www.tasc-taiwanasia.com

Thailand Bangkok: Christopher Bruton, Managing Director, Dataconsult Ltd Tel: (66 2) 233 5606/7 ♦ Fax: (66 2) 236 8143 ♦ Email: [email protected]

Vietnam Bangkok: Christopher Bruton, Managing Director, Dataconsult Ltd Tel: (66 2) 233 5606/7 ♦ Fax: (66 2) 236 8143 ♦ Email: [email protected]

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