Philippines As a Mining Investment Site

the month’s highlights 1

Political Business

PAST DEVELOPMENTS PAST DEVELOPMENTS

Grace Padaca sworn in, vows independence BSP extends perks for bank acquisitions Former Isabela governor Grace Padaca assumed her post In order to maintain a healthy banking system, the Bangko as election commissioner on Oct. 8, vowing to prove her Sentral ng Pilipinas (BSP or central bank) has decided to include independence from President Aquino and their ruling Liberal bank acquisitions in the coverage of incentives granted for bank Party. “The people can judge me through the decisions I will mergers and consolidations. (see story page on p55) make,” Ms. Padaca said. (see story page on p37)

FUTURE DEVELOPMENTS FUTURE DEVELOPMENTS

Gov’t, MILF forge Bangsamoro deal Peace accord may bring investment The government has reached a preliminary peace agreement with With the signing of the framework for a peace agreement, the Moro Islamic Liberation Front (MILF), with a new political the Autonomous Region of Muslim Mindanao (ARMM), what is entity called Bangsamoro to be created. (see story page on p35) now called the Bangsamoro area, may eventually see peace restored. That, if it is, should lead to a substantial growth in SC issues TRO on new cyber law investment, much of it from other Muslim countries. Agribusiness and infrastructure are expected to lead in that investment. This The Supreme Court (SC) on Oct. 9 issued a temporary restraining would pave the way for long-awaited progress in the region, but order (TRO) on the implementation of the Cybercrime Prevention still many things need to be done as the agreement will take Act. The SC magistrates unanimously voted for the issuance of some years to reach a conclusive ending. (see story page on p54) the TRO. (see story page on p36) E-Trike project to boost EV industry 32 of 84 Senate hopefuls get Comelec approval The rising Electric Vehicle (EV) segment of the country’s Electric The Commission on Elections (Comelec) has given the go signal Tricycle (E-Trike) program is expected to result in the possible for 32 senatorial candidates to run in the May 2013 elections. relocation or putting up of subsidiaries of top EV companies (see story page on p37) in the country, and increased demand for locally made spare parts. Implementation of the project, however, is hampered by concerns in the program design and loan package. Economy (see story page on p56)

PAST DEVELOPMENTS Mining, Oil and Gas

Hunger incidence rises in 3Q12 House defers passage of mining bill to raise revenue share The Social Weather Station (SWS) survey conducted on August Passage of the mining bill to raise the government’s revenue 24-27 revealed that 4.3 million families (21%) experienced having share will have to wait until the next Congress. House Speaker nothing to eat at least once during the 3rd quarter, up from Feliciano Belmonte Jr. already made a statement that they will 3.8 million families (18.4%) in 2Q12. (see story page on p42) need more time to ﬁ nalize the bill. The mining bill also appears not to be a priority of the current administration. Speaker Belmonte pointed out that the Aquino government has yet to FUTURE DEVELOPMENTS pass its own version of the bill. (see story page on p57)

Budget defi cit widens, but still below end-September cap New mining investments from Australia on hold due to The national government incurred a defi cit of P106 billion pending law during the fi rst 3 quarters of 2012, twice the P53 billion fi scal In his recent state visit to Australia, President Benigno Aquino gap recorded in the same period last year, but 42% below the III met with Australian Prime Minister Julia Gillard to discuss self-imposed year-to-September limit of P183 billion. the potential of the Philippines as a mining investment site. (see story page on p40) However, Australian mining companies have decided to hold off new mining investments in the Philippines until the passage of ADB raises 2012 PH growth forecast the law that will increase the government’s share in revenues. The Asian Development Bank (ADB) raised its 2012 economic (see story page on p57) growth forecast for the Philippines to 5.5% from 4.8% and Malaysia to 4.6% from 4%, even as it downgraded the growth outlook for the rest of the developing Asian countries due to the continuing slump in the global market. ADB retained its forecast for the country of 5% for 2013, but downgraded all others. (see story page on p41)

Philippine ANALYST October 2012 2 the month’s highlights

IT Update Proposed electricity market to aid in solving power shortage in Mindanao IT-BPO industry invests in trainers’ training that meets global The Department of Energy (DOE) is eyeing to launch its proposed standards electricity market platform for Mindanao by early next year. The proposal, which will be on trial implementation, is expected Business Processing Association of the Philippines (BPAP) has to add 360-megawatts of power generation in the Mindanao partnered with the Technical Education and Skills Development grid. The government is expecting the new power market Authority (TESDA) for a P25.2-million “Train the Trainers” program model to boost the power supply in the region. Mindanao has that meets global standards. (see story page on p58) been suffering up to 4 hours of rotating blackouts due to power shortage. (see story page on p76) Infrastructure CongressWatch

FUTURE DEVELOPMENTS Lawmakers fi le bills amending Cybercrime Prevention Act Senators and Congressmen have fi led several bills that seek to PH, China disengage from NorthRail project amend the “contentious” provisions of Republic Act (RA) 10175 The Philippines and China have agreed to disengage from the or the Cybercrime Prevention Act. (see story page on p78) controversial, offi cial development assistance (ODA)-funded NorthRail project. China has “called on” its $593-million ODA K+12 bill passed on 2nd reading for the project while the Philippines has agreed to pay the sum The House of Representatives approved on 2nd reading a of $184 million that has already been spent. But settlement of measure that seeks to institutionalize the implementation of this amount is not likely soon as the Transportation department K+12 basic education program in the country. still plans to submit the project to an international arbitration (see story page on p79) court. (see story page on p70) House approves PAGASA Modernization, Physicians Act MRT-3 expansion likely to be pushed back The House of Representatives approved 16 national bills The MRT-3 Capacity Expansion project had already secured NEDA before sessions adjourned on September 21. Among the Board approval, but this long-overdue project is still not likely measures passed on 3rd and fi nal reading were the PAGASA to be implemented soon. The Transportation department has (Philippine Atmospheric, Geophysical and Astronomical Services yet to iron out issues stemming from railway ownership. This, Administration) modernization program and the Physicians Act as the agency also committed to review a separate amended of 2012. (see story page on p81) proposal from Metro Pacifi c to expand the railway. (see story page on p72)

BIR uncertain on WESM VAT policy The Bureau of Internal Revenue (BIR) is unable to issue a policy for the collection of value-added tax from the Wholesale Electricity Spot Market (WESM) as it remains uncertain of WESM’s operations. (see story page on p74)

Philippine ANALYST October 2012 3

WORD FOR WORD

Below are some of the feedback we have received from clients over the years:

“Thank you so much for sharing with me this invaluable report on Barriers to FDI. Economists understand the great multiplier effect that FDI has, and your study has so many recommendations that really should be the basis for sound government policies and reforms.”

Alejandro Melchor III, Governmental Programs Executive, IBM Philippines

“Deﬁ nitely provides a lot of good information and, as I always say, the uncensored version of what you otherwise read in the news, and then also just connect with a lot of good advice. I’ve only been here for a year and these guys have really taken good care of me, trying to introduce me to the life here and how things are being run.”

Brooke Butler, Country Manager, Oxford Business Group

“Basically, gives us a much wider view of what’s going on, especially in the ﬁ rst 6 months.”

Eduardo Sahagun, SVP Sales, Marketing & Distribution, Holcim Philippines

“Thank you for the positive article on the Philippines and the Philippine people written by the WBF with the Epic Group. As an American seriously contemplating starting a business in the Davao area I will undoubtedly use some of the material contained when I approach investors next year.”

Steve Taylor, American investor

“Your publication provides valuable data that may be used by the House of Representatives as we draft viable and timely measures that would help boost the economy and improve commerce in the Philippines.”

Hon. Feliciano Belmonte, Jr., Speaker, House of the Representatives, Republic of the Philippines

Philippine ANALYST October 2012 4 COMMENTARYCOMMENTARYCOMMENTARYCOMMENTARY

Here’s a somewhat modified column I wrote back in April this year that I think rather sums up the appeal of the Philippines.

n American named Jimmy Sieczka had a list of the 20 things he hated about the Philippines after living here for 3½ years. Well I decided to make my own list to counter it―from someone who has lived here 10 times as Along as that (37 years). Mind you, he had some good points, even if aggressively delivered, the government and people might want to reﬂ ect on and do something about. Anyway here’s my list:

1. The people. Overwhelmingly this is it. So they piss in the street, but don’t we all wish we could? Tied to the people is:

2. The friendliness, the kindness. Wander into a party, even a family function by mistake, they’ll invite you to join. Even the poorest will shrare a meal. Slip and fall, they’ll rush to pick you up.

3. The laughter. It’s everywhere, everyone is happy. The optimism charts are always way up there. And they see the joke, invariably make them.

4. The musicality. Filipinos can just sing. Karaoke is not the ear-shattering experience of elsewhere; it’s a delight to listen to. Today a Filipina is at the top in American Idol. And it (over) ﬂ ows into the arts, the artistic talent is captivating. The imagination, the beauty of design rivals anything Italy can produce, as the FAME exhibition every 6 months so graphically demonstrates. The Philippines just doesn’t have the brand name that a Bally or Gucci does.

5. The caring, the sharing. Filipino nurses and caregivers are deployed all over the world, caring for other people. They do back home too.

6. The loyalty and dedication. Employees, if they believe in you, work and work hard. They stay 5, 10, 20 years.

7. Then there’s the beauty. Not just of the people (I wish I had a nice tanned skin) but of the countryside. I agree with Jimmy Sieczka, the inability to keep things clean (particularly toilets, “comfort rooms” they are certainly not, although there’s some effort now toward improvement) and look after their environment is a sad distraction. Manila was a magniﬁ cent city, once. But go anywhere in the countryside and the sheer beauty just strikes you. Wherever you go, a T-shirt and shorts are just ﬁ ne. Maybe a light jacket for those ever so occasional cool nights, and the restaurant air conditioning. And the range of restaurants is amazing – the world’s cuisine is here.

8. And you can enjoy it all in a weather that is sunny and hot (20 to 30 degrees Celsius) ever so much of the time (sunshine 280 days out of the 365). There are only 2 seasons: Wet and dry. And the dry is for much longer. You can see the sun when it rises, and the sunsets are spectacular.

9. Vibrancy. There’s vibrancy behind it all that just stands out. It’s all around you; the air is full of it.

10. The excitement. Ride the rapids, surf the monster waves, or climb perilous cliffs, try and cross a street, it’s all there. But it’s the day-to-day living too. No day is a dull one. This leads to:

11. The unexpected. Things just aren’t boringly predictable (sorry Singapore). You never know how things will turn out till they do.

12. Chaos. Trafﬁ c is a nightmare―if you’re a foreigner. It’s a piece of cake to Filipinos. Watch them weave into and through the mess, and get to their destination. Disorganization must be a Tagalog word because it is Philippine society: Disorganized, chaotic, working ― well, some of it would be nice if they didn’t block intersections.

Philippine ANALYST October 2012 COMMENTARY 5

13. The adventure. Every trip is one. You can swim with whales and dolphins, and dive some of the most beautiful reefs in the world. But nothing is easy to get to, you can’t just ﬂ y in. A 2- to 8-hour jeepney or banca ride is a given.

14. Then there’s the reverence for the elderly. They’re not just discarded, they’re acknowledged, respected, looked after. If you want a place to retire, this is it. It’s because of:

15. Commendable health services. The doctors have always been of the best, many overseas-trained in post-grad work. The weakness that was the lack of no modern hospitals is no more. There are few that meet world standards.

16. The low cost then appeals. Not just for health services, but certainly that’s a factor (a doctor’s visit is around US$12). Almost whatever you buy, it’s at a fraction of the cost in the Western world.

17. The safety. Yes, safety. What the Muslim renegades are doing in the South is some 900 kilometers from Manila. The communist party’s forays are few. Theft and mugging are no worse than in any country today. Even less, I’d venture. Visit the right places, take a little care and the Philippines is as safe as anywhere. And terrorists aren’t going to waste their bombs on Manila.

18. The politics. The sheer absurdity of so much of it is thoroughly enjoyable. It’s fun to watch, to read, to wonder at the intricacies and improbabilities of it all.

19. But there’s one missing: Jai-alai. I’ll never forget the excitement and wonder of that ever so rapid game when I ﬁ rst saw it. Some misbegotten souls banned it because of the gambling. Well the problem wasn’t jai-alai, it was gambling. Now gambling is legal, Jai-alai should be brought back, and the fronton rebuilt in all its decaying charm.

If only the politicians would make the reforms we’ve ever so endlessly advocated for so that business could truly ﬂ ourish, and investment pour in at the levels of elsewhere, the half of the population (yes, half as a rough estimate of how many don’t live anywhere well enough; even more if we apply developed country standards – and why not?) that struggles in life could be given a decent life.

Philippine ANALYST October 2012 6 SPECIAL REPORT

WBF through the past 30 years

The Wallace Group started operations with the incorporation of AYC Consultants, Inc. on November 19, 1982. Peter Wallace was President and Board Chair. That period turned out to be a precarious start for new businesses as the economy was already feeling the stress from badly-run, heavily-indebted state-sponsored monopolies and crony corporations.

In less than a year, the homecoming top opposition leader Benigno Aquino Jr. was assassinated at the tarmac of the airport that now bears his name, triggering widespread public indignation. Less than two months after that, the country unilaterally declared a moratorium on the payment of its foreign debts. Consequently, credit lines were cut off, and for at least two years the Philippines experienced its worst economic crisis in post World War II history. Filipinos fearlessly took to the streets, supported by the business community, civic organizations, religious groups and other prominent sectors of society, demanding the resignation of strongman Ferdinand Marcos, who’d declared Martial Law in 1972 and had been controlling it ruthlessly since then.

While many companies faced tough times, the newly-incorporated AYC managed to hold up. The situation provided AYC an opportunity to keep foreign businessmen abreast with developments in the country and help them understand the changes that were occurring. The many years of experience of Peter Wallace as CEO of US companies operating in the Philippines and nearby areas gave the MNCs an intimate insight into the country’s unfolding events.

The shift was suggested by a friend of Peter, saying that it was the right time to operate a private think tank to assist foreign businesses understand and adapt to the environment, which was turbulent but with promise, helping them to manage the crisis and succeed in the country. It was something Peter had been thinking about already from his days in gasket-maker Garlock (1975-78) where his Rochester-based boss required a monthly report not only of corporate performance but also of the political and economic environment within which the company operated. The ﬁ rst part was easy to do, the second wasn’t. He ﬁ gured the other CEO’s must face the same problem, so it was a possible niche opportunity. And so it turned out to be.

Amid the challenges in the Philippines, Asia was experiencing a boom that was increasingly attracting massive foreign capital. It was hoped the country could beneﬁ t from this development some time later (late 1980’s).

First publications of BI Philippines (now WBF)

Philippine ANALYST October 2012 SPECIAL REPORT 7

An innovative organization known as Business International (BI) that was providing information and advisory services to CEO’s of multinationals operating in Hong Kong decided it looked promising to replicate it elsewhere in the region. So they approached Peter to discuss a possible tie-up. A deal was struck and in a few years, as will be discussed subsequently, the name was changed to BI Philippines, Inc. The company’s mission was carried out by providing a service package of well-researched reports on the country’s political, economic and business environment; peer group discussions; and roundtables and conferences that gave independent prognosis of what’s to come to help businesses better shape their strategies. These forums also later on allowed CEO’s to interact with senior government ofﬁ cials and policy-makers. Peter and George Beader (president of BI) came up with the idea of CEO forums (there were none at that time) that would bring the information more actively to their clients. The range of services now available developed during early years of relationship with BI that started in 1985.

The ﬁ rst issue of the monthly Philippine Alert (now renamed Philippine Analyst), which reported developments during the month, was released in August 1985. It predicted further worsening of the economy and a “snap” presidential election. It was preceded by the ﬁ rst roundtable four months earlier, with experts from BI as guest presenters.

The EDSA revolution in February 1986, with democracy restored and Corazon “Cory” Aquino installed as president of the republic, brought a new ray of hope to the country and a return of business confi dence. This gave even more relevance to the mission of the Wallace Group. On October 27, 1987, BI Philippines (BIPI) was incorporated, an affi liate of Business International and a separate and distinct entity from AYC but with the same ownership and adapted the work of BI to the Philippine situation. BIPI also had the benefi t of being part of a network of affi liates within the Asia-Pacifi c region that share resources and experiences, making it a region-wide undertaking.

The 1986 EDSA Revolution brought and new ray of hope to the country and a return of business conﬁ dence.

Meanwhile, AYC also became a management consultancy fi rm, supporting businesses in their efforts to identify and take advantage of opportunities, and the government in the conduct of business policy studies and advocacies. The company provided specialized research that met the needs of specifi c clients, investment assistance, and support for reforms benefi cial to business through surveys, media releases and position papers done unilaterally or on behalf of industry associations.

This transformation came as a result of requests for help from the government to rebuild an economy damaged by the debilitating economic crisis. Expectations of improvement in local market conditions also created corporate demand for independent studies in support of their strategic plans.

Philippine ANALYST October 2012 8 SPECIAL REPORT

AYC was part of a team led by then trade undersecretary Gloria Macapagal-Arroyo that developed the post-EDSA industrialization strategy for the Board of Investments (BOI). It was also a member of the consortium that gave recommendations to the Department of Agriculture on how to modernize agriculture, stabilize grain prices and privatize selected functions of the National Food Authority. It conducted numerous privatization studies for a government that was eager to divest itself of activities that could be more competently undertaken by the private sector. The company’s relationship with the House of Representatives strengthened under the Speakership of the late Hon. Ramon Mitra, previously the agriculture secretary, where AYC provided advice on agricultural reforms, privatization and development ﬁ nance programming.

It was also a time for assisting foreign ﬁ rms set up business in the country, making it a busy period for AYC facilitating the entry or expansion of at least a dozen companies in the 2nd half of the 1980’s. These companies included those involved in organic and inorganic chemicals, cosmetics, household care products, pharmaceuticals, medical supply, dairy, and ﬁ ber cement building products and other construction materials.

The company was at the forefront, too, of the call for reforms and reactions to issues that were affecting speciﬁ c industries. It provided assistance especially to pharmaceutical and mining industries through the development of position papers and preparation of relevant studies in support of their stand on certain issues. These papers helped in effecting the needed changes.

In late 1987, BI Philippines released the results of its fi rst corporate survey, covering 1981-1986. The survey presented the fi nancial performance and contribution of multinational corporations to the Philippine economy. Publicly released, it gained signifi cant media attention. Subsequent surveys, which ran until 2007, included the views of CEO members on operating conditions, strengths and weaknesses of the country as an investment location, and reforms that are most benefi cial to business.

The Cory presidency had been affected by political instability, with 8 coup d’etats attempted during her term. Congress was also uncooperative especially with unpopular but necessary reform bills like higher taxes and liberalized entry of foreign capital. This made it difﬁ cult to sustain rapid economic growth. The situation was exacerbated by daily power outages of 8-12 hours as the new government abandoned the power development program of the previous regime but did not provide for a replacement plan. GDP posted nearly zero growth in 1992, the last year of Cory’s term, resulting in an average desultory growth of just slightly above 3% annually in 1986-92 at a time when Asia was growing at 7% p.a. Businesses were literally and ﬁ guratively in the dark, planning became futile and paralysis set in. What was achieved, though, was a return to an entrenched democratic system under a new (1987) constitution that the various coup attempts failed to dislodge.

Nonetheless, The Wallace Group successfully organized jointly with the Economist Intelligence Unit (EIU) a Government Roundtable under Pres. Cory in January 1992, the fi rst of the high-profi le roundtables that were held annually till 1998. It was a venue where the country’s leadership and senior offi cials presented the thrusts and accomplishments of the administration and interacted with the foreign business community. The business participants were not only the members of BIPI’s Philippine Corporate Update Program (PCUP) – as the CEOs subscribing to BIPI’s service package were called – but also executives from other MNCs operating in the country and those coming from abroad with interest in having presence in the Philippines. Although Pres. Aquino was outgoing that year, with the presidential elections to be held in May 1992, she perhaps considered the conference a venue to present her legacy in promoting of business in the country, particularly the passage of the Foreign Investment Liberalization Act and the Build-Operate-Transfer (BOT) Law introduced the previous year, and the sustained efforts at trade liberalization.

Philippine ANALYST October 2012 SPECIAL REPORT 9

Peter Wallace with Pres. Fidel V. Ramos during the Government Roundtable in January 1994

Four months later, on April 27, 1993, BIPI was renamed EIU Philippines, Inc. (EIU-P), reﬂ ecting the acquisition by the Economist Intelligence Unit (EIU), which runs the Economist Conferences and publishes global economic and industry outlook reports, of Business International. Peter agreed to retain the relationship and change the corporate name. Similar things happened elsewhere in Asia, so in each country EIU was represented by a local think tank. The business expanded into a region-wide range of services tailored for each country, but also developed to service Regional Managers in their need to know the region more intimately. Regional conferences drew large attendance.

It was in the early 1990’s that the Wallace Group gained more prominence as a leading private catalyzer for foreign investment. As AYC, it produced the milestone report entitled “Enhancing the Investment Climate” in 1993, which gained signiﬁ cant awareness among both business and government. At the same time, AYC was involved in a major tariff reform project that monitored the impact of across-the-board lowering of tariff rates on local industries. Advocacy for the development of mining as a tool for poverty reduction was stepped up (20 years later the message is still trying to be got across), even as the annual corporate surveys became increasingly popular as a gauge of MNC performance and contribution to the country, and as CEO perception of the country as an investment location (improving in the mid-1990’s).

It was partly these studies, coupled with feedback on Peter Wallace’s involvement with the foreign business community that brought the Wallace Group to the awareness of Pres. Fidel V. Ramos (FVR). At that time, Pres. Ramos was putting together what turned out to be a very successful economic deregulation and liberalization program, while at the same time exerting all efforts to resolve the power crisis (which he did in the 2nd half of 1993). He was former chief of the staff of the Armed Forces of the Philippines until he withdrew support from Marcos together with defense minister Juan Ponce Enrile (the current Senate President).

Ramos, a civil engineer, reinforced the stability of the political system and introduced some major economic reforms. Principal amongst them were the deregulation of the telecoms sector (PLDT’s monopoly – 94% of local exchanges – was broken; the joke well before deregulation was 98% of Filipinos were waiting for a phone connection, while the other 2% were waiting for a dial tone); the power industry, where he addressed the calamitous blackout situation and restored full power within 18 months; and foreign exchange transactions, where restrictions on buying and selling of dollars were lifted.

Philippine ANALYST October 2012 10 SPECIAL REPORT

It was during the Ramos years that EIU-P and AYC reached their height. PCUP members increased by 50% to its peak in 1997 from its level in 1993, demand for management consultancy work under AYC rose sharply due to outsiders contemplating setting up facilities in the Philippines, and Peter Wallace was commissioned by an increasing number of MNC’s to provide them advice on a regular basis. This wasn’t because of the good working relationship between EIU-P/AYC and the FVR government, but because the Philippine economy was experiencing an unprecedented boom and almost everyone wanted a piece of the action during the period. It highlighted the importance of leadership in the development of a country. It also goes without saying that the Wallace Group’s rapport with the Ramos government grew, and the friendship between FVR and Peter Wallace continues up to today.

Peter Wallace in one of his presentations

A ﬁ nancial crisis hit most of Asia in July 1997, with its worst impact experienced just as Pres. Ramos was about to leave ofﬁ ce in mid-1998, and which persisted till the 3rd quarter of 1999. But even as the Asian crisis played out, where the Philippines was seen to be least affected, perceived weaknesses on governance and eventually political uncertainties as reports of scandal after scandal under the Joseph Estrada presidency arose and became a drag on the economy.

In 1998, EIU-P lost a large number of members to the crisis, even as AYC consultancy opportunities almost dried up. The situation for the Wallace Group stabilized after 1999 but the recovery was nowhere near the boom years of the mid-1990’s.

The post-EDSA 2 revolution change of leadership in January 2001 as the vice president, Gloria Macapagal-Arroyo, took over with the vacation of the presidency as Estrada fl ed the mobs angered at his profl igacy and misuse of government funds, briefl y perked up the business of the Wallace Group. The dynamism, strong work ethic, and skill background of Arroyo brought new promise to the country. Peter, who’d been providing GMA with economic analysis and recommendations since her days in the Senate, remained close to her in the early years. But the resignation by the “Hyatt 10”, where 10 cabinet members resigned due to the scandals that were emerging under her rule, an unprecedented act that was publicly supported by the business chambers (Peter was on the Board of the Management Association of the Philippines at the time), led to a cessation of this relationship. So the disillusion with GMA led to a decline in business interest in the country that inevitably led to a decline on WBF’s business.

The initial promise of economic dynamism under the administration of Gloria Macapagal-Arroyo gradually dissipated. Nonetheless, the Wallace tandem of EIU-P and AYC successfully survived the challenge, while most other private research groups underwent consolidation (merged to remain alive) or fell by the wayside. Some prominent think tank names were no longer heard of when the smoke cleared at the turn of the century.

Philippine ANALYST October 2012 SPECIAL REPORT 11

To a certain degree, the modest post-Asian crisis revival of EIU-P/AYC also reﬂ ected the trend in the economy, where industrial activity remained moribund as a result of the emergence of China as the world’s manufacturing powerhouse sucking most other industrial opportunities out of its neighboring economies. It also didn’t help that infrastructure spending went on a tailspin while perception of corruption worsened during most of the decade of the 2000’s. Moreover, the Internet emerged as a key source of information even as major business groups started to also provide alternative sources of information on key developments in the country, posing constraints on the Wallace Group’s growth. The Group, though, remained the leading provider of quality research and information to business, and is still the only one that does in-depth, independent research into issues and events to ensure clients have accurate information they can rely on.

With Pres. Benigno Aquino III during the President’s meeting with foreign businessmen on July 4, 2012

By 2002, EIU-P decided to cut its ties with the Economist Intelligence Unit, conﬁ dent of the goodwill it has established with the government, business community and the management consulting industry to make it on its own. This decision came as a result of the change in ownership and management of EIU (from London-based to New York-based), which also imposed new policies that EIU-P considered hardly supportive of its operational and ﬁ nancial goals. The involvement of EIU had deteriorated with its change in management and corporate strategy, lessening the advantages of the relationship. Peter and the other associates in the region decided to go back being independent and amicably ceased the relationship. The company name became The Wallace Business Forum (WBF) on January 18 of that year, after a survey of clients recommended it.

Peter Wallace also successfully built a reputation for independent assessment of issues and as an advocate for business policy reforms during the decade of the 2000’s. This was honed by his bold and uncompromising stand in support of a more business-friendly environment and level playing ﬁ eld, particularly since the Estrada presidency brought that into question. He hosted a weekly segment on a TV show at ABS News Channel (ANC) from 2001-2002. In September 2004, he started writing a column entitled “Like It Is” every Friday for the Manila Standard Today (MST), which he continued beginning June 2012 for the Philippine Daily Inquirer (PDI). The column has been well received, although it also naturally elicited strong adverse reaction from those put on the hot seat by Peter’s critiques.

In response to changes in the consulting industry’s operating environment, such as the increasing availability of information from the Internet and business groups, the more focused data requirements of companies as a result of greater competition, and the need for quicker updates to be at the fi ngertips of CEOs, WBF also made changes. Its website, fi rst launched in 2001, was revamped in 2011 to make it more dynamic and engaging. It was more regularly updated and provided more content. Social networking accounts were opened to reach the youth, where the new generation of CEOs will come from. Industry-specifi c reports were published also in the same year. News alerts were issued more often. The research personnel interacted more closely with WBF members to be more responsive to their needs. More consultancy businesses are being pursued in partnership with major international management consultancy fi rms.

Philippine ANALYST October 2012 12 SPECIAL REPORT

Earlier, in 2010, a re-organization was implemented where the research and management consultancy functions of AYC were transferred to WBF. AYC effectively became a company handling the advocacy and personal consultancy of Peter Wallace. This also laid the groundwork for WBF to become increasingly run by business professionals, more diversiﬁ ed in terms of revenue sources, and able to sustain operations over the long-term.

Moving forward, the Wallace Group aims to remain a major contributor to Philippine business development for many years to come. It is actively seeking partners to continue with its legacy, especially since exciting milestones are anticipated during the incumbency of Pres. Benigno Aquino III. The Philippines is expected to get its ﬁ rst investment- grade credit rating in a few years. Its competitiveness ranking is also rising steadily – for the ﬁ rst time in over a decade. These two developments alone augur well for investment activity in the country. WBF wishes to remain a catalyzer in the country’s pursuit of a better economic life for its people through the promotion of more businesses and helping those that we established.

Philippine ANALYST October 2012 SPECIAL REPORT 13

Philippine ANALYST October 2012 14 SPECIAL REPORT

TIMELINE OF EVENTS

SINCE THE FOUNDING OF THE WALLACE BUSINESS FORUM

1982 IncorporaƟ on of AYC Consultants (Nov. 19)

1983 AssassinaƟ on of Senator Benigno “Ninoy” Aquino (Aug. 21) 90-day Moratorium Debt Payment (Oct. 17)

1986 Snap ElecƟ ons (Feb. 7) EDSA RevoluƟ on (Feb. 23-25) Corazon “Cory” Aquino, sworn in as 11th President of the Philippines (Feb. 25) ]

1987 Philippine ConsƟ tuƟ on raƟ ﬁ ed Business InternaƟ onal Philippines Inc. (BIPI) established AYC consulƟ ng ﬁ rm (Oct. 27)

1988 1st Local and municipal elecƟ ons under the Freedom ConsƟ tuƟ on (January 18) Review of the Military Bases Agreement (MBA) Gringo Honasan escapes from prison (Apr. 2) State visit of Soviet foreign minister Eduard Shevardnadze (4Q1988)

1989 Rebel aƩ acks at Malacanang Palace, Camp Crame, and Aguinaldo (Dec. 1) -8th or worst coup aƩ empt vs. Cory gov’t

1991 Mount Pinatubo ErupƟ on (June 15) President Cory Aquino’s last SONA (June 22) Local Government Code signed into law (Oct. 10)

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1992 Fidel Ramos elected 12th President of the Philippines (May11)

1993 TelecommunicaƟ ons deregulated (Feb. 24) Power shortage resolved (3Q1993) Business InternaƟ onal Philippines Inc. renamed Economist Intelligence (EIU)-Philippines

1994 RA 7718 Amended Build Operate Transfer Law (May 8) RA 7721 LiberalizaƟ on of the Banking Sector (May 18)

1996 RA 8180 or the Downstream Oil Industry DeregulaƟ on Act (Mar. 28) 8th APEC Ministerial MeeƟ ng, Manila (Nov. 22-23) 4th APEC Economic Leader’s MeeƟ ng, Subic (Nov. 25)

1997 Start of ASIAN Financial Crisis (July 2) IMF extension of $1.1Bn-credit to PH (July 18) Asian stock markets plunge

1998 RA 8479 Downstream Oil Industry DeregulaƟ on Act (Feb. 10) Joseph “Erap” Estrada, 13th President of the Philippines (May 11) 100 years of Philippine Independence (June 12)

2001 ResignaƟ on of President Estrada (Jan. 20) - V-Pres. Gloria Macapagal Arroyo succeeds Pres. Estrada

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2002 EIU Philippines renamed The Wallace Business Forum (WBF)

2004 Gloria Macapagal Arroyo wins elecƟ on amid charges of widespread cheaƟ ng in Mindanao (June 23)

2005 Hello Garci scandal (June 6) HyaƩ 10 withdraws support to GMA (July 8)

2007 Former Pres. Estrada convicted of plunder by Sandiganbayan (Sept.12) NBN-ZTE Controversy (Sept. 18) Estrada receives PresidenƟ al pardon (Oct. 26) Manila Peninsula rebellion (Nov. 29)

2009 Former Pres. Corazon Aquino dies (Aug. 1) Maguindanao massacre (Nov. 23)

2010 Benigno “Noynoy” Simeon Aquino III elected 15th President of the Philippines (June 9) Manila Hostage Crisis (Aug. 23) EO 8 Public Private Partnership (PPP) Center (Sept. 9) WBF absorbs Research and Consultancy services of AYC AYC becomes personal consultancy and advisory projects of WBF Chairman Peter Wallace

2012 Impeachment trial of SC Chief JusƟ ce Corona began (May 29) EO 79 (Revisions in Mining Act of 1995) (July 6) Death of DILG Sec. Jesse Robredo (Aug. 18) Signing of the Bangsamoro Framework Agreement with MILF (Oct. 15)

Philippine ANALYST October 2012 SPECIAL REPORT 17

FROM THE ARCHIVES OF THE PHILIPPINE ALERT

The fi rst issue of the Philippine Alert came out in August 1985. Below are the among the earliest reports written for the publication, lifted from the August, October, and November 1985 issues. This was during the turbulent end-years of the administration of Ferdinand Marcos. h Stiffer law against bribery. A new law (Parliamentary Bill No. 169, now known as Batasan Pambansa Blg. 871) has been signed to govern the imposition of stiffer penalties for public offi cials and employees found guilty of bribery. The penalties range from “prision correcional” and a fi ne equivalent to twice the value of the gift to “prision mayor” plus a fi ne equivalent to three times the value of the gift. Several attempts in the past to reduce, if not eliminate, graft and corruption of public servants through the anti-graft law and the creation of the quasi- judicial offi ces (like the Tanodbayan and the Sandiganbayan), have been futile. The effectiveness of this new law is also doubtful. h Police administration now under Marcos. Marcos has placed the Integrated National Police (INP) under his administration, supervision and control, although its daily operation remained under the mayors. This, together with an earlier move to place teachers under the supervision of the mayors, may be interpreted as another tactical move to strengthen his control in preparation for the coming local elections. Expect Marcos to exercise extraordinary infl uence on these groups to gain an upper hand. h Opposition closer to unity. The provisional acceptance of Senators Jovito Salonga and Jose Diokno of the UNIDO position (They have yet to sign) on the U.S. bases – renegotiation/decision when the current agreement expires in 1991 – signals growing opposition unity and more probable U.S. support.

With only Tanada now holding fast – and at 87 years old, unlikely to change or be effective – the opposition now has made a signiﬁ cant step forward in its move to oust Marcos. h Escalante murder, a disturbing indictment of the current social order. Arrogance of power was evident in the murder of some 27 people participating in a rally in Escalante, Negros Occidental – about 96 km. north of Bacolod City.

The incident started as a peaceful rally attended by some 6,000 demonstrators. In trying to break up the rally, the military initially tried to disperse the crowd using water jets but ran out of water. Tear gas bombs followed; but when one rallyist (a young girl) threw one back at the soldiers, one member of the Civilian Home Defense Forces (CHDF) opened ﬁ re. Chaos ensued as other members of the CHDF and the military (situated atop the two ﬁ retrucks and on the roof of the town hall) followed suit.

Government reaction – slapping sedition charges on the leaders of the rally and an ineffectual investigation of the incident – indicate a growing disregard for protection of human rights, and public opinion.

Implications of the incident: Increased NPA activity in the province and an increase in converts to the NPA cause.

Philippine ANALYST October 2012 18 SPECIAL REPORT

h Government intervention in rice trading is being criticized; but the NFA is expected to continue. The National Food Authority (NFA) appears to be intervening in the market, possibly in a move to show the inapplicability of free trading in the Philippines and justify reimposition of controls and direct intervention in the market

The import and dumping of rice on the domestic market, added to the recent harvest has already created a destabilizing effect in rice trading – palay is now selling at P2.00 to P2.30 per kilo, way below the government support price of P3.50 per kilo. The NFA claims it has to dispose of previously imported rice, and unload present stocks to generate more funds as its procurement funds are inadequate.

h Marcos under pressure for genuine reforms. The visit of Senator Paul Laxalt of Nevada has a basic mission: to impress on Marcos that the messages coming from Washington are totally supported by U.S. President Ronald Reagan.

After many months of negotiations for reform, the U.S. has realized it has failed, both to get the message across and to get reforms, Laxalt’s role is to ﬁ nally express this concern to Marcos and make a last appeal. Whether this will succeed or not should be seen within the next two to three months.

If Marcos heeds the advice of the U.S. (and others in this area), it will be seen in the next few months through a series of actions to move Marcos into a more statesmanship role. Indicators might include: 1) appointment to the Comelec of demonstrably independent ofﬁ cials; 2) acceptance of the more signiﬁ cant reforms toward fairer elections and rejection of changes that would make the elections less fair; 3) changes in the military, including announcement of the retirement of a number of “overstaying” generals; 4) general reforms in the sectors monopolized by government or quasi-government entities; 5) changes in the Cabinet and, possibly, an announcement by Marcos that he will not run for the presidency but devote his time to instituting the fundamental changes needed to provide the foundation for recovery.

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Philippine ANALYST October 2012 20 SPECIAL REPORT

30 YEARS OF ADVOCACY

THE WALLACE BUSINESS FORUM SPECIAL REPORT

CHAPTERS:

1. LEADERSHIP

2. INFRASTRUCTURE 3. A JUSTICE SYSTEM 4. WINS FOR THE ECONOMY

he thrust of WBF’s advocacy work over the past 3 decades has been to push the Philippines towards global competitiveness. After the 1986 EDSA revolt, and the subsequent change of government, we were part of a team Tthat pursued the country’s industrialization strategy. This was followed by numerous privatization studies, and many other key engagements all targeted to help make the country’s business environment friendlier.

In the time that we have invested in our advocacy of aiding the entry of more investments into the country we have come to a conclusion. That is, the importance of the leadership role in the equation. Many lists have been presented enumerating the reform measures needed to make this a better place for business, but these reforms, supposing they are implemented, go so much further with good leadership. Leadership, as the world has shown, is the key ingredient in how a country develops, or doesn’t (look at the 2 Koreas as the ultimate example).

1. LEADERSHIP

By leadership, we mean the Philippine presidency.

In our special report Leadership, a New Look (2005), we said:

“Good leadership isn’t important, it’s essential. Particularly given the personalistic culture of the Philippines. That kind of leadership has not been apparent in the Philippines in recent times. There’s a feeling it’s a reactionary rather than visionary government.”

This personalistic culture partly explains the wide popularity of incumbent Pres. Benigno Aquino III. “He’s got the most important ingredient, the overwhelming support of the people. No one has had +88% support before. It says people want change. They want his empathy for the people, his simple lifestyle to translate into reform that gives them decent jobs where they can educate their kids [A manageable number now, if his praiseworthy support for the RH bill results in success, and policy stability is introduced that encourages investment]. Somewhere to live that isn’t rusty G.I. sheets or, at best, cardboard boxes. And a pride that the Philippines is at the top of the heap (where it belongs).” – It’s time everyone helped out, MST Like it is 2011

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Naturally, his administration is compared to his predecessor’s. The decade-long presidency of Gloria Arroyo is a good illustration of how important the quality of leadership is for the growth of the Philippines.

“And I do wish she’d spend her time working with her Cabinet secretaries on taking their departments into the future in well-deﬁ ned directions. Spend her time lobbying in Congress to get the laws passed she needs to move the country forward — although, why they can’t do it without prodding I really don’t know.

“Jobs need investment, investment needs conﬁ dence. I reiterate my point — the President should concentrate on one thing only: Providing a stable, predictable, efﬁ cient environment for business. She would greatly strengthen her position if she did. The President should stop listening to the image-makers, we don’t want image, we want reality. A president who is at work leading (not micro-managing).” – Morality isn’t grey, MST Like it is 2005

“This is my main message today. If you don’t recognize what’s wrong, how can you ﬁ x it? If you think investment is pouring in, you’ll make decisions far different than if you realize we’re being passed by. About $10.2 billion went into Vietnam last year, while only $2.3 billion came here. We’re being passed by. So don’t trumpet success, worry about failure—and do something about it.” - A dichotomous economy, MST Like it is 2007

Philippine 3-year average

Source: ADB Key Indicators

The high popularity of the current president is creating good perception on the country. And this makes the jobs of groups like us easier.

“Well, actually I do have something, I have an irrefutable fact: Despite the negatives, multi-national corporations operating here do well. The proof of the pudding is in the eating, and the pudding tastes good. Some 75% of my clients averaged a 25% growth in sales, while close to 50% recorded an average proﬁ t increase of 33% last year. You can’t sniff at that, that’s a good story. Add to that an honest President and a competent Cabinet and I had a good story to tell.” - Perception decides, MST Like it is 2011

And what accounts for his high popularity at the moment?

“Pres. Aquino is a very brave (or foolish, depending on your viewpoint) man who is challenging a whole system. A challenge we believe is essential if the Philippines is to truly regain its place in Asia. He is attacking the Church, the Judiciary, a former President, and hopefully some powerful of the corrupt. If he wins, the Philippines could see rapid growth under a well-chosen next leader. If he loses, he becomes a lame duck for the remainder of his term.” - Where I stand, PDI Like it is 2012

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He deserves some merit for pursuing a task (ending major corruption) and sticking to it. In some respects, it is already working. This is not a surprise; for years, corruption has topped a sundry of surveys discussing what deters good business in the Philippines. Now some action truly seems to be happening, but there’s still a very long way to go. Stories of day-to-day corruption persist.

MAJOR BUSINESS DISADVANTAGES 2004 Survey of WBF Clients DISADVANTAGES SCORE Corruption 119 Political Stability 78 Peace and Order/Security Problems 68 Bureaucratic red tape/mess 52 Inconsistency of policies 49 Poor infrastructure 46

Eight years later, it’s still at the top.

WORST FEATURES OF PH AS AN INVESTMENT SITE Quarterly CEO Perception Survey (May 2012) WORST FEATURES SCORE Dealing with corruption 75 Bureaucratic red tape 73 Transport infrastructure 68 Stability of policies 58 Unfair competition by others paying bribes 48 Government attitude 39 Political stability 35 Economic stability 29

“The investigation of GMA is a must if this society is to clean itself up; it is not vendetta, it is justice. And cleanup is a must if it’s to rise from the bottom in Asia towards the top where it belongs, and would be if it had the right leaders. The right leader is critical to where a country goes. Look at Singapore under Lee Kuan Yew versus North Korea under Kim II Sung. President Aquino is rightly driven by his single-minded focus on corruption.” - Where I stand, PDI Like it is 2012

Assuming that the current administration follows through with this task throughout its term, the question that remains is how the gains of its cleanup campaign could be maintained beyond 2016. Choice of the next president will be the critical determinant of where the country goes from there.

“The President’s single-minded focus on addressing corruption may be starting to have a life of its own. But it’s a life that needs a decade to mature, and that means a leader equally determined beyond 2016. That means that the cleanup should be institutionalized now so that it will be hard to reverse. That will be difﬁ cult to do, and I give the President less than a 50% chance of doing so. What will help is to fully computerize in an integrated fashion all government services (as I’ve said before, it’s hard to pass a brown envelope under the table to a computer). The creation of a Department of Information and Communication Technologies will be an important step in achieving that.” - Let’s get moving, PDI Like it is 2012

Philippine ANALYST October 2012 SPECIAL REPORT 23

Before we move forward to other advocacies and issues, here’s a fi nal sharing on the signifi cance of having visionary leadership take on fundamental problems such as corruption. Taken from our study “Formulating Policy Reforms to Address Barriers to the Entry of Investment into the Philippines”, which was fi nanced by the foreign-aided Local Implementation of National Competitiveness for Economic Growth (LINC-EG) Project in 2010.

“Moreover, the country’s corruption ranking has steadily deteriorated since 2001 and is now near the bottom among Asian countries surveyed by Transparency InternationaI. Companies from countries with strong anti-corruption laws can’t invest in many of the projects here. These countries account for 3/4 of all investments made in the world. If the Philippines had a stronger anti-corruption stance, foreign direct investments would be some $500 million to $1 billion higher.”

BARRIERS TO INVESTMENT*

Last February 16, we held a conference on barriers to investment. It was a working conference that brought in a variety of groups that are involved in one way or another with wanting much greater levels of investment in the Philippines. It was to discuss a working paper we had done and have now ﬁ nalized from this working group discussion.

The message: Change must occur. That change involves eliminating the barriers to investment we’ve identiﬁ ed. So what are they? In order of importance, they are:

1. Corruption

2. Contract sanctity violation (e.g. cancellation of NAIA-3 Contract with PIATCO, government’s amendments of contracts with independent power producers in 2002)

3. Supreme Court decisions against business (e.g. It ordered Meralco to give a retroactive refund because tax is not supposed to be a business expense)

4. Arbitrary interpretation of government regulations

5. Interference by local government ofﬁ cials

6. Discriminatory taxation (e.g. excise tax differential on alcohol, cigarettes & tobacco)

7. Constitutional restriction on land ownership

8. Constitutional restriction on ownership of public utilities

9. Restrictions in the foreign negative list, particularly practice of professions

10. Constitutional restriction on ownership and management of educational institutions

There are actually a lot more—we looked at 35 to 40 items, but we narrowed it down to these 10 priority reform areas. These are the 10 areas that the business community has identifi ed as the biggest barriers to more investors coming into the Philippines. There are many benefi ts to attracting more foreign investments, the transfer of capital and the generation of more jobs being two of the more important ones, but there are costs as well. So we considered both the economic and social benefi ts and the costs of each reform area, and have taken account of these in our rankings.

*Take down the barrier, MST Like it is 2010

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30 YEARS OF ADVOCACY: THE WALLACE BUSINESS FORUM SPECIAL REPORT

2. INFRASTRUCTURE

Building better infrastructure will bring in the money. Spending money on having infrastructure built is worth it – in almost every aspect: ﬁ nancially, economically, socially, politically.

This, of course, is a well-known fact. But where the Philippine government has failed over the years is on realizing the urgency of having the infrastructure actually built, not just talked about. As the situation has been decades ago, commitments and contracts do not count, what counts is an actual, operating airport, expressway, light rail system, water dam, or power plant. Not a feasibility study.

Tale of power costs

The Philippine Alert, September 1985, p. 6.

h Local power costs the highest in Asia. Energy costs in the Philippines are the highest among its Asian counterparts. The differential will increase when the National Power Corp. (NPC) increases costs. Another P0.08 to P0.17 per kilowatt-hour is likely as the NPC tries to cover its budget deﬁ cit of P3.5 billion and pay amortization of about P90 million this year.

A comparative listing of power rates in Asia using Meralco rates as the base is presented below:

Power Costs Nominal Rate (P/kwh) Index* Manila 2.205 100.0 Taiwan 1.110 50.3 Korea 1.202 54.5 Hongkong 1.330 60.3 Singapore 1.308 59.3 Jakarta 1.334 60.5 Bangkok 1.170 53.1 Tokyo 1.485 67.3 Kuala Lumpur 1.620 73.5

In our special report All the Lights Out (2010), we have already said:

“As early as 2002, we warned (see “A Power Crisis in the Making”, 2002 special report) of a possible shortage in power supply due to the lack of investment in the sector. Warnings that fell on deaf ears. Deaf ears of a president that refused to listen to bad or even potentially bad news.

“There has been much talk about the Philippines having one of the more expensive electricity rates in Asia. But more than the price of electricity itself, what is hampering economic growth is not having reliable power supply. Ramos understood this, thus the scramble to build power plants even when the future cost is high. High power cost can be compensated by other advantageous factors a country can offer investors. But for a factory owner who depends on the grid for power supply, no amount of incentives can cover for the losses he suffers if constant blackouts are interrupting the production of his factory.

Philippine ANALYST October 2012 SPECIAL REPORT 25

“The Philippines no longer has the option of building new power plants (the ideal solution) in time as this typically takes 6-8 years depending on the type of plant. So now it is already too late, action should have happened under Arroyo, it didn’t because she created an environment of too much uncertainty, no one would take the risk.

“For the short term, there could be some augmentation of power supply by increasing the electricity produced by existing power plants. At present, current installed or rated capacity for the entire grid is 15,610 megawatts (MW), but only 13,319 MW of dependable capacity. This means that only 85% of total electricity that could be produced can be supplied to the grid. If the government is able to get the existing power plants to work at their full capacity, 2,291 MW can be added to the national grid. But it’s unlikely this can be done, except marginally, as the plants are old and driving them too hard could lead to catastrophic failure. Nonetheless, it’s worth doing a review.”

Meanwhile, the NAIA Terminal 3 remains a classic tale of woe of Philippine infrastructure. In Let’s just open it (MST Like it is 2005), we said:

“The unused Terminal 3 at the Ninoy Aquino International Airport is a major embarrassment to the government. It is the ﬁ rst thing visitors see as they arrive, and the last as they leave, wondering why they must suffer the long- antiquated NAIA-1.

“And it’s a major embarrassment to the President, because it was her decision to cancel the contract. Had she not done so the terminal would now be operating. This does not imply it was a wrong decision, as there were a number of anomalies in the contract. However, it may have been better to renegotiate the contract to remove the onerous conditions. Fraport is a well-regarded, major German corporation and the Chengs, whatever anyone might think of them, have the expertise to manage an airport terminal. They do after all already run Terminal-1.

“If there was corruption involved, then this is a separate issue that should be pursued in the courts. Whoever is guilty can then be put in jail. But Philippine International Air Terminals Co. (Piatco) as a corporation can’t be found guilty, only its ofﬁ cers can. So dealing with the corporation (as I’ll discuss later) can be done in good faith.

“In December 2003 — 1 ½ years ago — the government expropriated the terminal, but didn’t pay for it. Yet at the time they assured the foreign business community they would, and have assured them frequently since. Eighteen months have gone by and that payment hasn’t been made. Not even a token amount. In fact, the $62 million held in escrow was ordered to be paid by a judge, but the government instead, obtained a temporary restraining order to stop it. This sends a very bad signal to foreign investors no matter how hard government tries to justify it. And to assure them that this was a once off event. Maybe it is, but then maybe it isn’t too. You cannot be sure. But even if it is ‘once off’, you still have to treat the investors fairly.

“The expropriation is bad enough (but was initially accepted), but to not then pay the builders is totally unacceptable. And no matter what excuses are given, they aren’t acceptable either. Payment has to be made, or rather had to be made a year-and-a-half ago. We, in the foreign community, have long argued that the government pays initially, and immediately $350 million as this is an amount it already agreed as the minimum worth of the terminal. And no one questions but that the terminal has been built, is there, is ready (after a few minor adjustments) to be opened and operated.”

Philippine ANALYST October 2012 26 SPECIAL REPORT

Forward to 2011, in Proud to be Filipino (MST Like it is 2011), we said:

“I’ll go a step further though in the faint hope of some commonsense (sorry, rare sense)—pay PIATCO US$450 million and cancel all law suits on both sides. Contact Takenaka to ﬁ nish the job, buy new computer systems and open the terminal by Christmas. The cost to the country of almost 10 years of non-use goes well beyond that $450 million. Just do it.”

The history of the NAIA Terminal 3 is an important reminder for the current and future administrations – on how contracts ought to be handled, especially when you did not start it and you ﬁ nd that something is wrong with it.

“A sixth problem is consistency. It can be understood that when a new government comes in it wants to review projects, particularly given the reputation of the last administration. But when there’s been a change in Cabinet Secretary and he changes the policies, priorities, emphases that have already been established by the new government, this is just not tenable.” - People prefer progress, MST Like it is 2012

Another important reminder for the current and future administrations, which we said back in 2001 in the special report A Seamless Infrastructure Plan:

“Remove the ‘mind set’ that seems to accept that infrastructure projects can be delayed, postponed, even scrapped, without anyone really caring. The multiplier effects of inadequate infrastructure are so costly as to make this unacceptable.”

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Philippine ANALYST October 2012 28 SPECIAL REPORT

30 YEARS OF ADVOCACY: THE WALLACE BUSINESS FORUM SPECIAL REPORT

3. A JUSTICE SYSTEM

Here is an entry from the August 1985 issue of the Philippine Alert. This was the administration of Ferdinand Marcos.

• Makasiar named new Chief Justice. Marcos reafﬁ rmed his power by appointing Associate Justice Felix Makasiar as the new Chief Justice of the Supreme Court. By tradition, the post should have fallen to Associate Justice Claudio Teehankee. With Makasiar reaching mandatory retirement age in four months, the move may indicate new strategies being developed by Marcos in regard to the presidential elections, and as a message to those who take an independent stand (as Teehankee has done) on key issues.

Much has been said about the shameful inadequacy of the Philippine justice system. A single statistic – their case resolution record – is enough to tell the tale of helplessness of Filipinos who want justice.

The other side of the story is a justice system that is overwhelmed. One that needs to do a lot with so little.

“As a side issue, I’ve argued frequently that a ‘court of last appeal’ should not be the Supreme Court (SC), unless it changes interpretation of law. Last appeal on a speciﬁ c case should stop at the Court of Appeals. The SC has 8,400 cases before it, many of them to rule on speciﬁ c cases lower courts, or the Court of Appeals have already ruled on. While only some involved interpretation of the law or questions as to constitutionality of a decision. Consequently, it is so overworked it has cases going back many, many years. That is not justice.” – A Dysfunctional Court System, WBF Special Report 2011

Each generation of Filipinos knows of a long-standing case that seems to have never tasted justice. For this generation, the case is the Ampatuan massacre.

“Let me give you just one example of how disastrously badly the Philippine legal system has failed. On November 23, 2009, 58 people were mercilessly, brutally murdered allegedly (my lawyers tell me I must say this) by the Ampatuans. From December 18, 2009 to December 15, 2011 is 727 days. In those 727 days, the case has not progressed at all. I don’t care what the judge says as an excuse, 24 months to get nowhere in a crime that is the worst in Philippine history is just absolutely, totally unacceptable (so far only 70 suspects of the 196 accused have been arraigned; of the 70, only 2 are from the Ampatuan clan with Zaldy yet to be arraigned; some 120 accused are still at large). I cannot, and will not accept the disgraceful actions of the defense counsel raising technicality after technicality; they become, in my view, accomplices to the massacre of 58 people and the dastardly attempt to bulldoze their bodies into the ground.

“That massacre was the worst election-related violence in post-Spanish occupation Philippine history, 113 years of history. Yet, instead of what so clearly is an open and shut case, nothing has happened. Worse, it seems no one cares. Where’s the public anger? Where’s the public demand for justice? If it was your husband, or wife, or child would you accept it so unconcernedly?” – A Dysfunctional Court System, WBF Special Report 2011

As for the business community, it has its own string of unfortunate encounters with the judiciary. In the special report Dysfunctional Court System:

“The Philippines possibly has one of, if not the worst judicial systems in Southeast Asia (our comparable neighbors). The slowness, the inability to come to judgment, and some strange judgments that suggest political inﬂ uences, even reports of corruption are too frequent to not have some credence. Before I’m haled to court for whatever, let me hasten to say I’m making no accusations, only reporting on what I hear.

“It’s not an exaggeration to say that the Philippine court system is a major deterrent to doing business in the Philippines today. With the Supreme Court at the forefront of this deterrence. Just look at this list of business unfriendly decisions by the SC:

Philippine ANALYST October 2012 SPECIAL REPORT 29

• Sustained Manila Council’s reclassiﬁ cation of Pandacan as a residential/commercial area and required the relocation of oil depot of Chevron, Petron and Shell despite they had been there ﬁ rst and could show the depot was perfectly safe even in case of a major accident.

• It nulliﬁ ed ﬁ scal incentives granted to some 300 Clark ecozone locators, contending that the law that granted tax privileges to Subic did not ‘categorically and unmistakably’ include Clark, even though it obviously and logically was meant to (Congress eventually passed a bill in mid-2007, which then President Arroyo signed later, allowing Clark and other former U.S. military facilities to enjoy similar incentives as Subic, as was intended).

• It canceled a rate increase by Meralco as it was based on a formulation the court disallowed, although it was a formula previously agreed to and had undergone public scrutiny; also ordered retroactive refunds that impaired the creditworthiness of the distribution utility. The Court even claimed, incredibly, that income tax was not a business expense that could be passed on to consumers.

• Nulliﬁ ed provisions of the Mining Act allowing full foreign ownership in mining projects (The decision was reversed in 2004, allowing foreign investment in large-scale mining via Financial and Technical Assistance Agreement or FTAA) .

• The International School was told to uphold equality of pay between foreign-hired and locally-hired employees—something that is not done in any other sector, and is not done in most other developing coun tries—retroactively for 5 years. Five years during which the school was acting in good faith on existing law. It cost the school $4 million to settle the case.

• An agreement between the Public Estates Authority and a Thailand-based development company to sell 592 hectares of reclaimed land to the latter was rescinded through a subsequent ruling that the reclaimed land was public land and hence could only be leased but not sold and owned by private entities.

• Declared local fi rm JG Summit as winner 5 years after Singapore-based Keppel Group won the Subic shipyard project, saying a shipyard is a public utility and hence should be at least 60% Filipino-owned (The SC later revised this decision in 2003, upholding that a shipyard is not a public utility, and reaffi rmed this decision with fi nality in 2005—but the damage had been done).

• Overturned a competitive bid by Malaysian Renong group in the privatization of Manila Hotel, declaring that the hotel is part of Philippine heritage that must be protected and should be offered ﬁ rst to Filipinos – at lower cost (10% lower than the foreigner’s bid).

• Ruled that the naphtha cracker plant proposed by a Taiwanese trader should be built in Bataan, as petitioned by a politician who wanted to have the project in his hometown, not in Batangas as the proponent preferred based on their business assessment. They left.”

Philippine ANALYST October 2012 30 SPECIAL REPORT

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30 YEARS OF ADVOCACY: THE WALLACE BUSINESS FORUM SPECIAL REPORT

4. WINS FOR THE ECONOMY

4.1 Industry

We have for years now been pushing for more focus on the country’s “natural advantages” – IT, tourism, and mining.

The country’s IT industry (business process outsourcing or BPO) has had the most fortunate run – a mix of good market timing, an English language acumen that ﬁ ts perfectly into the market’s requirement, and a vast supply of affordable manpower. It has created jobs, awakened business activity in other Philippine cities, and by the end of this administration, is projected to hold a 10% share of the country’s gross national product.

That is how a business develops when it is a “natural advantage”.

Tourism is another would-be winner for the country. The sunny climate and people, the virgin beaches and wildlife, etc. etc. Tourism as an industry, however, has stronger links to infrastructure. And this is where a big part of the challenge lies.

In our special report An Assessment of Philippine Tourism (2006), we said:

“The country gets around $11 for every dollar spent by the government on tourist development (for every tourist that comes in, the country earns $996, while the government spends US$99). Even though this is smaller than the multiples realized in Thailand, Malaysia or Vietnam, it’s still a number that should more than justify additional spending on tourism. It’s a number that few other sectors can match.”

And as we talk about challenges in developing industry in the country, we come to the mining industry. In 2001, the special report Mining Policy as an Investment and Anti-Poverty Strategy:

“Because of its rich mineral endowment, the Philippines used to count among the world’s top 10 producers of major mineral products. As of the latest available data, however, the Philippines has fallen from the top 10 in gold, copper, nickel, and chromite production. From 5th place in gold production in 1980, the country fell to 25th place in 1999; from 9th place in copper production in 1980 to 26th in 1999; from 6th place in nickel output in 1980 to 13th in 1999; and from 6th place in chromite production in 1980 to 15th place in 1998.

“From 21.3% in 1980, the share of mineral exports to the country’s total exports fell to 8.8% in 1990 and to a measly 1.7% last year. From only $220.5 million in 1970, dollar receipts from mineral exports peaked at $1.2 billion in 1980 and declined thereafter, dropping to $649.7 million last year.

“Since 1997, the Mining Act has been stalled in the Supreme Court. Environmentalist groups ﬁ led a petition before the Court in February 1997 challenging the constitutionality of the law’s provisions on FTAAs. Up to now, after more than 4 years, the Court has yet to decide on the case. (Incidentally, it was also in 1997 that the Supreme Court declared the Oil Industry Deregulation Law unconstitutional and awarded the bidding for the Manila Hotel to a losing Filipino bidder at the expense of a Malaysian investor—certainly a low point year for the Supreme Court.)

“The law suffered another legal blow in the same year when Congress passed the Indigenous People’s Rights Act (IPRA) in October 1997. The IPRA, invoking the Constitution’s recognition of ancestral domains, gave indigenous peoples control over considerable tracts of lands. A study prepared by the Philippine Exporters Confederation estimated that 1.2 million hectares or 53% of areas identifi ed in mining applications are found in areas covered by Certifi cates of Ancestral Land and Domain Claims (CADCs). Several provisions of the IPRA were also found to be in confl ict with those of the Mining Act.

Philippine ANALYST October 2012 SPECIAL REPORT 33

“A petition challenging the constitutionality of the IPRA was ﬁ led before the Supreme Court in December 1998. The IPRA’s constitutionality, however, was left unresolved as a result of a split 7-7 vote by the Court in December 2000. Under court rules, a deadlock on questions of constitutionality results in the status quo being maintained—until such time as another review is undertaken. Something that can be done if an affected party so petitions the Court.”

Up until now, despite the fact that the Mining Act has been upheld by the High Court, mining is still being held on pause. In The Never Ending Story (MST Like it is 2012):

“Our modern daily lives are intrinsically intertwined with minerals. Everything we use has metals in it somewhere — from our clothes (metal needles and machines) to the now ubiquitous mobile phone (put up your hand if you don’t own one).

“Banning mining would take us back to Neanderthal times. It would open the door widely to illegal, irresponsibly done mining. To say ‘let someone else do it’ would be un-Christian in the extreme.

“The answer is to control mining. The problem with that is that the government, in every administration, has proven massively unable to impose control. So the answer is for us to help it to. We need to step in and be part of that control. The Catholic Church with its enormous inﬂ uence and nationwide coverage could monitor and prod government toward effective control. Environmentalists can help.

“It is estimated that the mineral wealth of the country amounts to $840 billion (P47 trillion), 4 times our total annual GDP. Saudi Arabia is rich because it has oil in the ground and pumps it out and sells it. The Philippines is poor because it has minerals on the ground, and leaves them there.”

But even if the Philippines does well in these “natural advantages”, there remains the need to revive the manufacturing sector.

“Relying on the dynamic BPO and other service sector industries will not lead to the poverty-reducing 7%+ GDP growth over the next 4 years. Nor will it pave the road for inclusive growth. A refocusing on manufacturing-related industries where the country can be potentially competitive will.

“Manufacturing creates the jobs, especially for most workers who are unable to attain the college education the services sector requires. Thus is the most effective anti-poverty solution. To encourage investments in manufacturing, adequate supply of infrastructure and a better investment climate are essential.” - A SONA to Consider, WBF special report 2012

Charter change

Out of the 10 priority reform areas that we identiﬁ ed in our 2010 study “Formulating Policy Reforms to Address Barriers to the Entry of Investment into the Philippines”, which was ﬁ nanced by the foreign-aided LINC-EG Project, 4 areas dealt with constitutional restrictions – on the ownership of land, ownership of public utilities, ownership of educational institutions, and the foreign negative list.

In Do You want to defeat poverty or not (WBF special report 2012), we said:

“We are in a different world today than we were in 1935. Yes 1935, that’s when the restrictions in the Constitution were written. The 1987 Constitution just continued them with minor modiﬁ cation.

“The 60:40 limitation may not affect all sectors, but it says to those looking for where to invest (and they do have a wide choice as the numbers show) that this is a country that reluctantly wants you, there’s a frown on its face. You look for somewhere more welcoming.

“So we need to amend the Constitution. The economic provisions need to be overhauled; they’re too inward-looking and out of touch with the 21st century reality of global interdependence. And they need to adapt to changes in the economic environment, e.g. labor ﬂ exibility, information age, etc.

Philippine ANALYST October 2012 34 SPECIAL REPORT

“As they’re currently written, they promote an economic structure that doesn’t reﬂ ect and best use the strengths of the Philippine economy.

“These are some of the specifi c articles of the Constitution that we think need change, and I’d suggest we do. I’ve enumerated them here. But if it’s considered too diffi cult to effect these changes (which is the much preferred option) then add the words: ‘Except as may be provided by law’ to each relevant economic provision. Give Congress the fl exibility to make FDI welcome.”

PROVISIONS SALIENT POINTS PROPOSED CHANGES REASONS Focus on the (educational) development Priority to education, Science and of the individual before fostering Education is the best way to lift people Art II, Sec 17 Technology, … to foster patriotism and patriotism and nationalism; Allow foreign from poverty, so make it widely available nationalism… schools to establish branches in the Philippines A self-reliant and independent national The world is becoming increasingly Art II, Sec 19 economy effectively controlled by Delete interrelated and interdependent Filipinos Promotion of the rights of indigenous Redeﬁ ne to ensure indigenous people do Art II, Sec 22 and Art XII, Sec 5 cultural communities not usurp the rights of the State Industrialization and agricultural Promotion of industrialization … based development should not be singled out. Needs to be re–written or better, just Art XII, Sec 1 on sound agricultural development and Other sectors (e.g., services—IT, which deleted agrarian reform hardly existed in 1987) can also provide the development the economy needs The huge levels of capital needed and the State may allow development of natural Allow full foreign ownership in the Art XII, Sec 2 technical expertise that goes with it are resources by Filipinos development of natural resources not fully available in the domestic market Amount of land foreigners would own would Restriction on the amount and type of Remove restrictions, and allow foreigners be small, yet would provide an incentive, Art XII, Sec 3 land that can be owned, and who can to own land to build a factory, ofﬁ ce or and also recognize a fair reciprocity – own it house for their own use Filipinos can own land in other countries Organization of the Administration should Establishment of an independent Art XII, Sec 9 Not necessary to be in the Constitution be decided by the president, with Congress’ economic and planning agency approval At least 60% Filipino ownership in certain Delete and remove any reference to Filipinos do not necessarily protect the Art XII, Sec 10 areas of investments “Preference for Filipinos” National Patrimony better than foreigners Franchise sector is booming; huge potential Franchises, etc. reserved to Filipinos or for job & revenue generation Art XII, Sec 11 Allow full foreign ownership Filipino–owned companies Filipinos are establishing franchises overseas Trade policy that serves the general Simple commercial economics in an open Art XII, Sec 12 Unnecessary welfare market will ensure this is the case

Practice of professions limited to Filipino Would help accelerate technology transfer citizens (“save in cases provided by law”) and development, create more jobs Foreigners should be allowed to practice Art XII, Sec 14 Not enough Filipinos in some professions There are 47 laws governing the practice their professions of specifi c professions, 42 contain Other countries allow Filipino professionals “reciprocity” provisions to practice Promotion of security of tenure of Delete It encourages mediocrity and is anti-worker workers… Art XIII, Sec 3 Needs to be better defi ned as a general Being confused by labor unions with Entitlement of workers to a living wage policy – if in at all minimum wage Agrarian reform has been a major inhibitor Art XIII, Sec 4 Mandate to undertake agrarian reform Revise to allow both large and small plots to agricultural dev’t; some crops need large land areas for effi ciency Educational institutions can only be Don’t send Filipinos overseas, bring the Art XIV, Sec 4 Remove all reference to Filipino owned by Filipinos colleges here Amend, to stress importance of learning English is now the world’s lingua franca, English other countries are scrambling to learn Art XIV, Sec 6 Filipino as National language Preferably to learn in English (as it was English. Some 9 million Filipinos have jobs 50 years ago) overseas because they speak English Delete Modern technology has made this restriction Art XVI, Sec 11 (1) Mass media ownership limited to Filipinos Foreign ownership should be allowed redundant – foreign media is already here Advertising industry open only to Constitutions do not cover advertising Art XVI, Sec 11 (2) companies with at least 60% Filipino Delete period. It should be provided by law —if at all ownership

* MST stands for Manila Standard Today, the daily where the column Like it is of Peter Wallace used to be published. The column is now in PDI or Philippine Daily Inquirer.

Philippine ANALYST October 2012 POLITICAL 35

Gov’t, MILF forge Bangsamoro deal The government has reached a preliminary peace agreement with the Moro Islamic Liberation Front (MILF), with a new political entity called Bangsamoro to be created.

he deal was seen as a major breakthrough in ending a decades- long separatist insurgency in Mindanao. President Aquino Tdescribed the deal in a nationally televised announcement as a “framework agreement” to help jumpstart de velopment efforts in the resource-rich region. “We have been waiting for this for many long years,” MILF vice chairman for political affairs Ghadzali Jaafar said of the road map for establishing a new autonomous region in Mindanao to be administered by minority Muslims in the predominantly Roman Catholic nation. “The Bangsamoros are happy. Even the non-Bangsamoros in Mindanao should be happy because fi nally, the Bangsamoro issue will be addressed and the Mindanao confl ict will be resolved,” he added. In the deal, MILF fi ghters say they will give up their weapons once a fi nal deal is reached (this might prove to be diffi cult to accomplish). The agreement follows marathon negotiations between the In related developments, Mr. Misuari on Oct. 20 ruled out government and the MILF in Malaysia, which is brokering the efforts by the Organization of the Islamic Conference (OIC) for talks. The agreement was signed on Oct. 15 in Manila. It spells the reunifi cation of the MNLF with the rival MILF. Mr. Misuari out the general principles on major issues, including the extent said the proposal for the reunifi cation of the two rebel groups has of power, revenues and territory of the Muslim region. If all been advocated by the OIC in the last two years amid attempts goes well, a fi nal peace deal could be reached by 2016, when to reconcile their political objectives. He said the MILF has Aquino’s six-year term ends, according to offi cials. But the insisted they are a separate group and must also be recognized peace deal was criticized by Moro National Liberation Front by international bodies. Mr. Misuari said the MILF has even (MNLF) chief Nur Misuari. The latter’s MNLF signed a fi nal sent representatives to lobby for their recognition but the OIC peace agreement with then President Fidel Ramos in 1996, but has ruled that there must be only one group to represent the it is generally to have been considered a failure. Mr. Misuari Muslims in every country. The objective of the MILF to set up threatened to take up arms again, saying the MNLF, which he an Islamic state was also rejected because the OIC and the United founded, was not consulted on the framework deal with the MILF. Nations support political, not religious, objectives. The MILF

If all goes well, a fi nal peace deal could be reached by 2016.

Philippine ANALYST October 2012 36 POLITICAL

...but already, concerns have been raised.

broke away from the MNLF during the martial law years. Mr. SC issues TRO on new cyber law Misuari insisted that the MNLF is the one that has been granted permanent observer status by the OIC as the sole representative The Supreme Court (SC) issued a temporary restraining of Muslims in the Philippines. He said the statement of the OIC, order (TRO) on the implementation of the Cybercrime as reported by the media on Oct 18, reaffi rmed the status of the Prevention Act on Oct. 9. The SC magistrates unanimously MNLF as the only group recognized by the OIC and that all peace voted for the issuance of the TRO. agreements that concern the Bangsamoro people must be based on the 1976 Tripoli Agreement and other international agreements. Fifteen petitions have been fi led before the Supreme The last time a peace deal was agreed upon by the government Court questioning the constitutionality of the new cyber law, with the separatist MILF, in the controversial Memorandum of which President Aquino signed last September 12. The TRO’s Agreement on Ancestral Domain in 2008, there was such a loud issuance came as the Department of Justice (DOJ) was holding outcry against certain provisions particularly on territory to be a cybercrime forum in its offi ce in Manila. At the forum, DOJ controlled by the group that the initiative was scuttled. This Assistant Secretary Geronimo Sy said that the law will not target time, the government has addressed some of the controversies bloggers and social media users. He said what the law is seeking arising from the 2008 agreement and hammered out a framework go to after are the “most pernicious” crimes. Mr. Sy also said agreement that would create a new political entity called that the DOJ is uninterested in personal communications among Bangsamoro. Details of the preliminary agreement still have to social media users, belying claims that the law would hamper be clarifi ed, but already, concerns have been raised by several free speech on the internet. He added that the DOJ would not local executives in Mindanao on the scope and nature of the allow any politician to use the law to get back at his critics. In new political entity. The MILF has always wanted a federal or related developments, the TRO on the implementation of the ministerial form of government and rejects the political structure Cybercrime Prevention Act was welcomed by Malacanang. in the Autonomous Region in Muslim Mindanao (ARMM). Presidential spokesman Edwin Lacierda said this is an opportunity What will happen to the ARMM is unclear. The region was for Congress to change the law that has drawn much criticism. created in line with the original peace agreement signed by the Senator Miriam Defensor-Santiago earlier said she expects Ramos administration with Mr. Misuari’s MNLF. That agreement the SC to declare the controversial Cybercrime Prevention Act has not been fully implemented, according to a protest still pending unconstitutional for being too vague. Speaking at a conference with the OIC. In plebiscites held in Mindanao, several provinces on business and economics at the Adamson University, she said refused to join the ARMM and it is still unclear whether these the newly enacted law limits free speech, and as such should be same provinces will be included in the new Bangsamoro entity. declared unconstitutional. “I humbly predict that the Supreme Implementation of certain provisions of the 2008 agreement Court will strike down the Cybercrime Act as unconstitutional. on ancestral domain called for amending the Constitution. Similar Otherwise, it will be a black, black day for freedom of speech,” questions could be raised again now, including the sensitive she added. Prior censorship, which she said is the effect of the issue of disarmament, which has always been a touchy subject Cybercrime Act, “violates the overbreadth doctrine and the with the country’s Muslim minority. Already, a violent faction vagueness doctrine in constitutional law.” The senator cited four in the MILF has broken away, threatening to disrupt any peace specifi c provisions of Republic Act 10175, which she said were deal. The latest peace deal of the government is a step in the either too broad or too vague. During the bill’s interpellation at right direction. However, it remains to be seen if the agreement the Senate, Ms. Santiago pushed for the requirement of a court will indeed work or suffer the fate of past failed initiatives. order before any law enforcement agency could collect, seize or disclose data other than traffi c data. She cited a provision in the Constitution which guarantees absolute freedom of speech, specifi cally stating “no law shall be passed abridging the freedom Already, a violent faction in the MILF of speech.” In related developments, Mr. Lacierda called for has broken away. “responsible discourse” on the Cybercrime Act issue. In a press briefi ng, he said the law was enacted to address legitimate concerns about criminal behavior and its effects on society and stressed that Malacanang has “not stopped anyone from expressing their concerns.” He cited petitions against the law fi led with the SC as well as plans of some senators to introduce amendments to the law.

Philippine ANALYST October 2012 POLITICAL 373

No law can be passed that curtails rights guaranteed by the Constitution.

Ms Santiago has it right. The issue is elementary—no law can 8. Aquilino Martin Pimentel III, PDP-Laban; be passed that curtails rights guaranteed by the Constitution. In the 9. Maria Lourdes Nancy Binay, Margarita Cojuangco, wake of widespread protests especially online, several lawmakers Joseph Victor Ejercito, Richard Gordon, Gregorio who supported the passage of the measure are backtracking. Honasan, Ernesto Maceda, Maria Milagros Esperanza The positive objectives of RA 10175 – going after terrorists and Magsaysay, and Juan Miguel Zubiri, UNA; purveyors of pornography, for example – have been overshadowed 10. Francis Joseph Escudero, Mary Grace Llamanzares, by the inclusion of online libel as a new criminal offense whose Edward Hagedorn, and Ramon Montao, independent penalty is a degree higher than libel committed through traditional candidates. media as defi ned under the Revised Penal Code. Human rights advocates have also raised concern over provisions, some of Days after, 5 more candidates were added to the list. them vaguely worded, which give the government broad powers Although the campaign period is still a few months away, the to monitor and block access to online data and social media. race for thousands of positions in the 2013 midterm elections is Members of Congress and the executive branch have urged well under way. This should give voters enough time to make critics to wait for the implementing rules and regulations before informed choices during the elections in May and to consider passing judgement. If the SC ultimately declares the new law lesser known candidates who have limited resources for raising or portions of it unconstitutional, it will not speak well of the their profi le. There is also enough time to get to know the legislative process. The provision on libel was reportedly a last- groups vying for party-list representation in Congress. Despite a minute “insertion” by Senate Majority Leader Vicente Sotto purge carried out by the Commission on Elections, many of the (not known for his acumen), who has been pilloried online remaining accredited party-list groups violate the spirit of the for his recent political blunders and gaffes. Some senators are constitutional provision that seeks congressional representation claiming they did not bother to read the insertion—a disturbing for marginalized sectors. In this regard, the Internet is changing admission of their shoddy methods of crafting laws. Legislation the way campaigns are waged, and should make it easier for voters is paid for by the public, which funds the Houses of Congress. to get to know candidates and parties. With new communication For the multimillion-peso pork barrel allocations and other perks tools, voters are now more empowered and are in a good position of offi ce that lawmakers enjoy, one would think they must at to vote for change. But whether thay will intelligently do so least be able to come out with meaningful bills that do not need is another question. History has not been good in this regard. revision almost immediately after these are signed into law. Security forces must also do their part and make adequate preparations for containing election violence and the monitoring of candidates who might resort to illegal activities to raise campaign funds. Already, some politicians are being linked to a 32 of 84 Senate hopefuls get Comelec approval spate of armored van robberies in Metro Manila. In this aspect, it is absolutely crucial for gun laws to be strictly enforced. The Commission on Elections (Comelec) has given the go Elections in the Philippines have been notorious for violence, signal for 32 senatorial candidates to run in the May 2013 especially at the local level. The Aquino administration must elections. demonstrate its resolve in this fi rst elections under its watch. In a 16-page resolution, the Comelec said 27 of 84 aspirants who fi led their certifi cates of candidacy (COCs) are qualifi ed, while 57 others still need to justify their intention to run for Grace Padaca sworn in, vows independence senator. The 27 senatorial candidates are: 1. Ana Theresia Hontiveros of Akbayan; Former Isabela governor Grace Padaca assumed her post as election commissioner on Oct. 8, vowing to prove her 2. John Carlos de los Reyes, Marwil Llasos, and Rizalito David, Ang Kapatiran; independence from President Aquino and their ruling Liberal Party (LP). “The people can judge me through the 3. Juan Edgardo Angara, Laban; decisions I will make,” Ms. Padaca said. 4. Paolo Benigno Aquino IV, Maria Ana Consuelo Madrigal, and Ramo n Magsaysay Jr., Liberal Party; Critics earlier expressed reservations on the appointment of 5. Teodoro Casiño, Makabayan; Padaca to the Commission on Elections (Comelec), citing her 6. Alan Peter Cayetano, Antonio Trillanes IV, and Cynthia being a member of the LP, which they said could jeopardize Villar, Nacionalista Party; her position in the poll body that is supposed to be independent from the executive branch. They likewise cited her close ties 7. Juan Ponce Enrile Jr. and Lorna Regina Legarda, with the Chief Executive, who personally rallied behind her Nationalist People’s Coalition; in a graft case she is facing in the Sandiganbayan. It was Mr. Aquino who paid for her P70,000 bail bond. Ms. Padaca said

Philippine ANALYST October 2012 38 POLITICAL

she thanked the President for her appointment and the latter Independence from the executive should be a non-negotiable wished her well in her new post. Although he did not give requirement not only for justices of the Supreme Court but also for specifi c advice, she believes the President wants her “to do offi cials of the Comelec. For the latter, this is to ensure the impartiality my job well and fairly.” Asked about her immediate plans, she of every commissioner in offi cial acts involving partisan matters. cited the need to focus on the qualifi cation of party-list groups The last politician to be appointed to the Comelec, Benjamin in preparation for next year’s midterm elections. Ms. Padaca Abalos, was hounded by scandals and stepped down in disgrace. also vowed to pursue electoral reforms by working to stamp out In this aspect, Ms. Padaca forced early problems as her “three plagues” in the system – vote buying, terrorism and fraud. appointment as Comelec commissioner raised questions Ms. Padaca was indicted for allegedly granting a P25-million from politicians and their supporters who do not belong hybrid rice project to a non-government organization during her to the administration Liberal Party, which counts her as term as governor in 2006. A warrant for her arrest was issued by the a member. Concerns about her impartiality increased Sandiganbayan last May, although it was never served. Ms. Padaca when Mr. Aquino himself gave her the P70,000 cash said she never tried to evade arrest, claiming she was always ready needed for her bail. The President is chairman of the LP. to get arrested. The case was trumped up by politicians opposed In a functioning democracy, a free electoral exercise is to her and has little chance of succeeding. She has questioned essential. This job lies squarely with the Comelec. Malacañang the indictment, but she will have to fi ght this battle in court. has defended the appointment of Ms. Padaca and Mr. Aquino’s bailing her out. She might yet prove to be a good choice. Having been a candidate and once formally challenging her defeat, she is expected to have knowledge of how the vote can be rigged and therefore how this can be stopped. She will have to show impartiality in her job as there will be many instances when this will be tested. She is expected to exhibit that independence.

Philippine ANALYST October 2012 POLITICAL 39

Philippine ANALYST October 2012 40 ECONOMY

Budget defi cit widens, but still below end- September cap The national government incurred a defi cit of P106 billion during the fi rst 3 quarters of 2012, twice the P53 billion fi scal gap recorded in the same period last year, but 42% below the self-imposed year-to- September limit of P183 billion.

anuary-September revenues reached P1.119 trillion, up 10.7% from P1.017 trillion a year ago. Finance Secretary JCesar Purisima attributed the revenue growth to the government’s “aggressive efforts to improve tax compliance,” which he said has “consistently generated fi scal space” for the funding of spending priorities. Actual collections, however, were P51 billion short of the 3-quarter target of P1.17 trillion. The Bureau of Internal Revenue (BIR) generated P772.5 billion, up 12.6% from P686.3 billion in January-September 2011, but slightly off the target of P800.3 billion for the period. Sec. Purisima is actively campaigning for the enactment of fi scal reform laws in Congress, especially the amendments to the excise taxes on cigarettes and alcoholic beverages, “to ensure ample fi scal space”. Even though growing by 9.8% to P213.7 billion from P194.6 billion, collections from the Bureau of Expenditures outpaced revenues, growing by 14.5% to Customs (BOC) were signifi cantly short of its commitment reach P1.225 trillion, hence resulting in the widening of to raise P257 billion during the 3-quarter period. the budget defi cit during the 9-month period. Nonetheless, The revenue shortfall was minimized by higher-than-target spending was still 9.5% short of the goal of P1.353 trillion. yields from the Bureau of Treasury (BTr) and other agencies. Budget Secretary Florencio Abad said the “higher expenditure The BTr raised P65.1 billion during the fi rst 3 quarters, growth [was] due to improving absorptive capacities of while other agencies posted P67.6 billion, for a combined departments and agencies. While spending was still lower [by P132.7 billion. While down 2.5% from year-ago level, it 9.5%] than planned, the shortfall was signifi cantly narrower was nevertheless well above the goal of P112.2 billion. Part than the 16% recorded in the same period of last year.” of the over-performance of the non-tax agencies was due to The Department of Budget and Management (DBM) do better-than-expected collections from privatization. Signifi cant not foresee a spending catch-up program in the 4th quarter portion of the Food Terminal Compound was sold to Ayala similar to what was implemented in 4Q11, indicating a likely Land for P24.3 billion in August, with the national government slowdown of expenditures for the remainder of the year. receiving its share of the initial payment in September.

Philippine ANALYST October 2012 ECONOMY 414

NATIONAL GOVERNMENT CASH OPERATION (Billion Peso, unless otherwise specifi ed) 1ST 3Q’S ‘12 1ST 3Q’S ‘11 1ST 3Q’S ‘12 ACTUAL AS % ITEM ANNUAL % CHANGE ACTUAL ACTUAL TARGET OF TARGET Revenues 1,118.9 1,017.1 1,169.5 10.0 (4.4) Bureau of Internal Revenue 772.5 686.3 800.3 12.6 (3.5) Bureau of Customs 213.7 194.6 257.0 9.8 (16.8) Other offi ces 132.7 136.2 112.2 (2.5) 18.3 Expenditures 1,225.0 1,070.1 1,352.8 14.5 (9.5) (Defi cit) (106.1) (53.0) (183.3) 100.2 42.1 Source: Bureau of the Treasury (BTr)

ADB raises 2012 PH growth forecast exports as exporters boost their inventory of raw material imports and increase their purchases of capital equipment abroad. The The Asian Development Bank (ADB) raised its 2012 base effect of the 2012 rebound in government spending will also economic growth forecast for the Philippines to 5.5% from fade in 2013, although infrastructure spending will still increase. 4.8% and Malaysia to 4.6% from 4%, even as it downgraded The ADO 2012 Update noted further that uncertainties in the growth outlook for the rest of the developing Asian the global economy may hurt Philippine economic forecast, as countries due to the continuing slump in the global market. “weaker-than-expected growth in industrial countries and the ADB retained its forecast for the country of 5% for 2013, PRC [China] would hurt prospects for exports, investment and but downgraded all others. remittances.” It also warned that more delays affecting public- private participation (PPP) projects “could dent investor sentiment.” The upgrade was contained in the Bank’s report entitled For the entire 45-nation developing Asia, ADB cut its 2012 Asian Development Outlook (ADO) 2012 Update released at growth outlook to 6.1% from 6.9%. For 2013, it downgraded the start of October. It cited as reason the “higher-than-expected the regional forecast to 6.7% from 7.3%. China’s GDP growth outcome in the fi rst half and a more moderate growth projected projection for this year was trimmed to 7.7% from 8.5%, while for second half.” This compares with the government’s target for India it was lowered to 5.6% from 7%. The downscale was of 5-6% for 2012. And WBF’s (since October 2011) 5-6%. due to the adverse impact of a weak global economy on the The Philippine economy registered a gross domestic product region’s growth drivers China and India and heavily export- (GDP) growth of 6.1% in 1H12, the 3rd highest in Asia after dependent economies. Of the 45 countries, 24 had their 2012 China and Indonesia. ADB attributed the good results to “robust forecasts reduced, 11 had theirs upgraded, and 10 were unchanged. private consumption and a rebound in government spending.” The ADB pointed to the Eurozone’s unresolved sovereign Modest infl ation and sustained growth in the remittances of debt crises and the widening US fi scal defi cit as the biggest overseas Filipino workers (OFWs) kept consumption up. risks to the regional growth outlook. Asia’s most open The stepped-up government spending was refl ected in the economies could be most vulnerable to their spillover effects. increase in the budget by 14% to P768.4 billion in 1H12. Rapid reversals in capital fl ows in developing Asia could be The GDP growth forecast of 5% in 2013 was retained on another risk, although the ADB was quick to point out that the expectation that net exports will be lower as imports will outpace region’s capital markets have not shown excessive volatility.

GROWTH RATE OF GDP - SELECTED ASIAN ECONOMIES* (% per year)

2012 2013 2011 UPDATE ORIGINAL UPDATE ORIGINAL China 9.3 7.7 8.5 8.1 8.7 Indonesia 6.5 6.3 6.4 6.6 6.7 India 6.5 5.6 7.0 6.7 7.5 Philippines 3.9 5.5 4.8 _ 5.0 5.0 Thailand 0.1 5.2 5.5 5.0 5.5 Vietnam 5.9 5.1 5.7 5.7 6.2 Malaysia 5.1 4.6 4.0 4.8 5.0 Korea, Rep. of 3.6 2.7 3.4 3.4 4.0 Singapore 4.9 2.2 2.8 3.8 4.5 Taipei, China 4.0 1.7 3.4 3.8 4.6 Hong Kong, China 4.9 1.6 3.0 3.9 4.5

Developing Asia 7.2 6.1 6.9 6.7 7.3

* Updated in October; original forecast in April Source: Asian Development Bank, Asian Development Outlook 2012 Update

PH 2012 GDP growth forecast was raised to 5.5% from 4.8%.

Philippine ANALYST October 2012 42 ECONOMY

WORLD BANK RAISES, IMF RETAINS PH GROWTH FORECAST

In October, the World Bank revised its 2012 GDP growth forecast for the Philippines to 5% from the 4.6% set in July, citing higher government spending, robust private consumption backed by strong remittances from overseas Filipinos, and strong credit growth. In April, the WB growth forecast for the Philippines for the year was 4.2%. The upgrade contrasted the downgrade it made for the entire East Asia and the Paciﬁ c Region, to 7.2% from 7.6%, on China’s weakest performance in 13 years.

For 2013, the WB retained its 5% growth projection for the Philippines. It also kept its expectation of a higher growth of 7.6% next year for East Asia and the Paciﬁ c region.

Meanwhile, the October update of the International Monetary Fund (IMF) saw no change in its Philippine GDP growth forecast of 4.8% for 2012, while it slightly lowered its forecast for 2013 to 4.8% from 4.9% in its July update. The growth outlook was set originally at 4.2% for 2012 and 4.7% for 2013 in April. Despite having the lowest growth expectation among the 3 multilateral ﬁ nancial agencies, the IMF noted that the country “has a lot of upsides due to strong policy frameworks and better credit rating.”

For Asia, including China, the Fund predicts a growth of 5.5% in 2012 and 5.8% in 2013, a cut of more than 1-½%-points from its pre- diction in July. It said “growth in Asia has moderated further with weaker external demand and a soft landing of domestic demand in China.”

Hunger incidence rises in 3Q12 WBF surmises that while some families no longer perceived themselves to be poor, they could still be experiencing occasional The Social Weather Station (SWS) survey conducted on instances of not eating complete meals, partly because the August 24-27 revealed that 4.3 million families (21%) poverty thresholds – the monthly income they said was needed experienced having nothing to eat at least once during the in order for them to be non-poor – have not changed for several 3rd quarter, up from 3.8 million families (18.4%) in 2Q12. years now. This unchanging thresholds despite inﬂ ation meant that Filipinos were tightening their belts, and one consequence The 21% hunger incidence among Filipino families, though, of this belt-tightening could be economizing on food. was lower than the all-time high of 23.8% experienced in the 1st SWS noted that it was the increase in the incidence of moderate quarter, although the 3-quarter average of 21.1% was still the worst hunger, or experiencing hunger “only once” or “a few times”, that since SWS ﬁ rst conducted the hunger survey in the 2nd half of 1998. raised the overall hunger rate. The number of families experiencing The results were, in fact, in contrast with the trend in self- moderate hunger worsened sharply to 3.7 million (18%) in rated poverty, where the number of families who considered 3Q12 from 2.8 million (13.7%) in 2Q12. The 14-year average themselves poor declined to 9.5 million (47%) in 3Q12 from 10.3 percentage is 11%. Severe hunger, or experiencing hunger “often” million (51%) in 2Q12. SWS attributed the increase in hunger or “always”, actually declined to 611,000 families (3%) from incidence to the fact that “it affected both poor and non-poor”. 974,000 families (4.8%). The average severe hunger rate is 3.5%. Overall hunger rose by 10%-points to 26% (738,000 families) in Metro Manila, by 2%-points to 16% (1.4 million families) in Balance (rest of) Luzon, and also by 2%-points to 30.3% (1.5 million) in Mindanao. It was steady at 17.3% (670,000 families) in the Visayas. The survey was conducted nationwide on Aug. 24- 27, with 1,200 respondents. It consisted of face-to-face interviews with adult Filipinos. The survey results have a margin of error of +3%-points for the national tabulation.

Philippine ANALYST October 2012 ECONOMIC INDICATORS 43

SEPTEMBER INFLATION DECELERATES TO 3.6% INFLATION RATE The annual headline inﬂ ation decelerated to 3.6% in September from 3.8% in (%), 2006 = 100 August 2012 due to the slow down in the annual uptick in prices of housing, water, electricity, gas, and other fuels (from 5.6% to 4.5%); clothing and Food and Non- Alcoholic Beverages Clothing footwear (from 5.2% to 5.0%); health (from 3.1% to 3.0%); and restaurant and Alcoholic Beverages and Tobacco and Footwear miscellaneous goods and services (from 3.3% to 3.2%). Meanwhile, the annual 2012 2011 2012 2011 2012 2011 inﬂ ation rate in the National Capital Region (NCR) decelerated to 3.5%. As for the Areas Outside the National Capital Region (AONCR), the annual increase in Jan. 3.3 4.9 5.6 2.9 3.9 3.0 prices accelerated to 3.7% in September from 3.6% in August. Feb. 1.4 6.0 4.7 4.0 3.7 3.2 March 1.4 6.2 4.3 4.6 3.6 3.5 April 1.8 6.2 5.1 4.9 4.6 3.4 May 1.8 6.2 5.2 5.3 5.2 3.6 PRICE INDICES June 2.1 6.0 4.8 5.9 5.2 3.9 by commodity July 2.3 5.7 4.9 6.0 5.0 4.2 CPI WHOLESALE RETAIL Aug. 3.4 5.1 4.8 6.3 5.2 3.8 (2000 = 100) (1998 = 100) (1978 = 100) Sept. 3.7 5.1 4.8 6.1 5.0 3.9 2012 2011 2012 2011 2012 2011 Oct. - 5.7 - 6.2 - 3.9 Jan. 128.2 123.3 231.3 220.7 154.0 151.4 Nov. - 4.8 - 6.3 - 4.0 Feb. 128.1 124.7 231.8 225.4 153.6 152.2 Dec. - 4.1 - 6.0 - 3.7 March 128.3 125.0 234.9 228.2 154.1 152.1 April 123.1 129.4 125.6 233.4 - 232.1 154.4 - 153.7 May 129.5 - 125.9 229.5 - 229.0 154.3 - 152.4 INFLATION RATE June 130.1 - 126.5 224.6 - 227.9 155.1 - 152.4 Furnishing, July 130.5 - 126.6 226.1 - 226.5 155.6 - 152.6 Housing, Water, Household Aug. 131.5 - 126.7 - 224.1 - 152.5 Electricity, Gas and Equipment and Health Other Fuels Routine Maintenance Sept. 131.4 - 126.8 - 225.7 - 152.9 of the House Oct. - 127.3 - 226.0 - 154.0 2012 2011 2012 2011 2012 2011 Nov. - 127.8 - 230.1 - 154.0 Jan. 5.3 5.0 2.4 2.2 2.8 3.1 Dec. - 127.6 - 229.4 - 154.0 Feb. 4.6 5.1 2.1 2.5 3.2 2.9

INFLATION RATE March 4.5 4.7 2.3 2.5 2.8 3.3 April 4.7 3.9 3.2 2.4 3.3 3.2 PHILIPPINES METRO MANILA OUTSIDE MM May 4.3 5.1 3.3 2.5 3.2 3.7 2012 2011 2012 2011 2012 2011 June 4.0 5.9 3.7 2.5 3.3 3.5 Jan. 4.0 4.1 3.5 3.9 4.0 4.0 July 4.9 5.4 4.1 2.5 3.2 3.3 Feb. 2.7 4.8 2.3 4.6 2.8 4.7 Aug. 5.6 5.1 4.4 2.6 3.1 3.3 March 2.6 4.8 2.7 3.9 2.6 5.1 Sept. 4.5 5.7 4.6 2.6 3.1 3.5 April 3.0 4.7 2.5 3.3 3.2 5.1 Oct. - 6.5 - 2.5 - 3.4 May 2.9 5.1 2.2 4.4 3.1 5.2 Nov. - 5.7 - 2.3 - 3.1 June 2.8 5.2 2.2 4.7 3.0 5.4 Dec. - 5.1 - 2.5 - 3.0 July 3.1 5.1 3.1 4.0 3.1 5.3 Aug. 3.8 4.7 4.5 3.3 3.6 5.1 Sept. 3.6 4.8 3.5 4.2 3.7 5.0 INFLATION RATE Oct. - 5.2 - 4.9 - 5.3 Recreation Nov. - 4.8 - 3.5 - 5.1 Transport Communication and Culture Dec. - 4.2 - 3.0 - 4.5 2012 2011 2012 2011 2012 2011 INFLATION RATE Jan. 5.5 2.5 -0.2 0.1 2.5 1.1 Restaurants and Feb. 3.9 4.8 -0.1 -0.1 2.6 0.9 Education Miscellaneous Goods March 3.4 5.3 -0.2 -0.2 2.2 1.1 and Services April 3.3 6.3 0.0 -0.2 2.6 1.0 2012 2011 2012 2011 May 2.3 6.6 0.1 -0.2 2.8 1.1 Jan. 5.0 4.1 3.5 2.1 June 1.5 6.8 0.1 -0.3 2.4 1.6 Feb. 4.8 4.2 3.0 2.4 July 0.9 6.8 0.2 -0.3 2.6 1.6 March 4.8 4.3 2.9 2.8 Aug. 1.5 6.9 0.2 -0.4 2.8 1.5 April 4.8 4.2 3.3 2.4 Sept. 1.7 7.1 0.3 -0.4 2.7 1.6 May 4.7 4.3 3.4 2.8 Oct. - 6.7 - -0.4 - 1.7 June 4.8 5.1 3.4 3.0 Nov. - 6.6 - -0.3 - 1.8 July 4.4 5.2 3.5 2.9 Dec. - 6.0 - -0.4 - 1.8 Aug. 4.4 5.1 3.3 3.2 Sept. 4.4 5.1 3.2 3.2 Oct. - 5.1 - 3.1 Nov. - 4.7 - 3.3 Dec. - 4.7 - 3.2

Philippine ANALYST October 2012 44 ECONOMIC INDICATORS

PESO AVERAGES AT P41.75:$1 IN SEPTEMBER Gross Peso-Dollar Treasury Bill Rate International The peso grew stronger against the dollar as it appreciated to an average of Exchange rate 91-day, WAIR in Reserve P41.75:$1 in September from P42.05:$1 last month. The peso market maintained Period Ave. percent (US$B) (US$B) its position below the P42:$1 mark for the whole month. The highest close reached P42.18:$1 during the 1st week. This market behavior is consistent with 2012 2011 2012 2011 2012 2011 the forecast of the Bangko Sentral ng Pilipinas (BSP) that the peso will remain Jan. 77.36 63.54 43.62 44.17 1.55 0.70 stable along the P42-P45:$1 mark in 2012 despite the slowing global economy.

Feb. 77.77 63.89 42.66 43.70 1.86 1.66

March 76.13 65.98 42.86 43.52 2.27 1.08 Php: US$ EXCHANGE RATE

April 76.54 68.49 42.70 43.24 2.33 0.79

May 76.08 68.85 42.85 43.13 - 1.10

June 76.13 69.00 42.78 43.37 - 2.68

July 79.76 71.88 41.91 42.82 1.90 2.40

Aug. 80.73 75.94 42.05 42.42 1.47 1.53

Sept. 81.88 75.17 41.75 43.03 1.00 0.56

Oct. - 75.83 41.47 43.45 0.59 -

Nov. - 76.21 - 43.27 - 0.94 GROSS INT'L RESERVES Dec. - 75.30 - 43.65 - 1.56

91-DAY T-BILL RATE DECREASES TO 1% IN SEPTEMBER

The yield for the benchmark Treasury bill (t-bill) continued to slide from 1.47% in August to an average of 0.997% from the 2 auctions held in September (Sept. 3 and Sept. 17) as investors prefer short-term debt papers. The 6-month t-bill rate also decreased as bids reached an average of 1.58% in September from 1.73% last month while the yield for the 1-year tenor also slid to a rate of 2.06%. According BSP REFERENCE RATES to National Treasurer Roberto Tan, the decline in T-bill rates was expected given Peso equivalent per unit of foreign currency the latest developments in the domestic and external fronts. as of October 01, 2012 AVE. MONTH AGO % CHANGE Australian dollar 43.35 43.47 (0.3) Bahrain dinar 110.73 111.88 (1.0) Brunei dollar 33.87 33.71 0.5 Canadian dollar 42.47 42.82 (0.8) 91-DAY T-BILL RATE E.M.U. euro 53.63 53.08 1.0 Hong Kong dollar 5.38 5.44 (1.0) Indonesian rupiah 0.0044 0.0044 - Japanese yen 0.54 0.54 (0.8) Kuwaiti dinar unquoted unquoted unquoted Saudi Arabian rial 11.13 11.25 (1.0) Singaporean dollar 34.01 33.85 0.5 Swiss franc 44.38 44.21 0.4 Thai baht 1.36 1.35 0.6 UAE dirham 11.36 11.48 (1.0) UK pound 67.40 66.96 0.7 US dollar 41.74 42.18 (1.0) Others ( not convertible with BSP ) Argentinian austral 8.90 9.10 (2.3) Brazilian real 20.57 20.73 (0.8) Indian rupee 0.79 0.76 4.0 Korean won 0.04 0.04 0.8 Malaysian ringgit 13.66 13.51 1.2 Mexican new peso 3.24 3.20 1.4 New Zealand dollar 34.60 33.80 2.4 Norwegian kroner 7.29 7.28 0.1 Pakistani rupee 0.44 0.45 (1.4) South African rand 5.04 5.02 0.5 Swedish kroner 6.35 6.37 (0.3) Syrian pound 0.62 0.63 (2.9) Taiwanese nt dollar 1.42 1.41 0.9 Venezuelan bolivar * 9.73 9.83 (1.0)

* Effective 01 Jan. 2008 Venezuela’s ofﬁ cial exchange rate was changed to 2.15 bolivars per dollar to 2,150 per dollar Philippine ANALYST October 2012 ECONOMIC INDICATORS 45

BALANCE OF PAYMENTS SELECTED INTEREST RATES Growth Average 2 Weeks Ago 2012 2011 JJanuaryanuary - June 2012 (in US$ million) rate (%) Peso Deposit Rates (September 17-21, 2012) Current Account 3,675 2,808 30.9 Saving Deposits 0.10 0.10 Goods and Services (5,031) (5,883) -14.5 Time Deposits Export 34,526 31,664 9.0 below 1 year 2.52 2.66 Import 39,557 37,547 5.4 1 - 2 years 3.85 4.08 Goods (6,438) (7,283) -11.6 Over 2 years 1.81 1.56 Credit: Exports 26,449 24,445 8.2 Dollar Deposit Rates (September 17-21, 2012) Debit : Imports 32,887 31,728 3.7 Saving Deposits 0.32 0.3 Services 1,407 1,400 0.5 Time Deposits Credit: Exports 8,077 7,219 11.9 60 days and below 0.77 0.78 Debit : Imports 6,670 5,819 14.6 61-90 Days 0.93 0.91 Income 146 297 -50.8 91-180 Days 0.99 0.98 Credit: Receipts 3,705 3,364 10.1 181 days and above 1.23 1.21 Debit : Disbursments 3,559 3,067 16.0 Bank Lending Rates (September 17-21, 2012) Current Transfers 8,560 8,394 2.0 All Maturities 6.12 6.18 Credit: Receipts 9,010 8,843 1.9 High 7.69 7.78 Debit : Disbursments 450 449 0.2 Low 5.45 5.45 CAPITAL AND FINANCIAL ACCOUNT (1,206) 3,726 -132.4 Treasury Bill Primary Rates ( September 17, 2012 ) Capital Account 64 67 -4.5 Credit: Receipts 106 108 -1.9 91 days 0.745 1.249 Debit : Disbursments 42 41 2.4 182 days 1.445 1.713 Financial Account (1,270) 3,659 -134.7 364 days 1.906 2.220 Direct Investment 333 870 -61.7 Money Market Rates (September 17-21, 2012) Debit: Assets, Residents Investment 584 (41) -1524.4 Promissory Note 1.63 2.33 abroad Credit : Liabilities, Non-residents Commercial Papers w/o recourse 4.02 4.78 917 829 10.6 Investment in the Phil Manila Reference Rates (September 17-21, 2012) Portfolio Investment 1,894 4,873 -61.1 MRR 60 N.I. 3.81 Debit: Assets, Residents Investment 873 (805) -208.4 MRR 90 N.I 6.63 abroad Credit : Liabilities, Non-residents MRR 180 N.I 6.75 2,767 4,068 -32.0 Investment in the Phil GOVERNMENT FISCAL PERFORMANCE Data Year-Ago Growth rate Other Investment (3,554) (3,041) 16.9 JANUARY TO JUNE 2012 (in PM) (in PM) (%) Debit: Assets, Residents Investment 2,050 2,066 -0.8 I. Revenues 760,921 701,589 8.5% abroad Credit : Liabilities, Non-residents Tax Revenues 671,461 593,440 13.1% (1,504) (975) 54.3 Investment in the Phil Non-Tax Revenues 89,394 88,197 1.4% NET UNCLASSIFIED ITEMS (1,153) (1,518) -24.0 Grants 66 3 2100.0% OVERALL BOP POSITION 1,316 5,016 -73.8 II. Expenditures 795,403 698,871 13.8% III. Surplus/Deﬁ cit -34,485 -23,171 -48.8% IV. Financing 175,284 23,319 651.7% Domestic Financing 114,138 25,275 -351.6% BALANCE OF PAYMENTS Foreign Financing 73,883 48,584 52.1% V. Change-in-Cash 140,792 319,153 55.9% TOTAL EXTERNAL DEBT Data Year-Ago Growth JUNE 2012 (in $M) (In $M) rate (%) By Type of Debt 62,496 61,711 1.3%

Medium and Long-term 55,472 54,698 1.4%

Short-Term 7,024 7,013 0.2%

By Borrower 62,496 61,711 1.3%

Banking System 9,559 9,276 3.1%

Public Sector 43,657 42,800 2.0% CURRENT ACCOUNT Private Sector 9,280 9,635 -3.7%

By Institutional Creditor 62,496 61,711 1.3%

Banks & Other Financial Institutions 7,762 7,743 0.2%

Suppliers 3,165 3,067 3.2%

Multilateral 11,591 11,581 0.1%

IBRD 3,297 3,297 0.0%

IMF 00

ADB 5,908 5,839 1.2%

Bilateral 14,968 15,642 -4.3%

Bondholders/Noteholders 24,178 22,568 7.1%

Others 832 1,112 -25.2% Philippine ANALYST October 2012 46 ECONOMIC INDICATORS

JULY TOTAL TRADE ROSE TO $10Bn

Total merchandise trade for July 2012 increased to $9.7 billion from $9.4 billion MERCHANDISE IMPORTS January to July 2012 in US$ million 2012 2011 % Change in June. When compared to year-ago levels, total trade grew by 2.4% where imports declined by 0.8% while exports grew by 6%. Thus, amounts to a trade CAPITAL GOODS 11,455 9,771 17.2 deﬁ cit of $236 million. Telecom eqpmt & elec's eqpmt 5,592 4,951 12.9 Month-on-month exports have increased by 11.4% in July. Electronic products continue to emerge as the country’s top export but fell by 25.6% as Components/ Power generating & spec'd eqpmt 2,480 2,276 9.0 Devices (Semiconductors) exports decline by only 12.1% from its July 2011 Ofﬁ ce and EDP machine 1,381 1,185 16.5 level. Metal components followed as the 2nd top export with a massive increase of 783.6% while Woodcrafts and Furniture ranked 3rd with a 6.4% growth. Transport 844 683 23.7 Meanwhile, imports decreased by 2.5% to $5.1 billion from June 2012. Electronic products emerged as the country’s top import with a 4.8% growth. Mineral Fuels, Others 386 367 5.2 nd Lubricants and Related Materials ranked 2 but fell by 12.3% in its reported RAW MATERIALS & INTER. GOODS 14,753 17,403 (15.2) value. On the other hand, Industrial Machinery and Equipment imports ranked 3rd with a growth of 28.2%, which was brought about by 54.5% increase in the Semi-processed raw materials 13,148 15,626 (15.9) volume of inward shipment. Unprocessed raw materials 1,605 1,777 (9.7)

MINERALS, FUELS & LUBRICANTS 9,183 8,314 10.4

Crude petroleum 4,970 5,225 (4.9)

FOREIGN TRADE Others 3,737 2,694 38.7 CONSUMER GOODS 4,951 4,678 5.8

Non-durable 2,663 2,628 1.3

Durable 2,288 2,050 11.6

SPECIAL TRANSACTION 427 565 (24.4)

TOTAL IMPORTS 40,769 40,731 0.1

MERCHANDISE EXPORTS January to July 2012 in US$ million 2012 2011 Growth rate % Total Agro-Based Products 2,122 2,360 (10.1) Coconut Products 842 1,201 (29.8) Sugar and Products 106 139 (23.7) MERCHANDISE BALANCE OF TRADE (in US$ million) Fruit and Vegetables 681 555 22.6 Fish, Fresh or Preserved of which: Exports Imports Surplus/(Deﬁ cit) 265 197 34.6 shrimps and prawn 2012 2011 2012 2011 2012 2011 Forest Products 28 22 31.0 Jan. 4,123 4,000 5,134 5,302 (1,010) (1,302) Mineral Products 1,291 1,685 (23.4) Feb. 4,430 3,865 4,996 4,761 (566) (896) Copper Metal 173 769 (77.5)

March 4,323 4,353 5,371 5,549 (1,048) (1,196) Petroleum Products 212 451 (53.0)

April 4,635 4,302 4,773 5,497 (138) (1,195) Manufactures 26,897 23,909 12.5 Electronic Products 13,821 14,891 (7.2) May 4,932 4,108 5,386 4,888 (454) (780) Garments 1,074 1,106 (2.9) June 4,314 4,127 5,089 4,503 (775) (376) Textile Yarns / Fabrics 106 102 4.1 July 4,727 4,429 4,963 4,999 (236) (570) Furniture & Fixtures 108 95 14.3 Aug. 3,798 4,123 5,057 4,925 (1,260) (803) Chemicals 1,369 1,143 19.8 Sept. - 3,897 - 5,076 - (1,179) Machinery & Transport Equipment 3,463 1,718 101.6 Oct. - 4,088 - 5,020 - (932) Iron and Steel 159 122 30.1 Nov. - 3,342 - 4,990 - (1,648) TOTAL EXPORTS 31,564 29,306 7.7 Dec. - 3,407 - 4,548 - (1,141)

Philippine ANALYST October 2012 ECONOMIC INDICATORS 47

NATIONAL ACCOUNTS 2nd QUARTER 2012 PERCENTAGE DISTRIBUTION OF TOTAL FAMILY EXPENDITURE Year-ago Year-on- By major expenditure group Data level year growth GROSS NATIONALNATIONAL INCOME ACCOUNTS In PB In PB 11-12 EXPENDITURE GROUP 2009 2006 (at constant prices) 2,083.7 1,973.6 5.6% Percent 100.0 100.0 (at current prices) 3,474.5 3,225.5 7.7% GROSS DOMESTIC PRODUCT Food 42.6 41.4 (at constant prices) 1,593.8 1,505.0 5.9% Alcoholic Beverages 0.7 0.7 (at current prices) 2,620.8 2,432.6 7.7% Tobacco 0.8 0.9 GNP (at constant prices) by Expenditure Shares 1. Household Final Consumption Expenditure 1,090.6 1,030.5 5.8% Fuel, Light and Water 7.1 7.6 a. Food and Non-alcoholic beverages 455.0 427.2 6.5% Transportation & Communication 7.7 8.2 b. Alcoholic beverages, Tobacco 16.2 15.2 6.7% Household Operation 2.3 2.3 c. Clothing and Footwear 19.8 19.0 4.5% Personal Care and Effects 3.8 3.7 d. Housing, water, electricity, gas and 125.8 120.8 4.1% other fuels Clothing Footwear & Other Wear 2.2 2.4 e. Furnishing, household equipment and 66.8 65.7 1.7% routine household maintenance Education 4.3 4.4 f. Health 23.8 21.5 10.5% Recreation 0.4 0.5 g. Transport 93.2 93.7 -0.5% Medical Care 2.9 2.9 h. Communication 60.9 55.4 10.0% Non-Durable Furnishing 0.2 0.2 i. Recreation and Culture 23.5 22.3 5.4% j. Education 32 32 0.7% Durable Furniture and Equipment 2.7 2.7 k. Restaurants and Hotels 42 39 8.5% Rent/Rental Value of Dwelling Unit 12.8 12.7 l. Miscellaneous goods and services 132 122 7.7% House Maintenance and Minor Repairs 0.6 0.6 2. Government Final Consumption 187.7 177.2 5.9% Expenditure Taxes Paid 2.0 1.6 3. Capital Formation 268.1 262.0 2.3% Special Family Occasions 2.7 2.8 4. Exports 847.0 782.2 8.3% 5. Imports 784.0 751.3 4.4% Gifts and Contributions to others 1.4 1.4 GNP (at constant prices) by Industrial Origin Other Expenditure 2.9 3.0 1. Agriculture 162.4 161.3 0.7% Other Expenditures 2.9 2.9 2. Industry Sector 505.4 483.1 4.6% a. Mning & Quarrying 23.7 25.6 -7.3% TOTAL FAMILY EXPENDITURES 3,239 2,561 b. Manufacturing 337.5 324.6 4.0% Source: Family Income & Expenditure Survey (FIES) Final Results 04 February 2009 c. Construction 88.6 80.6 10.0% d. Electricity, Gas and Water 55.5 52.3 6.2% 3. Service Sector 926.0 860.6 7.6% a. Transport., Comm., Stor 128.7 117.4 9.6% b. Trade, Repair of Motor Vehicles, 249.1 232.1 7.3% Motorcycle & Household Goods c. Financial Intermediation 117.1 109.2 7.3% d. Real Estate, Renting & Business UNEMPLOYMENT AND 180.8 166.6 8.5% Activities UNDEREMPLOYMENT RATES e. Public Administration & Defense: 75.7 74.1 2.1% Compulsory Social Security f. Other Services 174.6 161.2 8.3%

LABOR AND EMPLOYMENT 2011 2012 (New Deﬁ nition)

Jan Apr Jul Oct Jan Apr Jul Total labor force 39,196 39,661 39,901 41,215 40,309 40,659 40,396 Labor force participation (%) 63.7 64.2 64.3 66.3 64.3 64.7 64.0 Employment (%) 92.6 92.8 92.9 93.6 92.8 93.1 93 Unemployment (%) 7.4 7.2 7.1 6.4 7.2 6.9 7 Underemployment (%) 19.4 19.4 19.1 19.1 18.8 19.3 22.7 OFW DEPLOYMENT hires and rehires

Philippine ANALYST October 2012 philippine regionalregional updateupdate 48 philippine regional update

NCR – NATIONAL CAPITAL REGION (METRO MANILA)

LRT 1 improvement on Phase 2 of the Light Rail Transit Line 1 (LRT 1) comprehensive reliability, safety and capacity improvement project has been awarded to local fi rm Jorgman Planning and Development Corp. for a contract amount of P105 million. Phase 2 involves the replacement of gantry anchor bolts that run through 23 kilometers of the LRT line. The LRT 1 improvement project consists of 5 phases. The fi rst phase was awarded nine months earlier than phase 2’s award. The other phases consist of replacement of train tracks (P381 million) and procurement of modifi ed “bogie” frames or chassis (P184 million); rehabilitation of 21 rail cars; and restoration of 14 train cars that are no longer running (P197 million).

NAIA Asia’s worst airport anew The Ninoy Aquino International Airport Terminal 1 was again voted by the website sleeping in airports.com as the world’s worst airport in 2012, the same distinction it accorded to NAIA 1 in 2011. It cited passenger complaints of airport personnel taking advantage of travelers and the poor facilities particularly the toilets. The site, however, noted that the issues are being addressed by the Manila International Airport Authority through a major facelift program prioritizing the toilets and the departure and arrival lobbies, but travelers noted that the improvements aren’t happening fast enough.

Fort Bonifacio tunnel to be restored A 2.2-kilometer tunnel 30 meters deep below the Bonifacio Global City in Taguig will be restored as a heritage site with support from the private sector, the Bases Conversion Development Authority (BCDA) said. The tunnel, which has 32 built-in chambers and 2 passable exits, was intended to serve as a stockroom and to transport supplies during World War II.

$3B investments in Aseana City in 5 years DM Wencaslao and Associates, lead developer of Aseana City, a 204-hectare reclaimed property in Manila Bay along Roxas Boulevard, expects $3 billion in investment in the area over the next 5 years. It will house two casino and entertainment complexes set to open within 1H13, the 1,000-room Belle Grande Manila Bay deluxe hotel, the 500-room Solaire Manila deluxe hotel, and a 200-room budget hotel of Malaysia’s Tune Hotels. Condominium, leisure, ofﬁ ce and retail developments are also planned within Aseana City.

2nd Resorts World hotel set to open in 2016 Travellers International, a partnership between Alliance Global Group and Genting Hong Kong Ltd., is investing $550 million to complete the ﬁ rst phase of Resorts World Bayshore City in 2016. The hotel will be built on a 31-hectare property at the Entertainment City.

Pasig River ferry system mulled The government, through the Department of transportation and Communications (DOTC), is planning to build a new Pasig River ferry system that will stretch from Laguna Lake to Manila Bay. Interested parties have been invited by the DOTC to submit bids for the conduct of a feasibility study on the Manila Bay-Pasig River-Laguna Lake Ferry System Project. The feasibility study has an approved cost ceiling of P25.2 million.

CAR – CORDILLERA ADMINISTRATIVE REGION

Cordillera building 1,060 MW power plants The Department of Energy’s Luzon ﬁ eld ofﬁ ce said that Cordillera has a total of 1,060 megawatts (MW) of renewal energy in various stages of development. They are expected to be commissioned in 3-5 years. These projects consist of 37 hydro power plants totaling 800 MW and 5 geothermal power service contracts with a combined generating capacity of 260 MW.

Philex tailings leak plugged Philex Mining Corp. corporate affairs division claimed that the company has fully plugged the broken pipe and sinkhole of Padcal mine’s tailings pond that caused sediment to spill into adjacent bodies of water in August. It also announced that Philex plans to build a new tailings pond at a cost of P300 million, which will be ready in 6 to 12 months. Meanwhile, the Padcal mine remains closed since the leakage of the sediments. The Mines and Geosciences Bureau (MGB) assessed a ﬁ ne of P1.034 billion to Philex as a result of the spillage, which the company is contesting. Philex contends that there was no negligence on its part and that the incident was caused by force majeure.

Philippine ANALYST October 2012 philippine regional update 49

Region II – CAGAYAN VALLEY

Robinsons to put up a shopping mall in Isabela Robinsons Land Corp. has announced a plan to build a shopping mall in Santiago City, Isabela province, its 34th retail development project in the country. It will be open for business in September 2013. It will be built on a 4.2-hectare property along Maharlika Highway and will have a gross ﬂ oor area of 38,725 square meters. The net leasable area of the 3-storey project is 26,200 square meters.

Region III – CENTRAL LUZON

Flood control projects to be launched The Department of Public Works and Highways (DPWH) will implement 3 major ﬂ ood control projects worth a total of P6.8 billion in Central Luzon. These are the Valenzuela-Obando-Maycauyan River Rehabilitation Project (P830 million), the fortiﬁ cation of Angat Dam (P5.72 billion) and the rehabilitation of Pampanga’s San Fernando-Sto. Tomas-Minalin tall dike. Project implementation dates were not disclosed.

Region IV – SOUTHERN TAGALOG

Region IV-A – CALABARZON

Nestle opens new factory in Batangas Nestle Philippines started commercial operations of its new P5-billion factory in Tanauan, Batangas in mid-October. The factory produces Coffee-Mate brand non-dairy creamer at an annual capacity of 60,000 tons, and Bear Brand powdered milk. This will be the ﬁ rst time that Coffee-Mate will be produced locally, as it used to be imported from Malaysia, Thailand and Mexico. The company plans to invest another P5 billion in 2013 to expand and upgrade its manufacturing facilities ahead of business growth.

Region IV-B – MIMAROPA

Tubbataha Reef wins conservation award Tubbataha Reef, a 100,000-hectare marine sanctuary at the center of Sulu Sea southeast of Palawan, was one of the two recipients of Silver Awards from the World Future Council for 2012. A UNESCO World Heritage Site since 1993, the World Future Council cited the Tubbataha Reefs Natural Parks Act for keeping the coral reef in excellent condition and praised the local authorities, non-government organizations and the local communities for their efforts at conservation. The site is under the protective management of the Department of National Defense. It is part of the Coral Triangle, a global focus for coral biological diversity that stretches down to the Great Barrier Reef of Australia. The other silver awardee was Namibia’s Marine Resources Act of 2000. The top honors went to Palau for its two outstanding marine policies, the Protected Areas Network Act of 2003 and its Shark Haven Act of 2009.

PLDT spending P1.4B for Palawan link Philippine Long Distance Telephone Co. (PLDT) is reportedly spending P1.4 billion to upgrade its existing infrastructure to ﬁ ber optic cable (FOC) network in Palawan. The project started in October and is expected to be completed in 1H13. Nearly 300 kilometers of undersea FOC will be laid down from Iloilo to northern Palawan and another 364 km will be installed inland to Puerto Princesa City.

Mindoro touted as next tuna capital The Region IV-B ofﬁ ce of the Bureau of Fisheries and Aquatic Resources (BFAR) has expressed belief that Occidental Mindoro could become the next tuna capital of the Philippines after General Santos City (Gensan) in South Cotabato. This observation is based the recent migration of yellow ﬁ n tuna, with weights ranging from 80 to 100 kilograms each, in the waters of Mindoro Strait. BFAR is now closely monitoring this shift in tuna migration pattern, favoring the region that also includes Marinduque, Masbate, Romblon and Palawan provinces. Frozen tuna was the top export of Mindanao at $311 million FOB in 2010.

Philippine ANALYST October 2012 50 philippine regional update

Region VI – WESTERN VISAYAS

Ayala withdraws offer to develop Negros lot… Ayala Land Inc. (ALI) withdrew its P6-billion offer to develop the 7.7-hectare property of the Negros Occidental provincial government in Bacolod City. In a letter sent to the provincial governor on Sep. 13, 2012, ALI cited as reason that “after more than a year since the property was awarded to Ayala land…delays and legal disputes that continue to threaten its implementation.” The award of conditional sale and lease was granted to ALI by the provincial government on July 20, 2011. Formal approval of the contract, however, remained pending with the Commission on Audit (COA). COA cleared the deal recently, or 14 months after it was submitted to the agency for approval and a week after ALI withdrew its interest in developing the property.

… will build mall in Talisay City ALI will implement the shopping mall component of its mixed-use development project in Talisay City, Negros Occidental. It is expected to open next year. The mixed-use development, dubbed as the North Point, is located on a 200-hectare property ALI acquired in Talisay City. Apart from the shopping mall, North Point will also have 4 residential communities, business process outsourcing (BPO) ofﬁ ce buildings and a hotel.

New ferry terminal in Iloilo City The Department of Transportation and Communications (DOTC) is bidding out a contract for the construction of the P126-million Iloilo City Parola Ferry Terminal. The ferry terminal is designed to serve more than 200 vessels with outrigger and rigger canoes plying the Iloilo City-Guimaras Island route. The project entails the development of a 10,400-square meter port area, shore protection spanning the length of 267 meters, excavation of the entire port area to increase its depth, and embankment and ﬁ lling of aggregate base course in the same area.

Region VIII – EASTERN VISAYAS

Samar transmission line reinforced National Grid Corp. of the Philippines (NGCP) is spending P303 million for the 69-kV Sta. Rita-Quinapondan Transmission Line Project in Eastern Samar province. The project is seen as providing an alternate power corridor in the province. It is expected to be completed in 2015.

P450M for rehabilitation of bridges The Department of Public Works and Highways (DPWH) has earmarked P450 million to rehabilitate bridges in Eastern Visayas. Of the budget, P353 million has been set aside to make the bridges earthquake-proof. Another P93 million has also been allotted for the replacement of temporary bridges.

Region XI – DAVAO REGION (SOUTHERN MINDANAO)

SM opens its 46th shopping mall in Davao SM Prime Holdings, Inc. opened SM Lanang Premier in Davao in late September, its 46th shopping mall in the country and 2nd in Davao City. It is a 114,000-square meter commercial development located at JP Rizal Ave. in Lanang village. It is the biggest and ﬁ rst premier mall development project in Mindanao.

ARMM – AUTONOMOUS REGION IN MUSLIM MINDANAO

Malaysian palm oil producer to invest in ARMM Malaysia’s Felda Global Ventures, the world’s largest crude palm oil producer, has expressed interest in establishing oil palm plantation in the ARMM as a result of the signing of the preliminary peace agreement between the government and the Moro Islamic Liberation Front (MILF) on Oct. 15. The investment fund will come from Felda Global’s listing and initial public offering (IPO) of $3.1 billion, which the company said will be used to expand in Southeast Asia and Africa. No information was provided on the land area Felda Global will develop as a plantation, but experts suggest at least 10,000 hectares would be needed to achieve economies of scale.

Philippine ANALYST October 2012 philippine regional update 51

REGIONAL ECONOMY GRDP REAL GRDP POPULATION GRDP/CAPITA REGION LAND PERSONS/ sq km (PM at current prices) Growth Rate ('000) AREA (P) 2011 2010 2011 2010 2011 2010(sq km) 2011 2010 2011 2010 Philippines 9,735,521 9,003,480 3.9 7.6 94,185 92,604 300,000 314 309 103,366 97,226 Metro Manila 3,479,905 3,236,353 3.5 7.6 12,080 11,888 619 19,515 19,205 288,072 272,237 Cordillera Administrative 210,079 197,994 2.1 6.3 1,646 1,621 19611 84 83 127,630 122,143 Ilocos Region 293,918 274,103 3.0 7.1 4,812 4,758 12974 371 367 61,080 57,609 Cagayan Valley 167,492 150,038 5.4 -1.1 3,278 3,236 28265 116 114 51,096 46,365 Central Luzon 882,806 788,898 7.5 10.7 10,363 10,170 22014 471 462 85,188 77,571 Calabarzon 1,644,843 1,557,069 2.6 11.1 12,994 12,665 16644 781 761 126,585 122,943 Mimaropa 176,176 162,002 -2.5 1.1 2,797 2,752 29620 94 93 62,987 58,867 Bicol Region 206,619 191,534 2.6 5.2 5,506 5,433 18139 304 300 37,526 35,254 Western Visayas 395,417 359,703 5.5 3.7 7,206 7,118 20794 347 342 54,873 50,534 Central Visayas 601,880 538,646 7.9 12.5 6,928 6,819 15885 436 429 86,876 78,992 Eastern Visayas 242,594 228,815 1.8 2.0 4,159 4,110 23253 179 177 58,330 55,673 Zamboanga Peninsula 200,883 187,255 0.1 3.6 3,475 3,417 17046 204 200 57,808 54,801 Northern Mindanao 367,100 340,457 2.5 6.9 4,390 4,311 20496 214 210 83,622 78,974 Davao 408,450 372,074 4.1 5.0 4,561 4,482 20357 224 220 89,553 83,015 Socksacksargen 261,548 237,814 4.0 2.0 4,213 4,125 22436 188 184 62,081 57,652 Autonomous Region of 86,048 81,688 9.6 7.4 2,468 2,435 33511 74 73 34,865 33,548 Muslim Mindanao CARAGA 109,765 99,037 -1.0 2.3 3,309 3,264 21412 155 152 33,172 30,342

RATE OF INFLATION FOR ALL INCOME HOUSEHOLDS IN THE PHILIPPINES BY REGION (2000 = 100) 2011 2012

REGIONS Sept Oct Nov Dec Ave. Jan Feb Mar Apr Mar Jun Jul Aug Sept Ave. PHILIPPINES 4.8 5.2 4.8 4.2 4.77 4.0 2.7 2.6 3.0 2.9 2.8 3.1 3.8 3.6 3.01 METRO MANILA 4.2 4.9 3.5 3.0 4.16 3.5 2.3 2.7 2.5 2.2 2.2 3.1 4.5 3.5 2.58 AOMM 5.0 5.3 5.1 4.5 4.94 4.0 2.8 2.6 3.2 3.1 3.0 3.1 3.6 3.7 3.12 CAR 2.9 3.6 3.3 3.0 - 2.7 2.3 2.7 2.8 3.0 3.6 3.8 4.9 5.2 2.84 I Ilocos 3.8 4.4 3.9 4.1 - 2.5 1.9 1.2 1.2 1.1 1.7 1.6 2.5 2.7 1.61 II Cagayan Valley 3.9 5.5 3.3 2.4 - 2.0 2.0 1.8 2.4 2.0 2.8 2.6 3.3 4.2 2.17 III Central Luzon 5.6 6.4 6.1 5.0 - 4.4 2.9 3.0 4.3 4.3 3.5 3.4 3.5 3.7 3.74 IV-A Southern Tagalog 5.2 5.9 5.5 4.8 - 4.5 2.7 2.5 2.9 2.7 2.5 2.8 3.1 2.8 2.97 IV-B Southern Tagalog 4.7 4.5 4.0 3.6 - 2.8 1.9 1.8 2.2 2.9 3.6 3.8 3.7 3.8 2.54 V Bicol 4.9 4.9 5.3 4.2 - 3.2 2.8 2.7 3.0 2.8 2.6 2.8 3.4 3.6 2.86 VI Western Visayas 4.8 5.0 5.1 4.7 - 4.0 3.1 3.0 3.6 4.2 4.3 4.5 4.6 4.4 3.71 VII Central Visayas 3.5 3.0 3.0 2.8 - 2.8 1.8 1.9 3.9 4.2 5.3 6.1 6.6 7.4 3.32 VIII Eastern Visayas 4.8 4.8 4.5 4.0 - 3.6 2.8 2.8 3.1 2.5 2.2 2.5 2.8 3.2 2.84 IX Western Mindanao 6.1 6.5 6.5 6.3 - 5.4 3.1 2.6 1.5 1.8 1.8 2.4 2.8 3.1 2.70 X Northern Mindanao 5.1 5.5 5.8 6.0 - 5.5 4.2 3.6 4.2 3.8 3.8 4.1 4.3 4.4 4.19 XI Southern Mindanao 6.0 5.5 5.0 4.6 - 4.5 3.4 3.1 2.7 2.0 1.7 1.8 1.6 1.8 2.90 XII Central Mindanao 4.5 4.1 4.2 4.1 - 3.5 2.7 2.6 2.8 2.4 2.6 2.3 2.8 2.8 2.77 ARMM 6.7 6.3 6.0 6.1 5.8 - 5.5 3.7 3.6 4.3 4.5 4.1 3.8 4.5 4.28 CARAGA 7.6 6.8 6.8 6.7 6.9 - 6.6 5.2 3.8 3.6 2.4 2.0 1.9 2.0 3.93

Philippine ANALYST October 2012 52 philippine regional update

FLOOR AREA OF PRIVATE BUILDING CONSTRUCTION (IN '000 SQM) 2011 2012 GROWTH GROWTH 2Q 3Q 4Q TOTAL 1Q 2Q TOTAL YR-TO-DATE YR-TO-DATE Philippines 5,322,724 4,392,484 4,673,061 19,918,293 288.5 5,416,460 6,094,589 11,511,049 108.2 Metro Manila 1,507,032 1,041,115 1,319,151 5,891,034 216.2 1,438,071 1,692,352 3,130,423 54.7 Cordillera CAR 63,435 59,487 63,726 253,115 293.8 154,654 72,376 227,030 241.6 1-Ilocos Region 249,844 186,431 175,520 849,430 278.1 211,347 219,420 430,767 81.3 2-Cagayan Valley 89,888 68,164 56,502 287,580 312.8 77,978 71,788 149,766 105.1 3-Central Luzon 592,948 566,324 422,901 2,136,859 296.4 845,329 654,684 1,500,013 170.4 4A-Calabarzon 887,364 928,223 800,027 3,542,115 262.0 972,002 1,274,447 2,246,449 142.5 4B-Mimaropa 67,564 49,980 38,904 252,288 214.0 78,839 75,873 154,712 61.4 5-Bicol Region 152,681 110,580 99,305 458,648 264.2 133,089 100,633 233,722 143.3 6-Western Visayas 164,366 204,106 210,009 762,424 162.8 133,517 174,650 308,167 67.5 7-Central Visayas 914,596 430,732 726,770 2,557,114 775.4 483,815 764,133 1,247,948 157.3 8-Eastern Visayas 73,747 75,310 79,991 333,104 301.0 112,199 83,379 195,578 88.0 9-Zamboanga Penisula 51,542 52,426 64,565 213,866 741.9 76,337 71,623 147,960 226.4 10-Northern Mindanao 130,629 132,721 160,023 595,410 389.9 188,269 218,426 406,695 136.4 11-DAVAO 210,542 289,950 248,481 1,060,054 335.5 275,538 298,327 573,865 84.5 12- SOCCSKSARGEN 91,060 88,654 117,684 390,579 429.3 88,630 120,151 208,781 124.1 CARAGA 74,567 105,255 87,906 327,329 533.2 68,206 75,197 143,403 140.6 ARMM 1,803 919 3,026 1,596 7,344 646.3 3,303 3,303 83.2

VALUE OF PRIVATE BUILDING CONSTRUCTION (IN ‘000) 2011 2012 GROWTH GROWTH 2Q 3Q 4Q TOTAL 1Q 2Q TOTAL YR-TO-DATE YR-TO-DATE Philippines 55,668,779 41,652,765 43,756,384 193,849,686 309.8 49,157,417 60,922,598 110,080,015 108.6 Metro Manila 25,168,012 13,375,554 16,067,468 79,756,608 241.2 16,837,178 19,418,031 36,255,209 44.2 Cordillera CAR 591,104 597,500 610,518 2,371,411 312.6 1,336,595 986,179 2,322,774 305.9 1-Ilocos Region 1,807,622 1,552,313 1,401,977 6,565,278 284.3 1,695,656 1,780,078 3,475,734 92.7 2-Cagayan Valley 714,773 482,937 469,782 2,206,862 347.9 601,484 554,007 1,155,491 114.2 3-Central Luzon 4,548,155 4,059,670 3,355,482 16,220,468 337.4 6,367,698 5,655,195 12,022,893 182.4 4A-Calabarzon 7,704,940 9,398,426 6,085,983 30,415,719 289.6 8,116,013 13,198,025 21,314,038 194.9 4B-Mimaropa 1,210,366 307,623 264,522 2,450,433 392.7 564,463 631,966 1,196,429 79.1 5-Bicol Region 976,281 705,738 796,947 3,388,203 335.0 778,884 748,521 1,672,349 83.9 6-Western Visayas 1,553,300 2,055,263 1,697,326 7,910,233 315.8 1,760,168 3,116,319 4,876,487 87.2 7-Central Visayas 6,661,414 3,007,842 5,199,462 18,204,005 696.8 3,916,301 6,227,128 10,143,429 204.1 8-Eastern Visayas 691,264 699,421 816,005 3,211,761 507.8 1,539,636 872,433 2,412,069 140.0 9-Zamboanga Penisula 235,247 265,801 463,376 1,189,184 689.6 458,048 516,393 974,441 333.5 10-Northern Mindanao 1,093,487 1,012,840 2,145,466 5,527,078 360.5 1,365,963 2,031,184 3,397,147 166.4 11-DAVAO 1,693,821 2,799,017 3,042,629 9,801,806 531.3 2,636,904 3,993,836 6,630,740 192.6 12-SOCCSKSARGEN 554,880 637,619 887,627 2,701,204 523.4 572,897 714,124 1,287,021 107.2 CARAGA 459,797 659,371 443,481 1,870,891 507.2 452,115 477,405 929,520 201.6 ARMM 4,316 35,830 8,333 58,542 811.0 12,470 1,774 14,244 41.5

Philippine ANALYST October 2012 philippine regional update 53

EMPLOYMENT RATE BY REGION (IN%) (New Deﬁ nition) 2010 2011 2012

OCT JAN APRIL JULY OCT JAN APRIL JULY PHILIPPINES 92.9 92.6 92.8 92.9 93.6 92.8 93.1 93 Metro Manila 87.4 88.0 88.4 89.1 89.6 87.8 89.6 90.1 Cordillera CAR 95.6 94.4 95.0 95.3 95.2 94.4 94.3 95.1 1-Ilocos Region 91.4 90.0 90.2 92.1 93.4 91.1 92 91.4 2-Cagayan Valley 97.4 96.9 96.7 97.6 97.2 97.6 97.2 96.8 3-Central Luzon 92.0 92.1 91.7 90.4 91.7 90.3 92 90.8 4A-Calabarzon 91.0 90.5 90.0 89.6 91.0 91.5 91.2 90.6 4B-Mimaropa 94.9 95.7 96.0 96.2 96.5 96.6 95.3 95.9 5-Bicol Region 94.2 92.9 93.4 94.6 94.7 93.2 93.1 94.4 6-Western Visayas 93.9 93.5 92.4 94.0 93.6 93.7 93 93.6 7-Central Visayas 92.3 91.7 93.8 93.7 93.9 92.5 92.8 92.9 8-Eastern Visayas 93.9 93.7 94.3 95.3 96.0 94 95 95.7 9-Zamboanga Penisula 97.0 96.9 96.8 96.7 96.6 96.6 95.9 95.9 10-Northern Mindanao 95.8 95.1 96.0 94.8 96.1 95.7 95.8 95.3 11-DAVAO 93.9 94.2 94.6 94.2 95.4 93.8 93.6 93.6 12-SOCCSKSARGEN 96.3 96.8 96.0 95.5 96.3 96 95.5 95.6 CARAGA 95.1 92.4 95.1 94.1 94.5 93.6 95 93.1 ARMM 96.8 96.1 96.3 96.3 97.7 97 97.1 95.7

UNEMPLOYMENT RATE BY REGION (IN %) (New Deﬁ nition) 2010 2011 2012

OCT JAN APRIL JULY OCT JAN APRIL JULY

Philippines 7.1 7.4 7.2 7.1 6.4 7.2 6.9 7

Metro Manila 12.6 12.0 11.6 10.9 10.4 12.2 10.4 9.9 Cordillera CAR 4.4 5.6 5.0 4.7 4.8 5.6 5.7 4.9 Ilocos Region 8.6 10.0 9.8 7.9 6.6 8.9 8 8.6 Cagayan Valley 2.6 3.1 3.3 2.4 2.8 2.4 2.8 3.2

Central Luzon 8.0 7.9 8.3 9.6 8.3 9.7 8 9.2

Calabarzon 9.0 9.5 10.0 10.4 9.0 8.5 8.8 9.4

Mimaropa 5.1 4.3 4.0 3.8 3.5 3.4 4.7 4.1

Bicol Region 5.8 7.1 6.6 5.4 5.3 6.8 6.9 5.6

Western Visayas 6.1 6.5 7.6 6.0 6.4 6.3 7 6.4

Central Visayas 7.7 8.3 6.2 6.3 6.1 7.5 7.2 7.1

Eastern Visayas 6.1 6.3 5.7 4.7 4.0 6 5 4.3

Zamboanga Penisula 3.0 3.1 3.2 3.3 3.4 3.4 4.1 4.1

Northern Mindanao 4.2 4.9 4.0 5.2 3.9 4.3 4.2 4.7

DAVAO 6.1 5.8 5.4 5.8 4.6 6.2 6.4 6.4

SOCCSKSARGEN 3.7 3.2 4.0 4.5 3.7 4 4.5 4.4

CARAGA 4.9 7.6 4.9 5.9 5.5 6.4 5 6.9

ARMM 3.2 3.9 3.7 3.7 2.3 3 2.9 4.3

Philippine ANALYST October 2012 54 BUSINESSBUBUSINESSSINESS

Peace accord may bring investment With the signing of the framework for a peace agreement, the Autonomous Region of Muslim Mindanao (ARMM), what is now called the Bangsamoro area, may eventually see peace restored. That, if it is, should lead to a substantial growth in investment, much of it from other Muslim countries. Agribusivness and infrastructure are expected to lead in that investment. This would pave the way for long-awaited progress in the region, but still many things need to be done as the agreement will take some years to reach a conclusive ending.

ith the signing of the framework for a peace agreement, the Bangsamoro area may see peace restored but Wrealistically not for some time yet as some factions within the Muslim community remain unconvinced. Achieving tranquility in the region will require the disarming and surrendering of 12,000 MILF rebels to the government, which is one of the mandates of the framework. This will not come easily. The considerable autonomy given by the preliminary framework, which is what the Muslim leaders had been longing for for years, strengthens the possibility of the restoration of peace in the region. The Aquino administration is optimistic that the new peace accord will not be a failed experiment similar as the Autonomous Region in Muslim Mindanao (ARMM) as violence, corruption, and poverty, among others, have not been curtailed. In order to achieve peace in the region, the signing of the into banana, pineapple, corn, and palm oil plantations. Felda new peace accord will need to lead to a substantial growth in Global Ventures and Berjaya, two of the largest crude palm oil investment, which has long eluded the area. Fortunately, the foreign producers in the world, have signifi ed interest in developing palm and local business communities see the peace agreement as an oil farms in the Bangsamoro region. Investments from European encouragement to bring investment into the area. Investments are companies, on the other hand, are expected to develop international expected to come initially from Muslim countries, such as United airports, which are crucial in promoting the region as a tourist Arab Emirates, Saudi Arabia, Turkey, and Malaysia. Investments destination. The government has allotted approximately P260 from Europe, which has been providing offi cial development billion to fund various infrastructure projects in the region by 2013. assistance (ODA) for a long time in Mindanao, could follow. The Many things still need to be done. Crucial amongst these government is set to infuse considerable investment in the region. is the formulation of the Annexes to the framework agreement The bulk of the investment is likely to be in the region’s as these will defi ne most of the important areas, such as power agribusiness and infrastructure sectors. Investments from the sharing, wealth sharing, transitional agreements, etc. The Muslim countries are seen to transform barren agricultural lands clauses in the framework that gives the Bangsamoro region

Crucial amongst these is the formulation of the Annexes to the framework agreement as these will defi ne most of the important areas, such as power sharing, wealth sharing, transitional agreements, etc.

Philippine ANALYST October 2012 BUSINESS 55

the right to have exclusive auditors, and gives power to block NUMBER OF BANKS IN PH grants and subsidies from the government should also be looked at. The inclusion of the Moro National Liberation Front (MNLF) and the Abu Sayaff is a necessary part of the peace framework – perhaps the most diffi cult part. Members of the Senate have aired their concerns on the framework, which include the inclusion of an economic package (Sen. Legarda), the control of the police force (Sen. Lacson), and the need for constitutional amendments (Sen. Santiago), among others. The completion of the peace agreement, which is by 2016, is also a primary concern as many things/events can happen in 4 years. Note: 2012 – as of the end of June. The peace deal agreement was signed between the government and the Moro Islamic Liberation Front (MILF) on October 15, BSP deputy governor Nestor Espenilla Jr. said, “The addition 2012. The agreement lays down the framework for peace in the area, recognizes that there can be situations where take over by a bank… which is seen to end the decade’s long insurgency in the region. The via acquisition of controlling shares may also have similar benefi ts peace framework indicates the replacement of the ARMM with as merger or consolidation in terms of strengthening the system.” the Bangsamoro, which will become the governing body of the The central bank began promoting mergers and consolidations region. A Transition Commission, which will be composed of 15 of banks in the early 2000’s to maintain a stable banking system members, is set to formulate the complete details of the framework. by eliminating problematic banks. The incentives that were The recent peace deal agreement between the government given then included the extension of booking the 2% provision and the MILF underscores the importance of peace and for probable loan losses, temporary relief from the net worth-to order to sustain and further improve the country’s current risk assets ratio, and a 1-year grace period to comply with the economic progress. Fitch Ratings stated that the peace deal ceiling on real estate exposure. However, some banks had chosen may boost the investment rating for the economy as a whole, the option to convert to a lower category instead of merging supporting economic growth but noted that reaching a fi nal and consolidation since it required minimal or no additional settlement will take time. Time is a crucial factor in the capital while maintaining their ownership and market identity. success of any undertaking. The more time needed to complete For the past 9 years, the number of universal, commercial, the peace agreement the more uncertain its success will be. and thrift banks have gradually decreased while the number of rural and cooperative banks have drastically declined, (see chart) in line with the central bank’s intentions. There BSP extends perks for bank acquisitions were 42 universal and commercial banks, 92 thrift banks, and 765 rural and cooperative banks in 2003. Now, there In order to maintain a healthy banking system, the Bangko are 37 universal and commercial banks, 69 thrift banks, and Sentral ng Pilipinas (BSP or central bank) has decided to 606 rural and cooperative banks as of the end of June 2012. include bank acquisitions in the coverage of incentives Speculation over the possibility of a slow down in bank mergers and consolidations due to Circular No. 771 were disregarded by granted for bank mergers and consolidations. the central bank saying that banks are effectively becoming one by buying a controlling stake. Thus, it maintains the intent of the The Bangko Sentral ng Pilipinas (BSP) Monetary Board policy. Mr. Espenilla explained, “From a supervision standpoint, has approved Circular No. 771 on October 11, which extends we look at a banking group as operating as one even though there the coverage of incentives for bank mergers and consolidations may be two or more legal entities.” Meanwhile, the Chamber of to investors who purchase and acquire a majority of the Thrift Banks has expressed its optimism about this move saying outstanding shares of stock of a bank in all levels. It means that that the ownership of banks will be pushed to expand and that banks and non-bank fi nancial institutions purchasing at least this would be a good incentive for possible “white knights”. 51% of outstanding shares can now ask the central bank for At present, one of the most prominent consolidation programs incentives similar to those provided for mergers or consolidations. is the central bank and the Philippine Deposit Insurance Corp.’s According to the Manual of Regulations for Banks (MORB), P5-billion “Strengthening Program for Rural Banks”, which the incentives that may be granted for acquisitions include: includes additional incentives such as fi nancial assistance for h Staggered booking for 5 years of unbooked valuation reserves; consolidations among large banks and small thrift and rural banks. h Exemption from the required net worth-to-risk asset ratio, and; h Exemption from the 40% foreign ownership limit, for distressed banks.

Banks and non-bank fi nancial institutions purchasing at least 51% of outstanding shares can benefi t from similar incentives provided for mergers and consolidations.

Philippine ANALYST October 2012 56 BUSINESS

E-Trike project to boost EV industry transport sector account for 30% of the country’s pollution and comprise an estimated 80% of air pollution in Metro Manila The rising Electric Vehicle (EV) segment of the country’s according to an Asian Development Bank (ADB) report. Electric Tricycle (E-Trike) program is expected to result in Despite its considerable benefi ts, the implementation of the possible relocation or putting up of subsidiaries of top the E-Trike project is inundated by concerns on the program EV companies in the country, and increased demand for design and loan package. The importation of built-up units, locally made spare parts. Implementation of the project, which will be done during the initial phase of the project, however, is hampered by concerns in the program design is seen to rob the local tricycle industry of the supposed and loan package. benefi ts. The targeted implementation group, which are the local government units (LGUs), has been noted for biased The country’s Electric Tricycle (E-Trike) project is seen to decision-making (the awarding of E-Trike units to favored strengthen the country’s growing electric vehicle (EV) segment. constituents) and corruption (2013, an election year, is the start The Motor Vehicle Parts Manufacturers Association of the of the project implementation). Criticisms on the diversion of Philippines (MVPMAP) stated that top EV players from Taiwan, the project from the main purpose of the Renewable Energy Japan, and Korea have signifi ed their interest to participate during Act of 2008, which is the exploration and investment in the 2nd Philippine Electric Vehicle Summit last May 24 to 25, 2012. solar power and biomass projects, also thwarts the effi cient The Asian Development Bank (ADB) also indicated that there at execution of the project. Given the present energy shortage, the least 5 or 6 foreign companies interested in relocating or putting up power requirement of the E-Trikes also causes apprehension. subsidiaries in the country once the project is fully implemented. The increased demand for power due to the charging of An EV manufacturing plant would require an estimated $8 E-Trikes given the present energy shortage in the country also million worth of investment. The E-Trike project aims to deliver causes apprehension. 100,000 E-Trike units nationwide at $4,000 to $5,000 per unit. The E-Trike Project or “The Market Transformation through Major industry groups have declared their support for the Introduction of Energy Effi cient Electric Tricycle Project” E-Trike project as this will enhance the domestic spare parts is being carried out by the Department of Energy (DOE) in sector. The Motor Vehicle Parts Manufacturers Association of the partnership with the ADB. Currently, the project is in its pilot Philippines MVPMAP president Ferdi Raquelsantos stressed that testing period with 20 units in Mandaluyong city. Bidding the E-trike program will provide a big boost to the local parts- process for the procurement of 20,000 units, scheduled to be making industry as most of their members are currently operating distributed in 2013, has attracted 11 bidders and the pre-qualifi ed below 50% of their rated plant capacity. Mr. Raquelsantos added bidders will be announced by the end of October 2012. Aside that the project will provide incremental income to their members from the production of E-Trike units, the qualifi ed bidders and to some 50,000 employees, who are dependent on the local will carry out after-sale service and warranty. Funding of the parts-making industry. The Electric Vehicle Association of the project, which amounts to approximately $500 million, will Philippines (EVAP) also indicated its support for the project. come from the ADB ($300 million), the Clean Technology Aside from developing the local spare parts segment, the Fund ($105 million), and the government ($99 million). E-Trike Project is expected to help the country address climate The E-Trike project is a brilliant idea that helps address change issues, which can strengthen its path towards sustainable the country’s crucial concerns of today (investments, income, development. For every 20,000 E-Trikes, the country can employment, pollution, etc.) and of the future (sustainable lessen fuel consumption by 100,000 liters per day, which in development). Although it can be subjected to biased decision- turn can also reduce the large amounts of carbon dioxide that making and corruption by the LGUs, there are certain measures that motorized tricycles emit. The country has about 3.5 million can be employed to avoid or detect these, such as strict auditing of operating motorized tricycles nationwide that use $5 billion budget and project completion. This is also where we can test if the worth of imported fuel and release more than 10 million administration’s major platform, which is the “Daang Matuwid” tons of carbon dioxide each year. Carbon emissions from the (the Straight Road), can also apply to the local government level.

An EV manufacturing plant will rake in an estimated $8 million worth of investment.

The country has about 3.5 million operating motorized tricycles nationwide that use $5 billion worth of imported fuel and release more than 10 million tons of carbon dioxide each year.

Philippine ANALYST October 2012 BUSINESS 57

MINING, OIL, & GAS h the creation of a national industrialization plan; h the promotion of local mineral processing plants; h the development of a mineral management plan or framework; House defers passage of mining bill to raise and revenue share h the emphasis on state-led exploration, where mining activities will be reserved for Filipino citizens and Filipino Passage of the mining bill to raise the government’s revenue corporations. share will have to wait until the next Congress. House Speaker With less than 3 months left on the legislative calendar, Feliciano Belmonte Jr. already made a statement that they Congressman Francisco Matugas, also the chairperson of the will need more time to fi nalize the bill. The mining bill also natural resources committee, instructed the committee secretary appears not to be a priority of the current administration. to schedule weekly discussions on the mining bill, separate Speaker Belmonte pointed out that the Aquino government from other bills in the agenda. The committee also decided to has yet to pass its own version of the bill. bring discussions back to the mother committee despite several objections. Chamber of Mines Legal and Policy Vice President Stakeholders have been pressing the government to resolve Ronald Recidoro particularly objected the further reduction in the uncertainties in the regulatory framework and policies term limit to 15 years. He also raised concerns over the creation governing mining activities. Among the urgent concerns is the of Multi-Sectoral Mineral Councils (MSMCs) to regulate the adjustment on the share of government on mining revenues. industry which according to him is a setup that has proven to fail However, the adjustment will have the go through legislation. and only paved the way for illegal small-scale mining activities. According to Speaker Belmonte, the passage of the mining bill Nevertheless, the House Speaker Belmonte is not keen to pass any will not happen in the 15th Congress due to insuffi cient time to mining bill before the midterm elections citing that the Executive discuss and deliberate . Same government offi cials propose to branch has not yet also provided its own version of the bill. increase the excise tax to 10% from the current 2%, and impose 5-7% royalty tax to be given to the indigenous peoples affected by mining operations. The 15th Congress will be in session only until January 2013 to give way to the campaign period for the 2013 New mining investments from Australia on midterm polls in May. The campaign period starts in February. hold due to pending law Released recently is the Executive Order (EO) No. 79, the administration’s new mining directive that intends to provide and In his recent state visit to Australia, President Benigno institutionalize reforms in the industry. However, stakeholders Aquino III met with Australian Prime Minister Julia Gillard argue that the new policy still falls short of giving defi nite direction to discuss the potential of the Philippines as a mining to the industry. Apart from contentions from stakeholders that led investment site. However, Australian mining companies to the several revisions in the Implementing Rules and Regulations have decided to hold off new mining investments in the (IRR), EO 79 upholds the moratorium in issuance of mining Philippines until the passage of the law that will increase permits until the government is able to settle the revenue-sharing the government’s share in revenues. scheme. A new draft bill was recently presented to the House committee on natural resources. The bill similarly seeks to hike According to Palace Communications Secretary Ricky the excise tax to 10%. However, the bill reduces the maximum Carandang, Prime Minister Gillard recognizes the signifi cant mining term to 15 years against the 25-year limit stipulated in contribution of mining to Australia’s economic success, which EO 79. According to Ifugao Rep. Teddy Brawner Baguilat Jr., the Australian companies can also bring into the Philippines for chairman of the technical working group, the House still tried to the responsible development of the mining industry in the country expedite a mining bill to bring it to at least the committee level particularly in Mindanao. Australia has set the best practices in amid the moratorium on mining permits pending the needed environmentally sustainable and socially responsible mining. legislation. The bill, titled Philippine Mineral Resources Act Australian investors have expressed interest in the Philippines of 2012, has covered the urgent economic issues in the mining and are optimistic about the new developments in the policy sector as the revenue-sharing scheme is one of the most debated regime governing the mining sector specifi cally with the recently and urgent issues for stakeholders. However, Rep. Baguilat also released Executive Order (EO) No. 79. The new directive has admitted that the bill has not extensively covered the social and become a signal for investors of the commitment of the Philippine environmental issues hounding the industry. “We would have government to support mining activities. However, many of the wanted more exhaustive discussions including public hearings but Australian companies are still waiting for the new law that will we feel that we have to bring this to the level of the committee,” set the revenue-sharing scheme. Under EO 79, issuance of new he added. There are 4 main provisions on the draft bill presented: mining permits is suspended pending the passage of the law.

Mining bill is unlikely to be passed in the 15th Congress as legislators will already be busy for next year’s elections.

Philippine ANALYST October 2012 58 BUSINESS

Mining investments and projects are delayed due to confl icting policies.

“They want to see some of the rules as they come out fi rst before I.T. UPDATE we see any new signifi cant commitments. They probably want to see the rules as they’re laid out and they’re being laid out now through the steps that we’ve taken,” Sec. Carandang said. IT-BPO industry invests in trainers’ training In the recent forum of the Foreign Correspondents Association of the Philippines, President Aquino was also asked if he was that meets global standards inclined to decide in favor of the Tampakan copper-gold project. Sagittarius Mines. Inc. (SMI), the operator of the project and Business Processing Association of the Philippines (BPAP) in which Australia’s Indophil Resources NL has 37.5% stake, has partnered with the Technical Education and Skills has submitted an appeal to the Offi ce of the President last July Development Authority (TESDA) for a P25.2-million “Train 27 for its request of an Environmental Compliance Certifi cate the Trainers” program that meets global standards. (ECC) after its application was rejected by the Department of Environment and Natural Resources (DENR) due to a standing Launched in early October, the program aims to local ban on open-pit mining. President Aquino responded that produce more than 1,700 trainers who will teach future the government will wait for the Congress to craft a new law batches of potential industry hires. Overall, the program on mine revenue-sharing before acting on the appeal of SMI. has been designed to increase the number of qualified The President also reiterated that the government does not hires for the business process outsourcing industry (BPO). want to rush decisions to ensure that whatever will be imposed “TM Plus will help ensure that we have a pool of highly will be defi nite and need not be changed or revised afterwards. competent IT-BPO trainers. Those who have completed The prevailing wait and see mode in the country’s mining the training will be responsible for training the next industry has been the concern of many stakeholders. While batch of trainers. And through this, we hope to achieve a the government says that recent mining directive gives the multiplier effect that will increase IT-BPO-oriented training clarity on policies that investors are asking, the EO appears to opportunities,” TESDA Director General Joel Villanueva said. be insuffi cient to allow for existing projects to push through Under the Train the Trainers program, 900 vouchers (worth P18 and for more investments to come in. House speaker Feliciano million) will be made available for the Trainers Methodology Belmonte Jr. already said that the new mining law will have (TM) Plus course. The course is the fi rst trainers’ training to wait until the next Congress as the legislators need more program for IT-BPO offered by TESDA. It was jointly time to deliberate on the bill. The Speaker also reiterated developed with BPAP, and funded by the government’s Training that if the current administration wants the mining bill to for Work Scholarship Program (TWSP). In addition, 804 be passed during the 15th Congress, the Executive branch vouches (worth 7.2 million) will be made available for the should have already presented its own version. However, the TM 1 course, which is a fi rst generation version of TM Plus. government’s position for now is to allow EO 79 to address the TM Plus includes an IT-BPO orientation and lessons on the issues of the sector but the moratorium on new permits stays. following: use of electronic media in trainings; electronic learning applications; blended learning techniques; classroom management; conducting competency assessments; supervising work-based learning; and application of skills and knowledge through an internship. After the course, the trainees are assessed via tools developed by the Philippine Society for Training and Development (PSTD) as well as TESDA’s TM 1 National Assessment. Corresponding certifi cates will then be issued upon qualifi cation.

Philippine ANALYST October 2012 BUSINESS 59

“Being a world-class IT-BPO employee entails more than The fund infusion will be utilized in the development having effective communication skills. It’s also about the of infrastructure and facilities needed for implementing right attitude and possessing a high level of competency,” the initiative, as well as the improvement of identified said BPAP President and CEO Benedict Hernandez. “This academic programs. The fund will also cover industry- is why we need standardized training programs. There are responsive training for students, teaching and non-teaching a lot of opportunities but the growth of the industry will personnel, and support for priority research projects. only continue if we have the number of qualifi ed talent The 2 funding programs are aimed to alleviate the longstanding we require to reach our development goals,” he added. shortage of qualifi ed labor for the IT-BPO industry. Projected Scholarship vouchers from the program will be available total employment in the industry for 2012 is 772,000; it through selected technical vocational institutions (TVIs) in is 926,000 for 2013. The industry is working towards its Luzon, Visayas, and Mindanao. The University of Makati, 2016 roadmap goal of 1.3 million in direct employment. the principal partner TVI in the National Capital Region, has In terms of revenues, the projected fi gure is $13.4 billion for received 600 scholarship vouchers for the TM Plus course. 2012 and $16 billion for 2013. The 2016 goal is to reach $25 billion. Meanwhile, the Commission on Higher Education (CHED) “The Philippine IT-BPO industry is making good progress has been given a similar marching order. In early October, it signed towards achieving the stretch goals of Road Map 2016,” a joint circular with the Department of Budget and Management BPAP chairman Alfredo Ayala said. “We aim to become the (DBM) regarding a P500-million infusion to update the academic world’s number 1 destination not just for call centers but programs of state colleges and universities (SUCs) that are in line other select non-voice segments of IT-BPO, generate a total with the government’s priority growth areas. The priority growth of 4.5 million direct and indirect jobs, and achieve cumulative areas include the IT-BPO industry, which got the highest allocation. revenues of US$96 billion for 2012-2016,” he added. “To better support the Administration’s goal of creating more jobs for our graduates and strengthening the economy, we have to produce competent graduates with highly specialized skills, particularly those that are well-suited to the needs of emerging and highly promising industries,” DBM Secretary Florencio Abad said.

Philippine ANALYST October 2012 60 BUSINESS

APPROVED PROJECTS BY PEZA ( SECOND QUARTER 2012)

INDUSTRY ACTIVITY PROJECT COST EQUITY (IN PHP MILLION) LOCAL/FOREIGN AUTOMOTIVE TRADE YAZAKI-TORRES MANUFACTURING INC. Automotive wiring harness assembly for car models: Infi niti, P415, Caravan 545 60% - Filipino and Pathfi nder 40% - Japanese YAZAKI-TORRES PARTS MANUFACTURING INC. Automotive wiring harness assembly for car models: Toyota: Corrolla, Noah, 621 99.99% - Japanese Alphard; Chrysler LX/LC/LD and Mitsubishi B9e ELECTRONICS TOSHIBA INFORMATION EQUIPMENT Manufacture of New Advanced Technology 2.5-inch Hard Disk Drives, related 3,656 99.99% - Japanese (PHILIPPINES), INC. component parts and accessories ROHM ELECTRONICS PHILIPPINES, INC. Increase in the Production Capacity of its Transistor Project 662 77% - Japanese 23% - Singaporean ROHM ELECTRONICS PHILIPPINES, INC. Increase in the Production Capacity of its Micro Chip Resistor Project 316 77% - Japanese 23% - Singaporean OPTIS SNI MANUFACTURING PHILIPPINES, Manufacture of Auto Focusing Actuator, Zoom Actuator, Combined Module and 393 99.99% - Korean INC. Other Electronic Parts and Components STMICROELECTRONICS, INC. Manufacture and assembly of micromodule 194 99.99% - Swiss LEADER ELECTRONICS Manufacture of transformer as component of Uninterruptible Power Supply 89 100% - Taiwanese (Philippine Branch) INC. (UPS) NEW KINPO GROUP TECHNOLOGY Manufacture of electronic products, main products are computer, peripheral 338 99.99% - Thai (PHILIPPINES) INC. and telecommunication products NIKKOSHI ELECTRONICS PHILIPPINES, INC. MRS Chip (Magnetoresistive Sensor Chip) Production 20 99.99% - Japanese MAXIM PHILIPPINES OPERATING Final testing of semiconductor circuits and local purchase cost 3,254 99.99% - American CORPORATION TAIYO YUDEN (PHILS) INC. Manufacture of multilayer common mode fi lter known as LRS product line 300 99.99% - Japanese FIRST SUMIDEN CIRCUITS, INC. Manufacture of Double Sided Flexible Printed Circuits 584 100% - Japanese ON SEMICONDUCTOR PHILIPPINES, INC. Test Capacity Expansion for VR12/IMPV7 Devices Project 42 99.99% - American LAGUNA AUTO-PARTS Increase in the Production Capacity of its Giant Magneto Resistance Sensor 196 100% - Japanese MANUFACTURING CORPORATION Project YUMEX PHILIPPINES CORPORATION Manufacture of NAST 12 5 100% - Japanese ICHINOMIYA ELECTRONICS PHILIPPINES CORP. Assembly of Cooling Fan Motor Parts 58 100% - Japanese IONICS EMS, INC. Production of XR3 Universal VSAT Transceiver (under R&D Guideline) 32 98% - Filipino 2% - Others IONICS EMS, INC. Production of Smart Player (under R&D Guideline) 7 98% - Filipino 2% - Others PROMISE ARTOS TECH INC. Repair and refurbishment of cellular phones 0 99.99% - Korean PSI TECHNOLOGIES, INC. Merger of operations of PSI TECHNOLOGIES, INC. (PSI) and PSI TECHNOLOGIES 0 56% - Filipino LAGUNA, INC. (PSITLI) 44% - American CHROMEDIA FAR EAST INC. Website and smartphone applications development 10 99.98% - American THOREALIS VISIONEERING LABS INC. Provide 3D visioneering and simulation programming services 4 96% - Norwegian 4% - Filipino FURNITURE AND FIXTURES SWISS SENSE WORLDWIDE, INC. Production and manufacture of wrought iron, wood and/or fully-upholstered 68 99.99% - Filipino furniture and accessories or parts (all equipment, materials, supplies) used or employed in or related to the manufacture of furniture GLASS PRODUCTS JPN, INC. (JAPAN PHILIPPINE NAMEPLATES, Glass Printing 46 100% - Japanese INC.) IT AND IT-ENABLED SERVICES BETTING TECHNOLOGIES INC. Engage in software development and application, knowledge-based and 52 99.92% - Swedish computer enabled services, IT research and development and other IT related services A.T. PRIME SOLUTION CORP. Software development 3 66% - Japanese 34% - Filipino PROMETSOURCE CORPORATION Engage in software programming, design, website management, and 1 99.88% - American developing software applicationsi WINAS TECHNOLOGIES INTERNATIONAL Engage in the business of planning, designing, consultation and development 1 78% - Japanese PHILIPPINES, INC. of computer software including web, mobile and desktop application 22% - Filipino ERNI DEVELOPMENT CENTER PHILIPPINES Software development, testing and maintenance including all the related tasks 7 99.99% - Swiss INC. like documentation and support HITACHI, LTD. PHILIPPINE BRANCH Provide computer-aided design, engineering services and energy development 0 100% - Japanese plans

Philippine ANALYST October 2012 BUSINESS 61

KYOMA TECH PLANT CORPORATION Computer enabled support services including engineering of mechanical and 5 68% - Filipino piping works for industrial plants project 32% - Japanese MACHINERY AND EQUIPMENT LINTEC PHILIPPINES (PEZA), INC. Industrial machines mostly used in Printing Industry, its parts and materials, 15 99.99% -Singaporean either for printing, die-cutting, laminating, sheeting, rewinding, etc. METAL INDUSTRIES GLOBAL ENGINERY TECHNICIANS INC. Manufacture of metal and stone storage items and/or 3 99.90% - Japanese combination of metal and stone and other similar activities SANNO PHILIPPINES MANUFACTURING CORP. Tin-Silver (SnAg) Plating Line 14 99.99% - Japanese READORE TECHNOLOGY Manufacture and assembly of heat sinks and buss bars 18 99.99% - British PHILS. CORPORATION Virgin Islander KEDICA PHILIPPINES CORPORATION Semi Bright Tin Plating for EC, TO, and D-package 6 99.99% - Japanese OGINO PHILIPPINES CORPORATION Manufacture of stator shaft, orifi ce and key 60 100% - Japanese HAMMON PLATING TECHNOLOGY, INC. Plating and coating services 24 99.99% - American MISCELLANEOUS MANUFACTURES PHILIPPINE TECHNOLOGIES HOTLINE INC. Manufacture of push carts, carton boxes, conveyor and jigs 3 99.98% - Korean SUPERL ANGELES, INC. Manufacture of Handbags/Ladies' Bags 52 97% - British 3% - Chinese FRAVINZ ENTERPRISES, INC. Manufacture of Dunnage 12 100% - Filipino MKP INC. Manufacture of customized boxes, arts and crafts, accessories and industrial 3 99.99% - Japanese customized packaging SHOWCASE AIRPLANE CO., INC. Manufacture of Model Planes and Ships 0 100% - Filipino SUNPOWER PHILIPPINES MANUFACTURING Manufacture of Gen C (C60 Solar Cell) Mono Crystalline Solar Cell for lines 1 204 100% - Caymanian LTD. to 3 PILIPINAS KAO, INC. Increase in the Production Capacity of High Purity Fatty Alcohol (HPFA) Project 1,676 99.99% - Japanese OFFSHORING AND OUTSOURCING AIMING GLOBAL SERVICES, INC. Business process outsourcing (software development localization service, IT 13 99.97% - Japanese infrastructure building and maintaining service, and customer support s ervice) GK COMMUNICATIONS, INC. On-line English as a Second Language (ESL) courses, tutorial and training 1 99.99% - Japanese center, and call center activities PHILIPPINE ISHIHARA CAD SERVICE INC. Engage in translating of engineering design using CAD 1 99.99% - Japanese INNODATA KNOWLEDGE SERVICES, INC. Take-over of operations of Content Online Services Inc. (COSI) site in 0 99.99% - Bermudian Gernarine I.T. Center, Alternate Road, Legaspi City, Albay. IP CONVERGE DATA SERVICES, INC. IT Data center services and systems provider 0 99.99% - Filipino MDCSOLUTIONS, INC. Information technology-based business process outsourcing services and 10 100% - Filipino activities DSiGLOBAL, INC. Information technology-based business process outsourcing services and 15 100% - Filipino activities WEST CONTACT SERVICES INC. Call center operations 73 99.97% - American HCCA HEALTH CONNECTIONS INC. Business process outsourcing, and call center operations 94 99.98% - American RMH TELESERVICES ASIA PACIFIC, INC. Call center operations 0 100% - American GLOBAL BRAINFORCE INC. Engage in the delivery of IT support services in the implementation of 1 73% - Dutch recruitment and training of specialist, sales service and service delivery 27% - Filipino EXPERTISE BPO SERVICES MANILA, INC. Provide outsourced payroll, accounting and fi nancial services 12 99.99% - Bermudian TRANSCOM WORLDWIDE (PHILIPPINES), INC. Business process outsourcing services and other similar information 164 99.99% - Canadian technology enabled services IPRAXIS FINANCIAL SERVICES, INC. Business process outsourcing 1 60% - Australian 40% - Filipino ASIAN GLOBAL CREATION PHILS. INC. Call center operations 8 99.99% - Japanese MICROSOURCING PHILIPPINES, INC. Provision of IT support, recruitment, HR and payroll services 6 99.99% - Hong Kong KAMBI PHILIPPINES INC. Perform back offi ce operations and IT development, such as, software 39 99.95% - Maltese development, systems maintenance and operation, content development COLLECTION HOUSE INTERNATIONAL BPO, Voice and non-voice business process outsourcing activities, and services 34 99.92% - Australian INC. relating to backroom, monitoring, document and accounts support services, 00.08% - Filipino business and knowledge processing, data entry and data transcription ADVANCED CREDIT MANAGEMENT Call center operations, both inbound and outbound to Australian affi liate 26 100% - Australian (PHILIPPINES) PTY LIMITED companies on accounts requiring collection activity ALTA RESOURCES (PHILIPPINES) Business process outsourcing 63 99.97% - American CORPORATION INGRAM MICRO PHILPPINES BPO, LLC. Business process outsourcing and call center operation 113 100% - American QUEST RIGHTSHORING SERVICES PTE. LTD. - Business process outsourcing/ call center operations 2 100% - Singaporean PHILIPPINE BRANCH OFFICE

Philippine ANALYST October 2012 62 BUSINESS

INFINITEPOINTS PHILIPPINES INC. Business process outsourcing, web/website maintenance, web designing 1 100% - Japanese iOPEX TECHNOLOGIES PHILIPPINES, INC. Call center operations/business outsourcing providing IT-enabled services 37 99.99% - Filipino SPI CRM INC. Call center operations 74 99.99% - Filipino WEST CONTACT SERVICES INC. Call center operations 86 99.97% - American REMOTE STAFF, INC. Business process outsourcing and E-commerce business 18 99.99% - Australian ASHFORD WELLS GLOBAL LTD INC. Call center operations 14 100% - Filipino SEVEN SEVEN GLOBAL SERVICES, INC. Business process outsourcing and software development 37 98% - Filipino 2% - American OTHER BUSINESS SERVICES BISYOU INDUSTRY CEBU, INC. Painting of ships built by Tsuneishi Heavy Industries (Cebu), Inc. 4 99.99% - Japanese NAKANISHI PAINT CEBU, INC. Painting of ships built by Tsuneishi Heavy Industries (Cebu), Inc. 4 99.99% - Japanese MkFF LASERTEKNIQUE INTERNATIONAL INC. De-contamination and ESD testing of critical environment and industrial 20 56% - Singaporean supplies 44% - Filipino STANDARD AND POOR'S PHILIPPINES INC. Transcription of fi nancial data into voice readable data and to translate 98 99.98% - American fi nancial data information from native langauage to English; and development, origination, collation, creation and validation of data, research, and analysis of commodities, and market indices PLASTIC PRODUCTS SPI SEMICON ASIA, INC. Manufacture of custom plastic products: corner piece , tubs, and smoke 25 99.99% - American chambers OAK PRECISION PLASTICS INDUSTRIES, INC. Plastic vacuumed forming and paper and/or woody crate packaging 23 100% - Japanese SEUNG YEUN TECHNOLOGY INDUSTRIES Production of Plastic Injected Molded Parts 10 99.98% - Korean CORPORATION EREACH PHILIPPINES INC. Manufacture and export of plastic trays 20 99% - Chinese 1% - Filipino BEST CHEMICAL & PLASTICS, INC. Merger of Operations with Bestchem, Inc. (BI) with BCPI as the Surviving 0 100% - Korean Company FRAVINZ ENTERPRISES, INC. Plastic injection moulded parts 4 100% - Filipino PHILKOSTAT INC. Manufacture of vacuum forming trays 10 100% - Korean PLANEX T&M, INC. Manufacture/Production of various molds and molded products 48 99.92% - Japanese SANYO PLASTIC PHILIPPINES, INC. Fabrication of metal parts 5 100% - Japanese SUMMIT STRAPPING CORPORATION Manufacturing and Printing of Strapping Materials 21 99.99% - Japanese REAL ESTATE AND PROPERTY DEVELOPMENT NYK-TRANSNATIONAL PROPERTIES NETI Training Center 184 60% - Filipino CORPORATION 40% - Japanese JOMEE REAL ESTATE COMPANY, INC. Newly acquired building with a gross fl oor area located at Block 7, First Cavite 21 100% - Filipino Industrial Estate-Special Economic Zone (FCIE-SEZ) in Dasmariñas, Cavite JUST REALTY INCORPORATED Golden Gate Business Park-Cavite Export Processing Zone 77 100% - Filipino IWS LAND DEVELOPMENT CORPORATION Construction and operation of a factory building located at Block 2, Filinvest 5 100% - Filipino Technology Park-Calamba-Special Economic Zone in Calamba City, Laguna MAPC LAND & PROPERTIES, INC. Construction and operation of a factory building located at Filinvest 5 100% - Filipino Technology Park-Calamba-Special Economic Zone in Calamba City, Laguna UNISTAR LAND AND PROPERTY CORPORATION Unistar Agro-Industrial Ecozone- Agro-Industrial Ecozone 426 60% - Filipino 40% - American SM DEVELOPMENT CORPORATION Jazz IT Center- IT Center 1,145 97.94% - Filipino 2.06% - Mixed HOME-INVEST REALTY VENTURES, INC. Hi Response IT Center- IT Center 55 100% - Filipino AMPLEFIELD LAND PHILIPPINES, INC. Construction and operation of a 16 units factory buildings located at Lima 700 60% - Filipino Technology Center-Special Economic Zone (LTC-SEZ), Lipa City and Malvar, 40% - Singaporean Batangas CITYLAND DEVELOPMENT CORPORATION City Net 1- IT Center 374 95% - Filipino SKYRISE REALTY & DEVELOPMENT Skyrise 5- Economic Zone IT Facilities Enterprise 189 99% - Filipino CORPORATION 1% - Chinese HIJO RESOURCES CORPORATION Hijo-Special Economic Zone (Hijo-SEZ) 2,700 90% - Filipino 10% - Japanese CCMC LAND, INC. Additional project as an Economic Zone Facilities Enterprise, at the Light 88 100% - Filipino Industry and Science Park I-Special Economic Zone (LISP I-SEZ) ROXACO LAND CORPORATION Anya Resort and Residences- Tourism Ecozone 318 99.99% - Filipino RUBBER PRODUCTS SHOWA ADVANCE MANUFACTURING Manufacture of rubber parts for electric appliances 13 99.99% - Japanese CORPORATION OHTSUKA POLY-TECH (PHILIPPINES), INC. Manufacturer of rubber parts for cars and motorcycles 11 99.99% - Japanese OUROKU CORPORATION Manufacture of blocks made of rubber with ducts inserted in them 21 99.99% - Japanese

Philippine ANALYST October 2012 BUSINESS 63

LUSTER RUBBER MFG. CORP. Increase in production capacity for rubber and plastic/PVC spare parts and 12 99.99% - Japanese components; rubber mixing STORAGE AND WAREHOUSING CCMC LAND, INC. 4 units warehouse buildings with a gross fl oor area of 9,258.37 square meters 133 100% - Filipino which will be constructed on lots 4 and 5 with an aggregate area of 10,040 square meters located in Block 2, Phase 7, Laguna Technopark-Special Economic Zone (LT-SEZ), Biñan, Laguna CCMC LAND, INC. An existing 2,450-square meter warehouse building located on a 5,525 square 33 100% - Filipino meter lot identifi ed as Lot 8 located in Block 1, Cavite Economic Zone (CEZ), Rosario, Cavite and a proposed 2,000-square meter warehouse building to be constructed in the same lot AGC REALTY & DEVELOPMENT CORPORATION Additional warehouse facility located at Block 1, Filinvest Technology Park- 16 100% - Filipino Calamba-Special Economic Zone PANORAMA PROPERTY VENTURES, INC. 4 units warehouse buildings located in Block 3, Laguna Technopark Annex- 278 100% - Filipino Special Economic Zone (LTA-SEZ), Biñan, Laguna PANORAMA PROPERTY VENTURES, INC. 2 units warehouse buildings located in Block 2, Phase 2, Calamba Premiere 137 100% - Filipino International Park-Special Economic Zone (CPIP-SEZ), Calamba City, Laguna CENTEREACH RESOURCES, INC. Operate and maintain 25 existing ready-built warehouse buildingslocated 1,018 100% - Filipino at Carmelray Industrial Park II – Special Economic Zone (CIP II-SEZ), in Calamba City, Laguna FPIP PROPERTY DEVELOPERS AND Operate and maintain an existing warehouse building located at Block 14, 100 100% - Filipino MANAGEMENT CORPORATION First Philippine Industrial Park – Special Economic Zone (FPIP-SEZ), Barangay Sta. Anastacia, Sto. Tomas, Batangas EAST GLOBAL REALTY & DEV'T CORP. Operate and maintain 2 existing warehouse-type buildings and to construct 475 60% - Filipino an additional 4 units warehouse-type buildings located at Blocks 1 & 3, 40% - Korean Gateway Business Park – Special Economic Zone (GBP-SEZ), Gen. Trias, Cavite ILO LAND, INC. Construction and operation of 14 warehouse type buildings inside Greenfi eld 400 100% - Filipino Automotive Park-Special Economic Zone, Don Jose, Sta. Rosa City, Laguna EMORI PHILIPPINES INC. Engage in procurement and logistics services for the special chemicals for 20 100% - Singaporean semi-conductor industry by using EMORI group world wide trading network TEAM PACIFIC CORPORATION Warehousing of TPC’s manufactured fi nished goods for shipment to TPC 0.2 99.99% - British customers and importation and safekeeping of consigned materials. Virgin Islands TOTAL 23,785

Philippine ANALYST October 2012 64 BUSINESS

FOREIGN DIRECT INVESTMENT BUSINESS CLIMATE INDEX Balance of Payments Concept; JAN-JULY 2012 LEVEL (US$ million) YEAR-ON-YEAR SOURCE % CHANGE CURRENT YEAR AGO

TOTAL FDI 1025* 568 80.46

of which: equity capital 1101 -2 55150

reivested earnings 85 189 -55.03

* includes outﬂ ow of $161 Mn as other capital account.

INDUSTRIAL PERFORMANCE Data Year-on-year Year-to-date AUGUST 2012 (2000=100) (index) growth growth Volume of Production Index (VoPI) 99.8 3.5 4.9 FDI:BOP CONCEPT a. Food 126.2 16.5 11.1 US$ million b. Beverage 92.6 -2.1 1.0 c. Tobacco 5.6 -34.1 -26.5 d. Textile 45.8 14.2 3.3 e. Footwear and Wearing Apparel 37.1 75.0 75.5 f. Wood and Wood Products 65.5 30.5 25.2 g. Furniture & Fixtures 297.3 43.8 66.5 h. Basic Metals 86.6 -13.1 -20.1 i. Iron and Steel 64.8 -7.2 18.9 j. Non-ferrous Metals 142.7 -16.6 -51.8 k. Fabricated Metal Products 270.3 12.7 -0.1 l. Machinery Excluding Electrical 25.8 8.9 7.4 m. Electrical Machinery 95.1 8.8 9.6 MOTOR VEHICLE SALES n. Transport Equipment 165.6 38.1 34.9 September 2012 Year-Ago Growth rate Data o. Other Mfg Industries 169.4 -30.7 -12.5 level (%) p. Paper & Paper Products 77.4 -19.9 -7.9 Motor Vehicle Sales 12,858 12,555 2.4 q. Publishing & Printing 44.0 18.0 2.7 Passenger Car Sales 3,830 4,195 -8.7 r. Leather Products 2.3 -11.5 33.8 Commercial Vehicle Sales 9,028 8,360 8.0 s. Rubber Products 213.5 -10.9 8.8 t. Chemical Products 124.6 -0.6 -0.4 u. Petroleum Products 51.2 -19.9 -14.1 UNIVERSAL AND COMMERCIAL BANK’S v. Non-Metallic Mineral Products 128.6 -10.8 3.9 LOANS OUTSTANDING TO THE REAL ESTATE SECTOR (P Bn) w. Glass & Glass Products 139.8 10.8 11.3 % to Total % to Total x. Cement 144.7 -7.2 4.8 Mar.-12 RE loan Mar.-11 RE loan y. Misc. Non-Metalic Mineral 96.5 -26.7 -3.0 Residential 132.01 33 96.88 30.4 Products Commercial 267.89 67 221.96 69.6 VALUE OF PRODUCTION INDEX (VAPI) 162.5 3.0 5.7 AVERAGE CAPACITY UTILIZATION 83.2 -17.0 83.4

Philippine ANALYST October 2012 BUSINESS 65

BUSINESS CLIMATE INDEX 1 STRIKE IN JULY 2012 LABOR STRIKES Man-days Strikes declared Workers involved One strike was recorded in July 2012 involving 20 workers. The case was lost (000) disposed but total man-days lost amounted to 160. Compared to the period 2012 2011 2012 2011 2012 2011 from January to July 2011, there was only 1 strike recorded involving 128 workers and lost 128 man-days. JAN 0 1 - 128 - 128 FEB ------VISITOR ARRIVALS GROWTH AT 9.79% IN JAN- AUG 2012 MAR ------Total visitor arrivals for the period of January to August 2012 grew by 9.79% APR ------to 2,860,848. Of this total, 4.63% are overseas Filipinos. Korea remained MAY ------the largest source market followed by the US and Japan. Arrivals from Korea posted a 10.39% growth. US visitor arrivals grew by 4%, while visitor JUN ------arrivals from Japan accelerated to a 9.66% growth. JUL 1.00 - 20 - 160 - AUG ------SEP - 1.00 - 3,700 - 3,700 OCT ------NOV ------STRIKES DECLARED DEC ------TOTAL 1 2 20 3,828 160 3,828

TOURISM ARRIVALS

MAN-DAYS LOST

VISITOR ARRIVALS SURVEY ON THE MONTHLY OCCUPANCY RATES & LENGTH OF STAY JANUARY - AUGUST 2012

Country 2012 2011 % Change Rank 2012 2011 2012 / 2011

KOREA 679,123 615,218 10.39 1 JAN-MAY JAN-MAY GROWTH RATE USA 446,684 429,280 4.05 2 De Luxe Hotels JAPAN 278,017 253,529 9.66 3 Occupancy Rates 74.42 73.69 0.99 CHINA 179,879 151,042 19.09 4 Length of Stay 3.02 3.03 -0.33 TAIWAN 155,675 120,572 29.11 5 First Class Hotels AUSTRALIA 118,050 106,091 11.27 6 Occupancy Rates 61.51 62.55 -1.66 CANADA 81,093 76,612 5.85 7 Length of Stay 2.34 2.36 -0.85 SINGAPORE 95,913 89,220 7.50 8 Standard Hotels HONGKONG 77,506 75,861 2.17 9 Occupancy Rates 65.78 68.18 -3.52 UNITED KINGDOM 74,696 69,295 7.79 10 Length of Stay 2.37 2.39 -0.84 MALAYSIA 70,586 60,161 17.33 11 Economy Hotels GERMANY 44,534 40,250 10.64 12 Occupancy Rates 60.97 59.64 2.23 OVERSEAS FILIPINO 148,916 142,322 4.63 Length of Stay 2.07 1.94 6.70 OTHERS 408,164 374,222 9.07 TOTAL 2,860,848 2,605,686 9.79 Philippine ANALYST October 2012 66 CORPORATE BRIEFS

ELECTRICITY, WATER AND GAS

Manila Water inks share purchase agreement to acquire PT PAM Lyonnaise Jaya Manila Water Company Inc. (MWC) has signed a share purchase agreement with Suez Environment to acquire 51% equity in its local unit PT PAM Lyonnaise Jaya (Palyja). Palyja provides more than 700 million liters per day and has established 5,300 kilometers of pipe network in Western Jakarta. In order to seal the purchase agreement, MWC needs to undertake certain government and regulatory approvals from the Indonesian government and satisfy other precedent conditions. Since 1997, Palyja has been operating the water supply concession contract of Western Jakarta, which is incorporated in a 25-year deal with the government- owned PAM Jaya. MWC also acquired shares in 2 water providers located in Vietnam - Kenh Dong Water Supply Joint Stock Co. (47.35%) and Thu Duc Water BOO (49%).

EDC seals preliminary exploration agreement with Alterra Power Corp. The Energy Development Corporation (EDC), the country’s largest producer of geothermal power, has signed a preliminary exploration agreement with Alterra Power Corp., a Canada-based energy company. According to the agreement, EDC will conduct an exclusive exploration and due diligence at Alterra’s geothermal concessions in Chile and 5 geothermal projects in Peru. After determining the projects’ commercial viability, EDC expects to invest and acquire a 70% stake in the joint venture. EDC recently signed an agreement with Hot Rock Ltd. of Australia to explore its geothermal projects, which are also located in Chile and Peru.

Global Green Power partners with First Northeast to build 2 biomass plants Global Green Power Plc, (GGPC) of the United Kingdom has partnered with First Northeast Electric Power Engineering Co. (FNEPC) of China to build 2 biomass plants in the Visayas region. FNEPC will be in charge of the engineering, procurement, and construction of biomass plants in an 8-hectare site in Mina, Iloilo. The total project cost of the biomass project amounts to P4.7 billion, of which P2.1 billion is allotted for the ﬁ rst plant while P2.6 billion is earmarked for the second. Initial works, which include land preparation, civil engineering, and detailed engineering design, are scheduled in November and December 2012. Operation of the ﬁ rst biomass plant is expected to start in the 1st quarter of 2015. The biomass plants will use agricultural and food processing wastes like rice straw, sugar cane wastes, and rice husks.

Petron gains SEC approval to generate power Petron Corp. has secured the approval of the Securities and Exchange Commission (SEC) in the amendment of its primary purpose to include generation and sale of electricity. The Certifi cate of Filing of Amended Articles of Incorporation of Petron was issued on September 20. Petron’s plan is to build a 70-megawatt power plant costing around P10 billion that will provide electricity to meet the demand of its Bataan refi nery. The plant will allot 50MW to the refi nery and sell the remainder to the Luzon grid. However, Petron said that this should not be interpreted as expanding into power generation. By generating its own power, Pe- tron is expected to save at least P1 billion in electricity bills per year. Meanwhile, its Bataan refi nery is undergoing a P1.8-billion expansion, which is expected to increase its output of petroleum fuel and petrochemicals by 2015.

Vivant invests P1Bn for phase 1 of hydropower project Vivant Corporation, through its power subsidiary Vivant-Malogo Hydropower, Inc., has lined up P1 billion for the construction of the 1st out of 3 hydropower plants under the Malogo project to be put up in Negros Occidental. The construction of the initial phase is expected to be commissioned in the 4th quarter of 2012. The 1st plant will generate 6 megawatts and operate in 2015. The project is said to create 400 job opportunities during the construction phase and save approximately 60,000 barrels of imported oil costing $6 million annually. Vivant is currently focused on energy distribution but is eyeing expansion to power generation by acquiring projects to add to its portfolio. It currently co-owns Visayan Electric Company, which is the 2nd largest utility company in the country. It also has a stake in Amlan Hydro Power, Inc., which operates a hydropower plant in Negros Oriental.

ELECTRONICS

Murata opens P3Bn ceramic capacitor plant in PH Japanese ﬁ rm Murata Manufacturing Co. Ltd. (Murata) has completed its 1st P3-billion factory for manufacturing monolithic multi-layer ceramic capacitors (MLCC) in the country. Its local unit, the Philippines Manufacturing Co. of Murata Inc., will start operations of the plant in January 2013. The facility occupying 3.6 hectares of land is just 1 out of the 4 planned factories to be constructed in the Philippines. Compared to Murata’s other Southeast Asian plants (in Thailand, Malaysia, and Singapore), the Philippines is eyed to be its largest production hub in the region covering a total of 22.7 hectares of land in Tanauan City, Batangas. Murata said that the expansion was driven by the country’s stable and abundant workforce. Furthermore, there is an expected rise in demand for MLCCs as advanced functions in electronic equipment rise and its number of applications in smartphones and tablets rises. Murata currently has the largest MLCC share worldwide with 78 operating plants.

Philippine ANALYST October 2012 CORPORATE BRIEFS 67

FINANCIAL INTERMEDIATION

IC calls for liquidation of Prudentialife Plans The Insurance Commission (IC) has called for the liquidation of Prudentialife Plans (PPI) after rehabilitation proposals did not meet government standards. The rehabilitation proposals were not accepted as these were unable to aid PPI to continue its operation and restructure its trust funds. The rehabilitation proposals were submitted by Loyola Plans Consolidated Inc., Manila Bankers Life Insurance Corp., Phil Plans First Inc., and Abundance Providers & Entrepreneur Corp. (APEC). The PPI has been under rehabilitation for 3 years.

Pfi zer is set to buy NextWave Pharma Pfi zer is set to buy NextWave Pharma for more than $700 million. A $20 million option payment was made by Pfi zer to initially absorb NextWave. An additional payment of $255 million and another $425 million based on sales milestones will be undertaken by Pfi zer to complete the acquisition. The U.S. Food and Drug Administration recently approved NextWave’s Quillivant XR, a drug intended for people diagnosed with attention-defi cit/hyperactivity (ADHD) disorder. The Quillivant XR, which must be taken once a day, will be available in pharmacies by January 2013. Pfi zer expects the acquisition to be fi nished before the end of the year.

GT Capital increases stake in Toyota PH GT Capital Holdings Inc., a publicly listed holding ﬁ rm controlled by the family of businessman Mr. George S.K. Ty, has acquired the 30% stake (valued at P9 billion) in Toyota Motor Philippines (TMP) that was held by Metropolitan Bank & Trust Co., another Ty family-controlled ﬁ rm. The acquisition of the equity increases GT Capital’s ownership in TMP to 51%, higher than the share of Toyota Motor Corp. at 34%. This transaction falls under GT Capital’s long-term strategy to increase holdings in core businesses. In line with this strategy, GT Capital also increased its stake in Global Business Power Corp. to 51% in September as it proves to be one of GT Capital’s core businesses. Global Business Power had provided for the 188% (P10 billion) increase in GT Capital’s revenue, which resulted to a 51% (P2.6 billion) increase in its net core income recorded during the 1st half of 2012.

Ayala acquires part of DBS’ stake in BPI Ayala Corporation has acquired an additional 10.4% stake in Bank of the Philippines Islands (BPI) that was held by Singapore- based DBS Bank Ltd. (DBS) for P25.6 billion. The agreement between Ayala and DBS involved 309.28 million BPI common shares equivalent to 8.7% of BPI, and 15 million class B common shares in Ayala DBS Holdings, Inc. equivalent to 1.7% indirect ownership of BPI. Thus, Ayala’s effective ownership in BPI rises to 44% from 33.6% while DBS retains a 9.9% effective ownership. Ayala said that this transaction reﬂ ects its conﬁ dence in the growth trajectory of BPI over the medium term. For DBS’s part, on the other hand, the partial divestment is in line with its “disciplined capital management and strong capital position” in preparation for the introduction of Basel III in Singapore next year.

FOOD AND BEVERAGE MANUFACTURERS

RFM Corp. inks P850Mn asset sale deal with Century Canning RFM Corporation has signed an P850-million asset sale deal with Pacifi c Meat Co. Inc., the meat subsidiary of Century Canning group. The asset sale deal comprises the Swift brand and specifi c processed meat equipment, current raw materials, and its fi nished product inventories. Century group considers the deal as a very timely undertaking since its Laguna manufacturing facility holds excess capacity of up to 500 million metric tons of hotdogs per month. Argentina, which corners more than 40% of the corned beef segment, is one of Century Group’s premium products.

MINING AND QUARRYING

DMCI mining raises stake in Berong Nickel DMCI Mining Corporation, a mining unit of DMCI Holdings, Inc., has been increasing its stake in Berong Nickel Corporation, which operates the nickel project in Palawan. For this reason, the company has signed a Memorandum of Understanding with Toledo Mining Corp. PLC (TMC) on October 19 for acquiring TMC’s 31% stake in Nickeline Resources Holdings, Inc. (Nickeline), which directly owns 60% of Berong Nickel. The cost for acquisition amounts to $6.55 million. Other direct shareholders of Berong Nickel include TMC, Atlas Consolidated Mining and Development Corp., and European Nickel PLC (ENK). On October 24, DMCI has acquired 17% of TMC. Meanwhile, DMCI together with D&A Income Ltd. (United Kingdom) has offered to acquire ENK’s direct shares in Berong Nickel for GBP 31 million (P2 billion). ENK is expected to give its decision not later than November 19.

Philippine ANALYST October 2012 68 CORPORATE BRIEFS

Nickel Asia registered 16% growth in shipments Nickel Asia Corporation has increased its total nickel shipments by 16% to 9.56 million wet metric tons (WMT) for the ﬁ rst 3 quarters of the year compared to the same period in 2011. Of Nickel Asia’s total shipments, 44% came from its Rio Tuba mine consisting of 1.63 million WMT of saprolite ore and 2.57 million WMT of limonite ore. Meanwhile, 21% came from Taganito mine with 1.42 million WMT of saprolite and 606,000 WMT of limonite; 25% from Hinatuan mine with 2.42 million of limonite; and 10% from Cagdianao mine with 290,000 WMT of saprolite and 631,000 WMT of limonite. However, the price for nickel decreased, dipping the value for Nickel Asia’s total shipments by 6% to P9.24 billion. The estimated nickel price during the ﬁ rst 3 quarters was at an average of $8.28 per pound compared to $10.92 per pound in 2011. Nickel Asia attributed the contraction in prices to the slowdown in global demand.

REAL ESTATE AND PROPERTY DEVELOPMENT

Sofi tel spends P800Mn for Spiral Café renovation Sofi tel Philippine Plaza has spent approximately P800 million for the renovation of its Spiral Café, which was damaged by a storm surge on September 2011. The storm fi lled the ground fl oor restaurant with water that forced the evacuation of several hotel guests and temporary closed the hotel. Of the P800 million, over P500 million has already been used to repair and renovate the café. Japanese fi rm Design studio, which also designed the new restaurant of Ritz Carlton Hong Kong, was tapped to create the new design for the café. Prominent changes in the café include the conversion of the previous open air verandah to an indoor lounge that still opens to an outdoor terrace. The outdoor terrace showcases 4 gazebos, which leads to the hotel’s iconic lagoon-shaped pool.

TELECOMMUNICATIONS

PLDT, Century Properties ink strategic MOU Philippine Long Distance Telephone Co. (PLDT) and Century Properties Group Inc. have sealed a strategic memorandum of understanding (MOU) - “Ultra Connectivity by Century Properties, Powered by PLDT, Cignal Digital TV, Smart Communications, and Sun Cellular”. According to the MOU, the PLDT group will provide high-speed internet connection with Fiber to the Home technology; digital TV service that includes High-Defi nition channels; a landline telephone with a fully interactive Android tablet; security solutions, such as closed-circuit TVs and access cards, etc. for the current projects of Century Properties. Gramercy Residences at Century City, which is expected to be completed by December 2012, will be the fi rst residential project to benefi t from the recently signed MOU.

Philippine ANALYST October 2012 CORPORATE BRIEFS 69

Philippine ANALYST October 2012 70 INFRASTRUCTURE

PH, China disengage from NorthRail project The Philippines and China have agreed to disengage from the controversial, ofﬁ cial development assistance (ODA)-funded NorthRail project. China has “called on” its $593-million ODA for the project while the Philippines has agreed to pay the sum of $184 million that has already been spent. But settlement of this amount is not likely soon as the Transportation department still plans to submit the project to an international arbitration court.

n his visit to China as special envoy to the 9th China- ASEAN expo, outgoing Transportation Secretary Mar IRoxas discussed with Chinese deputy foreign minister Fu Ying the winding down of the NorthRail contract. Mr. Roxas reported that China had “called on” its $593-million ODA to the Philippines, thus making the loan “due and demandable”. The NorthRail project originally involved the 4-phase construction of a high-speed railway system from Metro Manila to Central and Northern Luzon (please see box). Project cost upon approval was $503 million, of which $400 million was ﬁ nanced through a preferential loan from China’s Export-Import (EXIM) Bank, and the rest by the Philippine government. However, even before construction started, the contract had already been challenged before the Senate and the High Court for overpricing Under the new administration, the NorthRail contract was and violation of the Philippine Procurement Law (see sequence of renegotiated with China. By end-2011, it was decided that a events). Despite this, civil works began in 2007. Eventually, the new project would be launched that will incorporate elements project was redesigned from a high-speed railway to a “slow, old of the existing NorthRail. The project design was reverted technology” commuter railway system, as project cost ballooned to a high-speed railway system that will extend from Metro to $593 million. When President Aquino took ofﬁ ce, the project Manila to Clark Airport. But negotiations were suspended in underwent review and was subsequently suspended. To-date, only April 2012 in deference to a change in leadership in China. 22% of Phase 1 of the 4-phase project has been accomplished. Since then, there has been no progress. The government, though, is still bent on pursuing the new NorthRail project.

The Chinese ODA is a “multi-year, long-term loan that was suddenly called.”

Philippine ANALYST October 2012 INFRASTRUCTURE 771

PROJECT DETAILS OF THE NORTHRAIL PROJECT

RECONFIGURED NORTHRAIL* SCRAPPED NORTHRAIL PROJECT (NAIA-CLARK EXPRESS RAIL LINK) Implementing Agency Department of Transportation and Communications-North Luzon Railways Corp. (DOTC-NLRC) Construction of a railway system to link Metro Manila with Northern and Central Luzon Commuter railway system 4 components Project Description Phase 1: Caloocan City to Clark Freeport Zone High-speed railway system Phase 2: Extension to Subic Economic Freeport Zone Phase 3: Extension to Bonifacio Global City Phase 4: Extension to San Fernando City, La Union Project Cost $593 million (Phase I, Section I) $2 billion Financing Chinese ODA-NG ODA-NG Civil Works Timeframe 3 years 5 years Sinomach (formerly known as China National Machinery and Contractor -- Equipment Group or CNMEG) - Only 22% of Phase I accomplished Status - The Philippines and China are winding down the project - Still under proposal stage contract *All entries for the Reconﬁ gured NorthRail project are indicative Sources: Philippine Alert July 2008, April 2009; Press statements

SEQUENCE OF EVENTS: NORTHRAIL PROJECT (SCRAPPED) DATE EVENT The National Economic and Development Authority-Investment Coordinating Committee (NEDA-ICC) approved the NorthRail December 2003 project, Phase 1-Section 1; CNMEG was designated as the contractor A Buyer Credit Loan Agreement (BCLA) for a $400-million loan was entered into by the Philippine government (DOF) with the February 2004 Export-Import Bank of China for the NorthRail Project. Public hearings by various Senate committees were held regarding 1) the issue of the relocation of illegal settlers, and 2) alleged November 2004- September overpricing of the contract 2005 - The Senate summoned members of the Cabinet to appear before the Senate probe team, but President Arroyo issued EO 464 requiring department heads to seek executive permission fi rst before appearing in Senate hearings. The Senate fi led a petition questioning the constitutionality of EO 464, which led to the hearings on the NorthRail controversy to October 2005 be suspended. Lawyers Harry Roque and Joel Butuyan fi led a case before the Makati Regional Trial Court seeking to nullify the NorthRail contract for being in violation of the Philippine Procurement Law, particularly for being fi nalized without public bidding; CNMEG fi les February 2006-March 2008 motion to dismiss arguing that the RTC did not have jurisdiction over the case as it was an executive agreement and CNMEG is immune from suit; the motion to dismiss was subsequently denied by the RTC October 2007 Start of design and civil works for the NorthRail project The NorthRail controversy resurfaced in the testimony of NBN-ZTE witness Rodolfo “Jun” Lozada; Sinomach unilaterally suspended February 2008 work on the project and demanded an additional $299 million in the contract price. April-December 2008 CNMEG elevated case to the Court of Appeals, which subsequently denied the motion January 2009 CNMEG elevated case to the Supreme Court (SC) February 2009 Civil works on the project resumed September 2009 NEDA approved additional funding for the NorthRail project; the amended contract price has a cost of $593.88 million July 2010 Offi cials of the Aquino administration reviewed the project and expressed reservations on pursuing this project. March-August 2011 North Luzon Railways Corp. (NLRC) and Sinomach (formerly CNMEG) agreed to suspend the project implementation indefi nitely. The Offi ce of the Government Corporate Counsel issued an opinion that found the original and amended NorthRail contracts void July 2011 ab initio. President Aquino paid an offi cial visit to China; the 2 states agreed to renegotiate the project to make the terms mutually- September 2011 benefi cial The Offi ce of the President informed the Department of Foreign Affairs that the Philippines and China will create a new project December 2011 that incorporates elements of the existing NorthRail. The Supreme Court ruled that the contract between NLRC and Sinomach (formerly CNMEG) is not an executive agreement March-August 2012 between the Philippines and China, thus Sinomach is not immune from suit. The case for the nullifi cation of the NorthRail contract was remanded to the Makati RTC; NLRC informed Sinomach that it would no longer pursue the contract. August 2012 Sinomach sent a Notice of Termination to NLRC for alleged breach of contract. April 2012 Negotiations between the Philippines and China were put on hold in deference to the upcoming leadership change in China. June 2012 The Finance department met with China EXIM Bank team to discuss loan repayment Special envoy to China and outgoing Transportation Secretary Mar Roxas discussed the winding down of the NorthRail contract September 2012 with Chinese deputy foreign minister Fu Ying. First tranche of the loan repayment settled on September 21. Newly-appointed Transportation Secretary Joseph Abaya announced that his department will submit the NorthRail contract for October 2012 international arbitration. Sources: Philippine Alert July 2008, April 2009; Commission on Audit 2010 Annual Audit Report for the NLRC; Senate, Committee Report on the NorthRail project, 15 June 2005; Supreme Court G.R. 185572 CNMEG v. Santamaria, et al; NEDA ODA Portfolio 2011; DOTC; Press statements

Philippine ANALYST October 2012 72 INFRASTRUCTURE

The Chinese ODA is a “multi-year, long-term loan that MRT-3 expansion likely to be pushed back was suddenly called,” explained Mr. Roxas. Nevertheless, the government has agreed to repay it as it deemed that the The MRT-3 Capacity Expansion project had already secured country would be better off winding down the contract that has NEDA Board approval, but this long-overdue project is been plagued by various controversies. Mr. Roxas denied that still not likely to be implemented soon. The Transportation the ODA recall had anything to do with the ongoing tension department has yet to iron out issues stemming from railway between the Philippines and China over the Scarborough Shoal. ownership. This, as the agency also committed to review a Instead, he said, it was the Philippines that informed China separate amended proposal from Metro Pacifi c to expand that it could no longer pursue the contract. He cited a Supreme the railway. Court ruling that found the NorthRail contract open for dispute. The case to nullify the contract has been remanded for hearing On September 4, the National Economic and Development to the Makati City Regional Trial Court, and is still pending Authority (NEDA) Board approved the Metro Rail Transit resolution. In essence, the ruling found the contract between Line 3 (MRT-3) Capacity Expansion Project. The MRT-3 is an Chinese contractor Sinomach and the North Luzon Railways elevated railway that stretches from North Avenue in Quezon Corp. (NLRC) to be a commercial transaction, and not an City to Taft Avenue in Pasay City. It was originally designed to executive agreement between the Philippines and China. As transport 350,000 passengers per day, but is at present already NLRC revealed, “it became clear that the contract will be declared well beyond capacity carrying about 500,000 commuters daily. void for being non-compliant with the required public bidding.” The approved capacity expansion is a P8.63-billion project Amidst opposition to the government’s decision to involving the acquisition of 52 additional train cars and the repay the Chinese ODA, administration officials insist implementation of ancillary works. This would enable the MRT-3 that the government has an obligation to pay for goods system to operate in a 4-car confi guration instead of the current and services already delivered, equivalent to some $184 3-car operation, and increase railway capacity by 60% to 70%. million. It was further pointed out that failure to repay the The MRT-3 Capacity Expansion project is scheduled loan would adversely affect the country’s credit rating. to be implemented from 2012 to 2019. This, however, will The sum of $184 million will be paid in 4 tranches between likely be pushed back. Department of Transportation and September 2012 and September 2014. The 1st tranche amounting Communications (DOTC) Undersecretary Rene Limcaoco to $46.11 million had already been paid on September 21. But said that his department is still studying whether the new the ODA repayment is still not a settled matter. Newly-appointed project requires approval from the Metro Pacifi c Investments Transportation Secretary Joseph Abaya has said that he expects Corp. (MPIC), which holds 48% equity rights in MRT- his department to submit the NorthRail contract to an international 3 private proponent Metro Rail Transit Corp. (MRTC). arbitration court that would determine the exact amount that the The MPIC previously said that “MRTC’s expansion rights government would have to pay China. The arbitration venue under the BLT agreement prevent the government from bidding was not named, although the project contract states that disputes the MRT-3 capacity expansion project.” In early 2012, the may be submitted to the Hong Kong International Arbitration DOTC and government lawyers were reportedly looking into Center. Sec. Abaya had also said that the Transportation MPIC’s claim of a having a legal right to expand the railway. department will be allotting funds for the arbitration process. However, there have been no updates on this since. By virtue If indeed the government submits the NorthRail contract of its acquisition, MPIC had been asserting its claim over the for arbitration, this could signifi cantly delay its plans to launch expansion rights to the railway since last year. According to MPIC, the new NorthRail project. As Senate Committee on Finance the shareholders whose stakes it acquired “have kept their right to vice chairperson Edgardo Angara pointed out, the re-bidding of future expansion of the project, which MPIC secured by buying the project could not take place until the arbitration is resolved irrevocable options on their shares.” In this case, the acquisition with fi nality. Not to mention that the arbitration would be of the new rail cars under the MRT-3 Capacity Expansion project costly to the government. As an example, Sen. Angara cited the would be equivalent to the government spending money for NAIA-3 case that has been mired in legal disputes since 2003; capital expenditure of a private consortium. The DOTC will arbitration expenses have cost the government about $56 million. have to sort this out before the long-overdue expansion takes place. MRT-3 has been operating beyond capacity since 2006.

The DOTC will have to sort out MRT-3’s ownership issue before the long-overdue expansion takes place.

Philippine ANALYST October 2012 INFRASTRUCTURE 773

METRO RAIL TRANSIT LINE 3 (MRT-3) ROUTE

OWNERSHIP STRUCTURE: METRO RAIL TRANSIT CORP. (MRTC) 100% METRO RAIL TRANSIT CORP. Metro Paciﬁ c Investments Corp. Acquired: 48% - 18% from Fil-Estate Corp. - 16% from Anglo-Philippine Holdings Corp. - 4.5% from DBH Inc. 22.3% Land Bank of the Philippines and Development Bank of the Philippines

15.8% Railco Investments, Inc. 13.6% Sheridan LRT Holdings Inc. Source: Press statements

As this developed, MPIC submitted to the DOTC a revised Mr. Lim declined to elaborate on the details of the new proposal. proposal also seeking to expand the MRT-3. This amends its MPIC will undertake the expansion with Ayala Corp., with which original proposal submitted to the government in January 2011, it formed a strategic partnership for rail projects early this year. which MPIC said was pursuant to MRTC’s expansion rights, but MPIC’s previous offer involves a $300-million expansion which was initially treated as an unsolicited proposal that is open of the railway that, like the recently NEDA-approved project, to counter offers by other fi rms. Now, MPIC president and chief would add more rail cars. This is intended to double the capacity executive offi cer Jose Ma. Lim explicitly describes the amended of MRT-3 to 700,000 passengers per day. It also offered another proposal as an “unsolicited proposal”. Whereas the original $350 million to buy out the government’s interest in the railway. proposal involved the continuation of MRTC’s existing contract The amended MPIC proposal was submitted to DOTC over MRT-3, the new proposal calls for the granting of a new on August 29. The DOTC has committed to review the concession that would overlay the existing agreement. Mr. Lim proposal, but it is not clear when a decision will be reached. expects this to be a more “fl exible” arrangement that could allow the government to expand the railway at the soonest possible time.

Philippine ANALYST October 2012 74 INFRASTRUCTURE

SEQUENCE OF EVENTS: METRO RAIL TRANSIT LINE 3 (MRT-3) Date Event The government, through the Department of Transportation and Communications (DOTC), entered into a build-lease-transfer (BLT) 1997 contract with Metro Rail Transit Corp. (MRTC) for the MRT-3 project. MRTC was guaranteed a 15% annual return on equity via lease payments of the government to the consortium. 2000 MRT-3 began full operations. Some MRTC shareholders securitized their shares in the guaranteed lease payments through the issuance of bonds and preferred 2003 shares (referred to as the economic rights). 2005 Original MRTC shareholder Ayala Corp. sold its equity to Goldman Sachs. The government, through the Land Bank of the Philippines and the Development Bank of the Philippines, acquired the securitized December 2008 shares in MRTC for $800 million (equivalent to 75% of economic rights). The government unveiled its plan to privatize the MRT-3 operations and maintenance (O&M) under the public-private partnership November 2010 (PPP) scheme. November 2010 MPIC entered into a “cooperation agreement” with Fil-Estate Corp. for the latter’s 18% stake in MRTC. MPIC submitted its original proposal to the DOTC and Dept. of Finance for the expansion of MRT-3 pursuant to the BLT contract January 2011 awarded to MRTC. February 2011 MPIC revealed that its interest in MRTC had risen to 48% through an agreement with Anglo-Philippine Holdings Corp. and DBH Inc. 1st quarter of 2011 The government bundled the LRT-1 and MRT-3 O&M privatization contracts into a single PPP project. DOTC began inviting fi rms to signify interest to bid for the bundled LRT-1 and MRT-3 O&M privatization; 9 fi rms, including San April 2011 Miguel Corp., submitted written expressions of interest. Mar Roxas is appointed as the new DOTC secretary; projects, including the bundled LRT-1 and MRT-3 O&M privatization, were June 2011 suspended for further review. DOTC started consulting its legal team regarding the MRT-3 O&M privatization (already unbundled from LRT-1 privatization February 2012 contract, and is a separate project). The Metro Pacifi c Light Rail Corporation, a strategic partnership between MPIC and Ayala Corp., was incorporated to pursue and April 2012 develop railway projects. August 2012 MPIC submitted to DOTC its amended “unsolicited proposal” to expand MRT-3. NEDA Board approved the MRT-3 Capacity Expansion Project; DOTC Usec. Rene Limcaoco announced that the agency will have to September 2012 study whether or not it needs MPIC’s approval before it could roll out the project. Sources: MRT-3 website; DOTC; NEDA; PPP Center presentation on “The MRT 3 Contract” by Atty. Helena Tolentino, June 2012; MPIC 2011 Annual Report; Philippine Alert March 2009; Press statements

BIR uncertain on WESM VAT policy The open access regime is part of the development of the electricity market under EPIRA. The purpose of WESM is to The Bureau of Internal Revenue (BIR) is unable to accelerate the privatization of government-owned generation issue a policy for the collection of value-added tax and transmission assets by encouraging the entry of investors and Independent Power Producer (IPP) Administrators in the from the Wholesale Electricity Spot Market (WESM) industry with the assurance that they will be able to sell their as it remains uncertain of WESM’s operations. generated electricity. On the other hand, the purpose of RCOA is to encourage cost-effi cient generators and arrive at competitive The Philippine Electricity Market Corporation (PEMC) – market prices for electricity as a commodity by allowing retailers market operator of the Wholesale Electricity Spot Market (WESM) to choose their electricity service provider, and suppliers to set – has disclosed that value-added tax (VAT) collections have piled supply packages based on consumers’ power consumption profi les. up from the beginning of WESM’s operations in 2006 reaching According to PEMC, direct trading participants, particularly over P3 billion. The stranded VAT collections have not been power generators, are expressing concern over the issuance remitted to the Bureau of Internal Revenue (BIR) because the BIR of VAT policy. The accounting treatment of VAT in their has not decided whether WESM is a VAT-exempt entity or not. respective books and financial statements also remains Under the Electric Power Industry Reform Act of unclear because of the situation. PEMC added that BIR has 2001 (EPIRA), “sales of generated power by a Generation still not given any hint on a fi nal decision on the matter. Company shall be zero-rated for the purpose of imposition Meanwhile, the schedule for implementation of the RCOA of VAT.” The zero-rated VAT applies to the sale of generated and its integration with WESM was again reset by the Energy power at all stages of sale until it reaches the end-user. Regulatory Commission (ERC) and the Department of Energy However, the problem lies with the BIR unable to ascertain (DOE) from October 26 to December 26 of this year, making the WESM’s classifi cation as a taxable entity. The PEMC has delay exactly 1 year from its initial schedule of implementation. constantly held frequent discussions with the BIR to resolve The recommendation to defer implementation was initiated the matter by conducting training and offering special by the RCOA Steering Committee due to the need to further courses for better understanding of WESM’s operations. develop information technology and communication systems Despite that the BIR said that the WESM operation is still and to allow more time to prepare a proper defi nition of too complicated for them to decide and issue an order for the specifi c policies to operationalize RCOA and for participants treatment of the VAT collection. In the meantime, the market and concerned parties to prepare their systems for RCOA. is pursuing a Retail Competition and Open Access (RCOA) regime where WESM’s operations are expanding to retailers.

Philippine ANALYST October 2012 INFRASTRUCTURE 775

BIR said that the WESM operation is too complicated for them to issue a policy on VAT collection.

RCOA Steering Committee deﬁ nes the policies needed for the implementation of RCOA. It is composed of representatives from Department of Energy (DOE), the National Power Corporation (NPC), the National Electriﬁ cation Administration (NEA), the National Transmission Corporation (Transco), the Power Sector Assets and Liabilities (PSALM), and the Philippine Electricity Market Corporation (PEMC).

LIST OF DIRECTIVES TO BE SUBMITTED BY PEMC TO ERC:

a. Implement ex-ante partial effectiveness factors to allow broader competition in Reserve Market categories b. Realign the speciﬁ cation of reserve services to create a fast contingency service c. Set up new lower reserve service d. Introduce Interruptible Load Dropping (ILD) as a fully functioning reserve service e. Set up an interim arrangement for ILD f. Set up appropriate changes in the Philippine Grid Code g. Submit plans for future enhancements and develop interim plans

Source: The WESM Exchange, Vol. 5, No. 3, 2012.

What has been done so far was the appointment of PEMC as PEMC still has to enhance operations and submit to ERC the central registration body (DOE Circular No. 2012-02-0002) directives (see box) and relevant information from other markets and the prescription of general policies for the implementation necessary for designing appropriate mitigating measures in of RCOA (DOE Circular No. 2012-05-0005). Currently, there the reserve market. Among the other tasks for completion are ongoing consultations to clarify and enhance the rules in are the revision of disconnection policy and procedure; RCOA. The ERC has already drafted a set of Transitory Rules study the role of embedded generators; and coordination for RCOA’s implementation, which will be promulgated upon with industry stakeholders to ensure consumer protection. completion of ongoing public conferences. Meanwhile, the

Philippine ANALYST October 2012 76 INFRASTRUCTURE

Proposed electricity market to aid in solving the consultations, which will be participated by stakeholders power shortage in Mindanao including electric utilities, commercial establishments with embedded generation, costumers, and local government units. A The Department of Energy (DOE) is eyeing to launch circular will also be issued to formalize setting up of the power market. DOE has also fi nished consultation meetings with the its proposed electricity market platform for Mindanao Energy Regulatory Commission (ERC) and the Mindanao by early next year. The proposal, which will be on trial Development Authority in preparation for implementation of implementation, is expected to add 360-megawatts of IMEM. Under this market model, the impact on the blended power generation in the Mindanao grid. The government is cost of power in the region will be an additional 30 centavos expecting the new power market model to boost the power per kilowatt-hour. The increase in cost under IMEM is less supply in the region. Mindanao has been suffering up to 4 than the cost if the power is sourced from diesel-fi red facilities. hours of rotating blackouts due to power shortage. Rotating blackouts in Mindanao currently last for 30 minutes up to 4 hours daily given a supply shortfall of around 300 MW. To According to DOE Undersecretary Josefi na Patricia Asirit, improve the current power situation in the region, the government the Interim Mindanao Electricity Market (IMEM) will go on will beef up its power development initiatives in the region such trial implementation by March or April 2013. Under this power as the implementation of IMEM. The additional capacity from market model, local and foreign investors will be allowed to IMEM is expected to plug the projected 200-megawatt shortfall trade their excess power in the platform. DOE spent 6 months by summer next year. Apart from the additional power to the grid, conducting inventory of distribution utilities and mapping of Usec. Asirit believes that the implementation of IMEM will make embedded generation in Mindanao. Usec. Asirit said that the Mindanaoans be exposed and better understand the true cost of inventory was able to identify power generation that is either electricity. Moreover, the exposure will be favorable to prospective unutilized or underutilized due to lack of favorable market setup. investors as it helps create a more-friendly business environment. The owners and users of embedded generation were not willing to The challenge in Mindanao is to secure more power projects that feed into the grid because they are unlikely to generate revenues will provide long-term, reliable, affordable and stable sources or returns. With IMEM, underutilized power generation can of electricity. However, power plants are expensive to build and now be freed up and boost the supply of electricity in Mindanao. the government does not have enough resources to put up all the The scheme will be different from the Electricity Spot Market facilities and infrastructure needed. Thus, the government has (WESM). DOE Secretary Rene Almendras earlier said that WESM been pressed to provide a more favorable business climate to is only for spot electricity where prices are dictated by supply and attract investors who will be willing to build the power plants. demand. The IMEM will be a market for distribution utilities and electric cooperatives to contract power supply from generators. DOE has already talked to stakeholders that can participate in the power market, which can add 360 megawatts of power. A series of public consultations and information campaigns will also be held by DOE together with the Philippine Electricity Market Corporation (PEMC). The government aims to inform the public in more details the power supply challenges in the region during

Philippine ANALYST October 2012 INFRASTRUCTURE 777

STATUS OF BIG TICKET INFRASTRUCTURE PROJECTS AS OF OCTOBER2012

IMPLEMENTING FUNDING CIVIL WORKS PROJECT TITLE PROJECT COST STATUS / ISSUES AGENCY SOURCE TIMEFRAME Project was awarded to Ayala Corp. in December 2011. Ongoing Daang Hari-SLEX Link Road DPWH PPP 2014-2015 P1.96 billion pre-construction activities are expected to be completed by Project 4Q2013. Project awarded to Citicore Investment Holdings-Megawide PPP for School Construction Corp. (Regions III and IV-A contracts) and BF Infrastructure Project DepEd PPP 2012-2013 P16.4 billion Corporation-Riverbanks Development Corp. (Region I contract) on (Batch 1) Oct. 4. Civil works expected to commence in November. DepEd expects to roll out Batch 2 of the project within the year. Pre-qualifi cation bids were submitted on Oct. 1. Awaiting publication of Invitation to Bid. Schedule for the submission of NAIA Expressway Phase II DPWH PPP 2013-2015 P15.9 billion actual bids is on January 2013. Full operation of the project is expected in 2016. Deadline for submission of prequalifi cation documents was moved from Sept. 28 to Oct. 22; submission of actual bids slated for LRT-1 South Extension DOTC-LRTA PPP/ODA 2013-2015 P59.2 billion March 2013. A separate auction within 3Q2013 is eyed for the planned extension to Bacoor, Cavite. Construction cost went up to P18.9 billion from P15.4 billion as NLEX-SLEX Connector Road project was redesigned to accommodate DOTC’s Airport Express DPWH PPP 2013-2015 P18.9 billion Project Rail project. Pres. Aquino said this project is his priority among all infrastructure projects. It is presently awaiting NEDA approval. TRB is only waiting for an agreement between MPTDC and SMC- Citra on the common segment of the NLEX-SLEX Connector and Skyway Stage 3 DOTC-TRB PPP 2013-2015 P25.4 billion Skyway Stage 3 before allowing SMC-Citra to proceed with its road project. Mactan International P10.3 billion (Phase The Regional Development Council in Central Visayas recently Airport Development DOTC-MCIAA PPP 2013-2015 1); P12 billion endorsed the expansion project. Currently awaiting submission to (Passenger Terminal) (Phase 2) NEDA. Pre-qualifi cation bids were submitted on Oct. 1 instead of Sept. P7.9 billion (const.); 25. Schedule for the submission of bids will remain in January Laguindingan Airport DOTC ODA/PPP 2008-2013 P1.8 billion (O&M) 2013 despite the delay. Full operation of the project is expected in 2016. Accomplished 84.8% of Phase 1 (Tarlac-Rosales, Pangasinan Tarlac-Pangasinan-La Union DPWH PPP 2009-2014 P14 billion Segment). Construction of Phase 1 expected to be completed by Expressway (TPLEX) May 2013. ODA-NG P7.4 billion (const.); New Bohol (Panglao) Construction approved by NEDA Board in Sept. Ongoing fi nalization DOTC (const.) / PPP 2013-2017 $190.5 million Airport of project structure for O&M. (O&M) (O&M) Strengthening of Angat Approved by NEDA Board in September. Bidding will commence in Dam and Dike Project MWSS NG 2013-2017 P5.72 billion 4Q2012. (Angat Dam Rehabilitation) LRT-2 East Extension DOTC-LRTA NG/ODA 2013-2016 P9.76 billion Approved by NEDA Board in September. Final draft of the feasibility study was approved by Cebu City Council on Aug. 29 and will be presented to the World Bank in Cebu Bus Rapid Transit DOTC ODA 2013-2015 $211 million October. Work on detailed design and engineering will begin in Nov. or Dec and will be completed by 3Q2013. China and the Philippines have agreed to wind down the NorthRail contract. China has recalled its ODA for the project, and the $593 million (Phase Philippines agreed to settle this, but had also decided to submit NorthRail Project DOTC ODA -- I, Section I) the contract for arbitration. The government, nevertheless, said that it will still pursue plans for the $2-billion reconfi gured, high- speed NorthRail project. DOTC Sec. Abaya revealed that the gov’t wants to de-privatize MRT-3 from MRTC. A proposal for this had been presented to Pres. Aquino, and DOTC is currently in talks with DOF to fi nalize the MRT-3 Privatization DOTC PPP -- P6.3 billion de-privatization. No timeframe was given, but Sec. Abaya clarifi ed that the gov’t may still eventually bid out the MRT-3 O&M under the PPP scheme. The project was re-submitted to NEDA-ICC after failing to meet the deadline for securing fi nancial closure. Private proponent MRT-7 DOTC PPP 2013-2016 $3.4 billion SMC is currently in talks with the DOF. NEDA approval of and DOF performance undertaking for improved agreement expected by yearend. Southern Tagalog Arterial DPWH PPP -- -- Project said to be “ready for roll-out in 2012 or 2013.” Road Phase II Project preparation ongoing. This involves the design of 139 PPP for Bridges DPWH PPP -- -- bridges in Luzon as the project’s pilot test. CIAC has sought Malacanang’s opinion on Philco Aero’s unsolicited Clark Airport (Terminal 2) DOTC / CIAC PPP 2 years $177 Million proposal to develop and operate Terminal 2. Philippine Airlines (PAL) and SMC are presently preparing a proposal to construct a private international airport in Metro Manila that would later be opened to other airlines. It will be Private Sector PAL-proposed airport DOTC 2-3 years $5 billion-$6 billion situated in 2000-hectare property in an undisclosed location, and (PS) will feature a modern passenger terminal and 4 runways. The 2 fi rms will discuss their plans with the gov’t and are expecting to submit the proposal in Jan. 2013.

Philippine ANALYST October 2012 78 CONGRESSWATCH

Lawmakers ﬁ le bills amending Cybercrime Prevention Act Senators and Congressmen have ﬁ led several bills that seek to amend the “contentious” provisions of Republic Act (RA) 10175 or the Cybercrime Prevention Act.

ndustry observers lauded the signing of the measure into law as it was originally intended to define and Ipenalize cybercrimes and computer-facilitated crimes, including data theft, online fraud, hacking, online pornography, introduction of viruses, and computer sabotage. The measure also seeks to protect the data and computer systems crucial to business process outsourcing (BPO) fi rms’ operations. This is among the 3 information technology-related bills seen to enhance the competitiveness of the local ICT-BPO industry. The other 2 are the Data Privacy Act and Department of Information and Communications Technology (DICT) bill. The former had been signed into law (RA 10173), while the latter is still pending with the Bicameral Conference Committee. But some groups expressed their opposition to the law after learning that a provision on electronic libel was inserted into the Section 19 or the “take down” provision – Empowers the measure. (Note: Up to 15 petitions were fi led with the Supreme Department of Justice to restrict or block access to computer Court asking it to declare the law unconstitutional. On October data. This would allow the blocking of websites sans a warrant 9, the High Tribunal voted unanimously to issue a 120-day or a court order. It does not require probable cause but only temporary restraining order on the implementation of RA 10175). prima facie evidence determined not by a judge but by the The “contentious” provisions in the Cybercrime Prevention DOJ; Act are the following: Higher penalty for “cyber-libel” – Libel through traditional/ print media is punishable by up to 4 years and 2 months Provision under Section 4 which lists libel as one of the imprisonment; E-libel by 12 years; and cybercrime offenses; Under RA 10175, an individual can now be charged with 2 Section 5, which seeks to punish persons who aided in counts of libel – under the Revised Penal Code and under committing a cybercrime, and those who attempted to commit the Cybercrime Act. a cybercrime; Among the senators who fi led bills amending RA 10175 are Senators Loren Legarda, Francis Escudero, and Alan Peter

The inclusion of libel among the cybercrime off enses and a provision giving the DOJ power to close down a website even without a court order will defi nitely curtail freedom of speech.

Philippine ANALYST October 2012 CONGRESSWATCH 797

SENATOR KEY PROVISIONS OF PROPOSED BILL/S SB 3294 1) Decriminalizes libel Loren Legarda 2) Repeals Section 19 of the Cybercrime Prevention Act that allows the blocking of websites or computer data even without a warrant or a court order. It does not require probable cause but only prima facie evidence determined not by a judge but by the DOJ. SB 3301 Repeals the following provisions/sections: 1) Classiﬁ cation of libel as a cybercrime offense; 2) Section 5, which seeks to punish persons who aided in the commission of a cybercrime, and those who attempted to commit a cybercrime; 3) Imposition of higher penalty for e-libel (12 years versus 4 years for print media) 4) Possibility of being charged with 2 counts of libel (under the Revised Penal Code and under the Cybercrime Act)

SB 3302: Section 19 of the recently-signed law allows for the blocking of websites or computer data even without a warrant or a court order. It does not require probable cause but only prima facie evidence determined not by a judge but by the DOJ.

Alan Peter Cayetano Amends Section 19 by stating that "No order of restriction or blocking of access to computer data for violation of provisions of this act shall be issued, except upon probable cause to be determined by a judge as required by law."

SB 3303 Repeals Chapter 1, Title 13, Book 2 of the Revised Penal Code of the Philippines to decriminalize libel and defamation. SB 3288 Francis Escudero Repeals provision criminalizing libel

Cayetano. All 3 are seeking reelection in the May 2013 polls. K+12 bill passed on 2nd reading Senator Legarda fi led Senate Bill 3294 that seeks to repeal the provision identifying libel as a cybercrime The House of Representatives approved on 2nd reading a offense and the “take down” provision or Section 19. measure that seeks to institutionalize the implementation Senator Cayetano fi led 3 bills: SBs 3301, 3302, and 3303. of K+12 basic education program in the country. SB 3301 seeks to repeal Sections 4(c) (4), 5, 6 and 7 of RA 10175 (see table for details) stating that the mentioned House Bill (HB) 6643 or Enhancing the Philippine Basic sections are “unconstitutionally overbroad, vague and violative Education System Act expands the country’s basic education cycle of the Constitutional provisions against double jeopardy.” to 12 years from the previous 10. Under the proposed measure, He also fi led SB 3302 amending Section 19 of the law. the basic education program will include 6 years of elementary SB 3302 proposes to amend Section 19 by stating that “No education, and 6 years of secondary education comprising order of restriction or blocking of access to computer data for of 4 years junior high school and 2 years senior high school violation of provisions of this act shall be issued, except upon education. Kindergarten will be mandatory for 5 year-old children. probable cause to be determined by a judge as required by law.” Subjects mandated by existing laws and currently being The 3rd measure fi led by Sen. Cayetano, SB 3303, seeks offered in tertiary programs will be incorporated in the secondary to repeal Chapter 1, Title 13, Book 2 of the Revised Penal education curriculum. The Department of Education (DepEd) and Code of the Philippines to decriminalize libel and defamation. Commission on Higher Education (CHED) will coordinate to Finally, SB 3288 fi led by Sen. Escudero also seeks to repeal the avoid duplication between basic education and tertiary curricula. section criminalizing and classifying libel as a cybercrime offense. The proposed measure, once signed into law, will allow college The Cybercrime Prevention Act’s enactment is crucial as instructors to teach general education subjects in the secondary existing laws are inadequate to protect people and enterprises education, provided that the faculty members must be holders from cybercrimes. Now is the most appropriate time to approve of relevant Master’s Degrees and that they pass the Licensure a Cybercrime Prevention bill as computer and internet usage Exam for teachers within 5 years after their date of hiring. have become more widespread, and as use of electronic The measure also allows graduates of technical-vocational commerce (e-commerce) has grown tremendously over the years. courses to teach in their specialized subjects in the secondary The inclusion of libel among the cybercrime offenses and a education, provided that these graduates possess the necessary provision giving the Justice Department power to close down a certifi cation issued by the Technical Education and Skills website even without a court order will defi nitely curtail freedom Development Authority (TESDA) and that they undergo of speech. Article lll, Section 4 of the 1987 Constitution states appropriate in-service trainings to be administered by DepEd. that “No law shall be passed abridging the freedom of speech, of HB 6643 proposes to extend the benefi ts provided by the expression, or of the press, or the right of the people peaceably to Expanded Government Assistance for Students and Teachers assemble and petition the government for redress of grievances.” in the Private Education (GASTPE) to poor but deserving high The government has to ensure that the country’s school students enrolled under the K+12 program. GASTPE Anti-Cybercrime laws provide a balance between provides fi nancial assistance to students who enroll in private freedom of speech and protecting the citizens from crimes high schools as public schools can no longer accommodate them. committed through the use of the Internet and computers.

Philippine ANALYST October 2012 80 CONGRESSWATCH

K-12 BASIC EDUCATION PROGRAM BRIEFER PRO CON

Though basic education is free, families still have out-of-pocket expenses for a child’s schooling that could total to about P20,000 per school year. Cost Moreover, education is not a top priority for families. As revealed by the 2009 FIES, education only gets 1.2% of a family’s income, after food, utilities, and transportation

Lengthening schooling will not lead to better performance; effective use of time spent for learning will (2005 Education For All Global Monitoring Report) Cramming of 12-year basic education curriculum in 10-year basic education cycle • A different study focusing on the duration, structure and curriculum in Malaysia, Brunei, Singapore, and PH noted that while duration Low achievement scores can partly be explained by the congested curriculum in of education is longer for the 3 other countries, PH had longer the education system instructional time per subject • Brunei, Malaysia, and Singapore focused on the mastery of processes Congestion adversely affects comprehension and mastery due to inadequacy of and skill, instead of the content, and they also emphasized instructional time or of time on task examinations.

Felipe, A. 2010 (www.perj.org) : Lengthening of pre-school education, and not of elementary or high school education, would result to better scores 10-year basic education cycle is inadequate preparation for higher education or employment

• General Education subjects in colleges and universities are remedial in nature, evidence that 10-year cycle is inadequate • Graduates lack competencies and skill essential to the performance Employment is not a direct result of K+12 as companies would still prefer of work. Graduates are too young to enter the labor force, or to enter college graduates into contracts (for businesses), implying that they are vulnerable to exploitative labor practice. Higher education institutions (HEIs) will have 0 freshmen enrollees for 2 years • Reinforces misperception that 10-year education is just a preparation (2016-2017 and 2017-2018), which may result in ﬁ nancial disaster for these for higher education institutions. • Emotional unpreparedness of graduates for higher education or employment To comply with global standards • Prior to implementation of K+12, PH only Asian country with 10-year basic education cycle, one of three remaining in the world, together with Djibouti and Angola in Africa • Mutual recognition problems: graduates are not recognized as professionals abroad; post-graduate students must enroll in remedial Not all students intend to work or study abroad classes to meet admission requirements o Washington Accord: requires 12 years of basic education Foreign employers look for competencies and not length of education for the recognition of engineering professionals o Bologna Accord: requires 12 years of basic education for university admission and practice of profession in European countries As a solution to rising drop-out rates Highly academic nature of 10-year basic education is what alienates students. Drop-out rates would be reversed with K+12 as this offers different specializations Lengthening of schooling would increase number of dropouts of interest to the students. Sources: Senate Economic Planning Ofﬁ ce; Department of Education

A curriculum consultative committee will be formed to oversee To prepare for the full implementation of the program, the review and implementation of the basic education curriculum the Education department has trained more than 3,000 K+12 and recommend the necessary refi nements in the curriculum. “trainers” and some 140,000 Grade 1 and Grade 7 teachers. HB 6643’s Senate counterpart – SB 3286 – is currently Some sectors say the program’s sustainability is in peril due pending on 2nd reading. Approval of both measures on 3rd to huge funding requirements (see table). DepEd is proposing and fi nal reading is possible before yearend. House Speaker a P56-billion increase in its budget for 2013, but the amount Feliciano Belmonte has certifi ed HB 6643 as urgent. The is still insuffi cient to cover all education sector gaps, seen to bill is also among President Aquino’s priority measures. be aggravated by the implementation of the K+12. DepEd’s The Aquino administration started implementing the K+12 proposed P293 billion budget next year is a mere 14.6% of the program this year despite the absence of an enabling law. A law 2013 national budget, below the UNESCO-recommended 20%. is needed to ensure the program’s continuous implementation. In Also, the private education sector is expected to suffer February, President Aquino signed the Kindergarten Education Law, huge losses as there will be no freshman college intake which provides for free and compulsory kindergarten education. for 2 years (school years 2016-2017 and 2017-2018). This is a crucial step towards realizing the Philippines’ Millennium Development Goal (MDG) of achieving a net enrolment ratio in primary education of 100% by 2015 from 91.2% in 2011.

K+12 program’s sustainability is in peril due to huge funding requirements.

Philippine ANALYST October 2012 CONGRESSWATCH 818

House approves PAGASA Modernization, • Department of Budget and Management (DBM) Physicians Act Secretary • National Economic and Development Authority (NEDA) The House of Representatives approved 16 national bills Director-General before sessions adjourned on September 21. Among the The measure provides that an annual progress report of the measures passed on 3rd and fi nal reading were the PAGASA PAGASA Modernization Program must be submitted by the (Philippine Atmospheric, Geophysical and Astronomical Director of PAGASA through the Secretary of the DOST, to the Services Administration) modernization program and the President and to the Chairperson of the Committees on Science Physicians Act of 2012. and Technology of the Senate and the House of Representatives. Another measure approved on 3rd and final reading Under House Bill (HB) 6546 or the PAGASA Modernization is House Bill 6538 or the Physicians Act of 2012. The Act of 2012, the weather bureau’s modernization program will bill proposes to regulate the education and licensure of be implemented over a period of 3 years. The program will physicians and the practice of medicine in the Philippines. include the acquisition of modern equipment to enable the bureau It repeals Republic Act 2382 or the Medical Act of 1959. to provide timely and reliable forecasting and weather service. The proposed measure provides for the creation of the The bill tasks PAGASA to implement a sustainable cost Professional Regulatory Board of Medicine whose powers and recovery program that will allow the agency to earn revenue functions include the following: from fees to be collected from the issuance of specialized weather Supervise, control and regulate the practice of medicine in information, certifi cations, and scientifi c and technical publications. the country; HB 6546 mandates the following universities to offer Determine and evaluate qualifi cations of the applicants for undergraduate degrees in Meteorology: registration with physician licensure examinations and for 1. University of the Philippines Los Baños special permits; 2. Bicol University Prepare the questions in physicians’ licensure examinations in accordance with recognized principles of evaluation; 3. Central Luzon State University Monitor the performance of medical schools and their 4. Mariano Marcos State University compliance with the rules and regulations of the CHED 5. Pamantasan ng Maynila Technical Committee on Medical Education; 6. Visayas State University Promulgate rules and regulations including a Code of Ethics The measure seeks to transform PAGASA into a “technology- for Physicians, administrative policies, orders and issuances; based fi nancially stable data center… becoming the central and information station for real time weather updates available to every Coordinate with the CHED Technical Committee on Medical individual and for the Philippines’ typhoon preparedness plan” Education and the Association of Philippine Medical Colleges Grants and donations, whether from local or foreign sources, in prescribing, amending, or revising the courses in a medical may be accepted subject to the approval of the President upon program. the recommendations of the Secretaries of the Department of HB 6538 also mandates the formation of a Council for Medical Science and Technology and the Department of Foreign Affairs. Education (see box). Tasked to formulate the PAGASA Modernization Program are the following offi cials: Both measures’ counterpart bills in the Upper Chamber have yet to hurdle 2nd reading. The Senate’s version of the Physicians Act is • Department of Science and Technology (DOST) pending on 2nd reading while the PAGASA Modernization bill is Secretary still with the Committee on Science and technology (1st reading). • PAGASA Director

POWER AND FUNCTIONS OF THE COUNCIL FOR MEDICAL EDUCATION

The Physician Act of 2012 mandates the creation of the Council for Medical Education. The Board has the following powers and functions: 1. Determine the requirements for admission into a recognized college of medicine; 2. Determine the minimum requirements for physical facilities of colleges of medicine; 3. Determine the minimum number and the standard qualiﬁ cations of teaching personnel including student-teacher ratio; 4. Determine the minimum required curriculum including internship leading to the degree of Doctor of Medicine; and 5. Recommend to the Commission on Higher Education the closure or suspension of a college's Doctor of Medicine degree program for the poor performance of the graduates over a given period of time based on statistical data

Both measures’ counterpart bills in the Senate have yet to hurdle 2nd reading.

Philippine ANALYST October 2012 82 CONGRESSWATCH

PRIORITY BILLS FOR THE 15TH CONGRESS: AN UPDATE AS OF 24 OCTOBER 2012

BILL NO. TITLE SALIENT FEATURES STATUS HOUSE SENATE AGRICULTURE, ENVIRONMENT AND NATURAL RESOURCES Seeks to amend certain sections of the Comprehensive "HB 1726 Pending in Committee on Pending in Committee on Agrarian CARP Reform Agrarian Reform Law, such as expanding the defi nition of SB 883" Agrarian Reform Reform agricultural lands Pending in Committee on HB 1429 Seeks to strengthen the Clean Air Act and its Pending in Committee on Clean Air Act Amendment Environment and Natural SB 2909 implementation Ecology Resources Seeks to consolidate and strengthen the procedure for Pending in Committee on "HB 8 Environmental Impact Pending in Committee on fi ling and implementing Environmental Impact Assessment Environment and Natural SB 1362" Assessment Amendment Ecology and issuance of Environmental Compliance Certifi cate Resources Pending in Committee Pending in Committee on H B 4 Land Administration Creates the Land Administration Authority and institutes on Government Environment and Natural SB 2114 Reform Act reforms in land administration system Reorganization Resources Pending in Committee on "HB 2717 Mining Act Amendments Seeks to amend various provisions of the Mining Act Approved on 3rd reading Environment and Natural SB 1365" Resources Provides for the direct remittance to the host LGU of its HB 110 Remittance of the Share of Pending in Committee on Pending in Committee on Local 40% share of the gross collection derived by the national SB 1101 Local Governemnt Units Local Government Government government from national wealth taxes "HB 4840 Seeks to discourage and phase out the use of plastic bags Pending in Committee on Trade Plastic Bag Reduction Act Transmitted to the Senate SB 1543" in the retail industry and Commerce Establishes the People's Survival Fund to provide long- HB 6235 People's Survival Fund Signed into law term fi nance streams to enable the governement to SB 2811 (Climate Change) Republic Act 10174 effectively address climate change FINANCE AND CORPORATE GOVERNANCE Pending in Committee on HB 105 Government Procurement Seeks to enhance the transparency of the procurement Pending in Committee on Constitutional Amendments, SB 179 Reform Act process Appropriations Revision of Codes and Laws Seeks to exempt employees of the Bureau of Internal "HB 292 BIR/BOC exemption from Revenue and Bureau of Customs from the salary Pending in Committee on Pending in Committee on Finance SB 809" Salary Standardization standardization to promote the hiring and keeping of Ways and Means professionals within these offi ces Seeks to expand the authority of the BSP to supervise and Pending in Committee Pending in Committee on Banks, "HB 5394 regulate the operations not just of banks but also quasi- BSP Charter amendment on Banks and Financial Financial Institutions and SB 708" banks and other fi nancial institutions that perform quasi- Intermediaries Currencies banking functions; grants the BSP 'tax-exempt' status Customs and Tariffs Seeks to prescribe the guide for customs and tariff HB 3224 Approved on 3rd reading None Modernization Act modernization Seeks to establish a Medium Term Fiscal Accord (MTFA), SB 2177 HB set caps on national debt and personnel services, ensure Pending in Committee on Fiscal Responsibility Act Pending in Committee on Finance 2263 funding for enacted laws, and strengthen transparency Appropriations and accountability in government transactions. Seeks to enable the insurance industry to adequately "HB 4867 Insurance Code address the various issues and challenges in both local and Transmitted to the Senate Pending on 2nd reading SB 3280" amendment foreign insurance markets HB 4935 Rationalization of Fiscal Seeks to rationalize the grant and administration of fi scal Pending in Committee on Ways Transmitted to the Senate SB 2142 Incentives and non-fi scal incentives and Means Seeks to provide an uniform and equitable taxation by limiting the allowable deductions for self-employed Simplifi ed Net Income Pending in Committee on Ways SB 380 individuals or professionals and to grant self-employed None Taxation Act and Means individuals and professionals an optional standard deduction of 40% of gross income Seeks to enhance regulatory environment that will Pending in Committee on Banks, Stock Market SB 2009 allow the Philippine stock market to grow by taking out None Financial Institutions and Competitiveness Act unnecessary tax impediments Currencies Seeks to adopt a just, equitable, impartial and nationally "HB 6044 Pending in Committee on Ways Valuation Reform Act consistent valuation based on internationally accepted Transmitted to the Senate SB 2360" and Means standards, concepts, principles and practices Restructures the excise tax on tobacco products and HB 5727 Sin Tax Reform Bill amends pertinent sections of the National Internal Transmitted to the Senate Pending on 2nd reading SB 3299 Revenue Code Recognizes the tax exemptions under tax treaties and HB 3928 Rates on Income Tax on Pending in Committee Pending in Committee on Ways international agreements related to international carriers SB 3065 Foreign Operators on Rules and Means the Philippines has entered into HUMAN CAPITAL DEVELOPMENT AND HEALTH "HB 479 Seeks to ban asbestos in all forms of construction Pending in Committee on Pending in Committee on Trade Asbestos Ban SB 89" materials to ensure the safety and health of Filipinos Ecology and Commerce Creative Industries Seeks the creation of the Creative Industries Development SB 3071 None Pending on 2nd reading Development Council Council Amends the Expanded Government Assistance To Students Pending in Committee "HB 88 and Teachers In Private Education Act; Provides for an Pending in Committee on GASTPE Act amendment on Basic Education and SB 2035" expanded voucher or coupon system in secondary and Education, Arts and Culture Culture tertiary education

Philippine ANALYST October 2012 CONGRESSWATCH 838

Seeks to reinforce the role of labor in Philippine economy by amending various provisions of the labor code; calls for Pending in Committee on Labor, "HB 3321 Omnibus reform for the Pending in Committee on partial amendment to Book V relating to labor cases at Employment and Human Resources SB 868" Labor Code Labor and Employment the NLRC, rights of workers to bargain effectively, and the Development right to strike HB 4276 Night Work Prohibition of Signed into law Lifts the ban on night work for women SB 2701 Women Employees Republic Act 10151 "HB 4244 Reproductive Health and Seeks to strengthen the people's right to information on Pending on 2nd reading Pending on 2nd reading SB 2865" Populace Development the various methods of family planning INFRASTRUCTURE AND INFORMATION TECHNOLOGY Seeks to bring Philippine telecommunications, broadcast Pending in Committee communication, cable television and broadband HB 2858 Convergence: Telecom on Information and Pending in Committee on Public industry at par with global trends and standards through SB 229 Policy amendment Communications Services technology transfer, and to prescribe the entry capital for Technology both foreign and local companies Seeks to defi ne and penalize cybercrimes and computer- "HB 5808 facilitated crimes, which include data theft, online fraud, Signed into law Anti-Cybercrime Act SB 2796" hacking, online pornography, introduction of viruses, and Republic Act 10175 computer sabotage. Seeks to protect consumers, promote trust and user "HB 4115 confi dence in electronic commerce, and enhance the Signed into law Data Privacy Act SB 2965" competitiveness of the country as a hub for the BPO Republic Act 10173 industry Upgrades the Commission on Information and Communications Technology (CICT) and seeks to Creation of Department raise public sector focus and usage of e-governance "HB 4667 of Information and ; The DICT will be tasked to formulate national For Bicameral Committee Approval SB 50" Communications communication policies, standards, and specifi cations Technology (DICT) for telecommunications, automated data processing and management information systems Seeks to achieve a more self-suffi cient energy mix, SB 2027 Energy Effi ciency Act reduce consumption of oil and coal, and ensure long-term None Pending in Committee on Energy sustainability "HB 1291 Seeks to re-commission the Bataan Nuclear Powerplant to Pending in Committee on Nuclear Power Resolution Pending in Committee on Energy SB 1642" allow its commercial operation Energy Pending in Committee "HB 2848 Seeks to regulate the use of voice over internet protocol on Information and Pending in Committee on Public VOIP Act SB 1067" (VOIP) to avoid abuse and misuse Communications Services Technology Among the proposed amendmentsare the following: addition of new PPP variants or contractual arrangements, such as joint ventures, concessions, and management HB 4151 Technical Working Group Pending in Committee on Public BOT Law Amendments contracts; restructuring and tightening of eligibility SB 2710 (TWG) drafting bill Works requirement for unsolicited proposals; and the composition of the approving body at the national and local levels. PUBLIC SECTOR GOVERNANCE Amends the Anti-Money Laundering Act to enable the Anti- "HB 4275 Money Laundering Council to examine suspicious accounts Signed into law AMLA amendments SB 3009" upon court order even without certifi ying holders of such Republic Act 10167 accounts Provides that any person who provides, collects or uses Terrorism Financing HB 5015 property or funds to carry out or facilitate the commission Signed into law Prevention and SB 3127 of a terrorist act would face long prison term and Republic Act 10168 Suppression Act P500,000 to P1 million in fi ne Pending in Committee on "HB 588 Anti-corruption Seeks to extend the prescriptive period in graft and Pending in Committee on Constitutional Amendments, SB 472" amendments corruption cases Revision of Laws Revision of Codes and Laws HB 6410 AFP Modernization Establishes the Revised AFP Modernization Program For signing of the President SB 3164 Program Seeks to defi ne private armies, provide the executive "HB 2111 with the power to dismantle them and penalize leaders, Pending in Committee on Pending in Committee in Public Anti-private Armies Act SB 238" protectors, fi nanciers, suppliers and members of such Justice Order and Illegal Drugs groups Seeks to strengthen the drive against anti-smuggling by "HB 46 Pending in Committee on Pending in Committee on Ways Anti-Smuggling Act increasing the penalty and empowering the Commission SB 2408" Ways and Means and Means on Audit to perform post-entry audits. Intends to promote a level playing fi eld in trade, industry and all commercial economic activities, and rid the "HB 4835 Reconsideration of Anti-Trust Act country of abusive monopolies, cartels, and anti- Pending on 2nd reading SB 3098" approval on 2nd reading competitive behavior. Promotes easier and more effective entry of new players in the market. Seeks to systematize appointments and promotions in the Pending in Committee "HB 6320 Career Executive Systems government by providing for a systematized career rank on Civil Service and Transmitted to the House SB 3215" Act progression in the bureaucracy Professional Regulation Seeks to ensure public access to offi cial records, People's Ownership of "HB 53 documents and any other information of public concern Pending in Committee on Government Information Pending on 2nd reading SB 3208" and compel all government offi ces to comply with Public Information (POGI) Act of 2012 requests for information on matters of public concern

Philippine ANALYST October 2012 84 CONGRESSWATCH

Pending in Committee Government Classifi cation Seeks to reclassify positions and compensation of HB 1027 on Civil Service and None and Compensation Act government employees by providing step increments Professional Regulation Seeks to amend the Intellectual Property Code through "HB 3841 Intellectual Property the integration of comprehensive, swift, effi cient and Transmitted to the Senate Approved on 2nd reading SB 2842" Rights Act amendments adequate strategies designed to respond to the criminal onslaught of internet piracy. "HB 3248 Pending in Committee on Pending in Committee on Games, Jueteng Act Seeks to legalize jueteng SB 2548" Games and Amusements Amusements and Sports Seeks to protect consumers in the sale of motor vehicles "HB 4841 against sales and trade practices which are defective, Pending in Committee on Trade Lemon Law Transmitted to the Senate SB 1310" unfair and inimical to the interests of the consumers and and Commerce public "HB 846 Ombudsman Act Seeks to strengthen the powers of the Offi ce of the Pending in Committee on Pending in Committee on Justice SB 1447" Amendment Ombudsman Justice and Human Rights Seeks the creation of the Philippine Transportation Pending in Committee "HB 299 Philippine Transportation Pending in Committee on Public Security Authority which will consolidate civil aviation, on Government SB 970" Security Authority Services maritime, land and rail security programs Reorganization Allows foreign vessels to engage in coastwise trade in the Pending in Committee on HB 2562 Maritime Law (Cabotage) None country Trade and Industry Pending in Committee HB 1679 Water Regulatory Seeks to rationalize the fi nancial regulation of water Pending in Committee on Public on Government SB 611 Commission Act utilities and create the Water Regulatory Commission Services Reorganization "HB 5715 Whistleblowers Protection Seeks to set up a system of rewards and protection for Transmitted to the Senate Pending on 2nd reading SB 2860" Act whistleblowers and their families. Seeks to promote fi nancial viability and fi scal discipline in government-owned or controlled corporations and to "HB 4067 GOCC Governance Act Signed into law strengthen the role of the state in its governance and SB 2640" of 2011 Republic Act 10149 management to make the GOCCs more responsive to the needs of the public Appropriates funds for the operation of the government General Appropriations Act House Bill 6455 of the Republic of the Philippines from January 1 to Approved on 3rd reading for FY 20123 December 31, 2013 and for other purposes

Philippine ANALYST October 2012

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

CONTENTS

Overviews Global Outlook Regional Outlook North Asia Japan CONFIDENTIAL China Hong Kong Taiwan South Korea Southeast Asia Indonesia Malaysia Philippines Singapore Thailand

Vietnam

South Asia India Australasia Australia New Zealand

EXCEL WORKBOOK: IMA Asia clients can also access a 14-page excel workbook with data and charts that can be used for reports and presentations.

www.imaasia.com

This report summarises the current business environment analysis and short-term forecasts of country directors running executive briefing programs across Asia. The Asia Pacific Executive Brief is owned and produced by International Market Assessment Asia Pty Ltd (IMA Asia).

This report is issued by IMA Asia to clients only. It is for general informational purposes and is not guaranteed as to accuracy or completeness. The analysis and forecasts are subject to change without notice. IMA Asia does not accept any liability arising from the use of this report. For more information and press enquiries please contact [email protected].

www.imaasia.com Asia Pacific Executive Brief October 2012 www.imaasia.com

Global outlook

Dealing with a Our forecasting theme of a patchwork world confronting corporations remains in place. The patchwork world world’s two biggest markets – the Euro area (US$13tr in 2011) and the US ($15tr) – are through 2013 heading in different directions. The US is three quarters into a much stronger recovery than most commentators acknowledge. It is being led by private fixed investment, which is up … a strong US more than 10%yoy in each of the three quarters to Q2’12, and is being led by a jump in upturn versus a spending on plant, equipment, and IT. This suggests a lift in productivity for the next 3-4 Euro recession years, which should underpin a sustained and strong US recovery with growth close to the 10-year trend prior to the GFC, but with a better balanced economy. By contrast, the Euro … ASEAN lifts area is sliding into a pit and the massive structural reforms that must be undertaken to de- but the rest of risk the region are unlikely to help growth for 3-4 years. The patchwork global outlook is Asia is weak echoed in Asia with ASEAN continuing to outperform while industrial north Asia and India struggle. Companies will face many challenges in this environment, not the least of which will be big variations in pay between staff in markets that are falling 10-15% and those in markets that are growing 10-15%.

Downward The Euro area recession plus slower growth in China has left the world with excess supply to pressure on demand and this should put downward pressure on prices, possibly leading to deflation in prices some markets. Commodity prices have borne the brunt of this so far and that has led to forecast cuts for Australia and Indonesia (see the following country pages). Looking forward … due to on commodities, it seems likely that upward spikes for specific products are more likely over excess supply the next few years than a repeat of the broad surge in soft and hard commodity prices seen prior to the GFC. The next area to watch is manufactured goods, starting with steel. Even though China’s domestic producers are relatively high cost, a key issue for Q4’12 is whether China starts dumping excess steel into foreign markets.

A faster Every six months the IMF releases an update of its comprehensive World Economic Outlook, realignment of which has established itself as the single best guide to global growth. The October update global markets highlights a broad deterioration in the short-term outlook led by a slump in the world’s 34 advanced economies, which have been hit by a collapse in sentiment, weak financial … according systems, and fiscal contractions. The 17-member Euro area will contract by 0.4% this year, to the IMF with Italy and Spain suffering big recessions through 2013, while France will barely grow and German growth dips under 1% for both years. The US is expected to grow 2.2% this year … & McKInsey and 2.1% next year (our own US forecast is much stronger for 2013). Emerging and developing countries (the rest of the world) are expected to do much better, with growth dipping from 6.2% last year to 5.3% this year, and a weak lift to 5.6% in 2013. The net result is that advanced economies will drop from 72% of the global market in 2007 to 60% in 2014, with a decline to 57% by 2017. Weak growth and higher risk/volatility in advanced markets is one big driver of the realignment. The other driver is the growth of emerging market consumers, which McKinsey has boldly labelled the single biggest event in capitalism.

RISK – the US There is currently no indication that the US can avoid a fiscal cliff at the start of 2013 with fiscal cliff still some US$600bn in automatic spending cuts and tax hikes due to take effect on January 1 as lies ahead a result of congressional deadlock on fiscal policy, which would push the US into a 2-3 quarter recession. US businesses are demanding that a deal be struck soon and they hope that the November elections will help break the deadlock. There is, however, a risk that the November elections leave the US with a divided Congress and no consensus on policy.

IMA Asia’s forecasts 2009 2010 2011 2012 2013 World – Real GDP growth, % -0.6 5.3 3.9 1.8 3.0 - US -3.5 3.0 1.7 2.3 2.9 - Euro area -4.3 1.9 1.4 -0.5 0.2 - Asia/Pacific (14) 0.8 7.2 4.3 4.3 4.4 - NICs (4) -0.7 8.2 4.0 1.8 3.1 - Developing Asia (7) 7.0 9.8 8.2 6.6 6.9 - ASEAN (5) 1.5 7.0 4.5 4.9 5.4 World goods & services trade volume, % growth -10.5 12.6 5.8 3.2 4.5 Interest rates, US Fed target rate, year end, % 0.25 0.10 0.10 0.10 0.10 Inflation, CPI, US, year avg., % -0.3 1.6 3.1 1.9 1.4 Inflation, CPI, Euro area, % 0.3 1.6 2.7 1.9 1.1 Crude oil, avg of 3 spot crudes, US$ 62 79 104 99 104 US$ / Euro 1, year average rate 1.39 1.33 1.39 1.22 1.22 Yen / US$1, year average rate 94 88 80 79 79

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]

Regional outlook

Summary of forecasts in this month’s Asia Brief

GDP (Expenditure), real growth, % 2009 2010 2011 2012 2013 Japan -5.5 4.5 -0.8 2.1 1.1 China 9.2 10.4 9.2 7.7 7.8 Hong Kong -2.6 7.1 5.0 1.0 2.5 Taiwan -1.8 10.7 4.0 1.2 2.1 South Korea 0.3 6.3 3.6 2.2 3.5 Indonesia 4.6 6.2 6.5 6.0 6.0 Malaysia -1.5 7.2 5.1 4.0 4.3 Philippines 1.1 7.6 3.9 4.8 5.8 Singapore -1.0 14.8 4.9 2.0 3.5 Thailand -2.3 7.8 0.1 3.7 4.4 Vietnam 5.3 6.8 5.9 4.8 6.0 India (CY) 4.9 10.4 7.9 4.1 4.7 Australia 1.4 2.5 2.1 3.1 3.0 New Zealand -0.2 0.9 0.3 1.8 2.3

Inflation, CPI year average, % 2009 2010 2011 2012 2013 Japan -1.4 -0.7 -0.3 -0.2 -0.9 China -0.7 3.3 5.4 2.5 1.0 Hong Kong (composite CPI) 0.6 2.3 5.3 3.2 0.5 Taiwan -0.9 1.0 1.4 2.1 1.3 South Korea 2.8 2.9 4.0 2.1 1.4 Indonesia 4.8 5.1 5.4 5.0 6.0 Malaysia 0.6 1.7 3.2 1.6 2.0 Philippines 3.3 3.8 4.7 2.9 3.5 Singapore 0.6 2.8 5.2 4.0 2.5 Thailand -0.8 3.3 3.8 2.7 3.0 Vietnam 6.7 9.2 18.7 9.1 6.0 India (CY CPI urban non-manual workers) 10.9 12.0 8.9 8.0 6.5 Australia 1.8 2.8 3.4 1.2 1.2 New Zealand 2.1 2.3 4.0 1.3 2.0

Exchange rate to US$1, year avg. 2009 2010 2011 2012 2013 Japan 94 88 80 79 79 China 6.83 6.77 6.46 6.31 6.31 Hong Kong 7.75 7.77 7.78 7.76 7.76 Taiwan 33.1 31.6 29.5 29.7 29.7 South Korea 1,281 1,159 1,108 1,135 1,125 Indonesia 10,356 9,086 8,776 9,401 9,388 Malaysia 3.52 3.22 3.06 3.12 3.06 Philippines 47.6 45.1 43.3 42.0 40.0 Singapore 1.45 1.36 1.26 1.26 1.22 Thailand 34.3 31.7 30.5 31.4 30.5 Vietnam 17,860 19,151 20,511 20,860 21,000 India (FY) 48.3 45.8 46.6 56.2 57.3 Australia 1.27 1.09 0.96 0.97 0.97 New Zealand 1.60 1.39 1.26 1.23 1.25

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

Regional outlook

Political & policy issues to watch

Leadership Year-end leadership changes are due in China and Korea. Despite this year’s fireworks changes China appears to be on track for a stable change in Party General Secretary from Hu Jintao (at the end of two 5-year terms) to Xi Jinping (possibly for two 5-year terms). The make-up … China of the rest of the Politburo Standing Committee is much less certain and will have a big impact on Xi’s authority and policies. While party leadership is the most powerful post in … & Korea China, this is just the first step in a 3-stage process that includes a major reshuffle in government leadership next March, in which Xi should become president, and a change in military leadership later in 2013 (with Xi also taking the top job). The 2012 party meeting has been moved back a few weeks to early November. Korea has a year-end presidential election with an uncertain outcome and an uncertain field at this late stage of the race. On balance it still looks like a win for Ms Park of the ruling Saenuri Party

The China-Japan North Asia could face a disruption to manufacturing rivalling that caused by the 2011 Thai spat should floods, if a dispute between Japan and China over control of three islets gets out of control. ease by At present, we don’t expect the dispute to boil over (as neither government gains from it) and December we think it will subside once China’s leadership change (and the shadow campaigning involved) is out of the way.

RISK - waiting to It’s likely that Standard & Poor’s will lift the government bonds of the Philippines and see if Indonesia Indonesia to investment grade within a year. That should help lower funding costs for & Philippines go government and the private sector borrowers and may also trigger a strong inflow of portfolio up funds that will push up asset prices and currencies. By contrast, Japan and India face downgrades due to bad politics. In Japan’s case the two main parties (DPJ and LDP) are … and Japan & fragmenting and the competition for popular support between old and new parties has India go down triggered calls to roll back a recently approved sales tax hike. This would almost certainly trigger another downgrade for Japan and boost worries about debt, the Yen, and growth. India may lose its investment grade rating as new Finance Minister Chidambaram fails to restart reforms and curb a worryingly large budget deficit. Neither downgrade would trigger a crisis, but both underscore rising risk and a loss in long-term market potential.

Outlook for the market

Mixed signals as The last month has been full of mixed signals. Some countries have reported a collapse in 2012 ends exports, most notably Indonesia where a big slide in commodity prices saw August export earnings plunge 24%yoy. Such a big fall at the start of the harvest period looks set to … but watch undermine consumer spending. By contrast, Taiwan and China have both reported a for a lift from surprisingly good 10%yoy lift in exports that appears to have been driven by the US and a early 2013 traditional pre-Christmas order rush. Korea, however, didn’t report such a lift. We expect some more wildly mixed indicators for November and December before a mild recovery trend consolidates through 1H’13 with the help of strong US and China demand.

Changes to our There is little change in our overall forecast for the total A/P region. However, we now forecast this expect a slightly stronger lift for the newly industrialised countries (NICs – Korea, Taiwan, HK month and Singapore) in 2013, with the 2013 forecast rising to 3.1% from 2.2% last month. This is driven by our view of a stronger US upturn and better China demand. By contrast, ASEAN’s growth for 2012 (excluding Singapore) has been trimmed from 5.3% to 4.9% largely due to the abrupt fall in Indonesia’s export in the final months of 2012.

Asia will lift its Unlike the US and Europe, Asia has plenty of capacity to lift its fiscal and monetary stimulus, stimulus as with the two main exceptions being Japan (PM Noda has promised extra spending but he needed doesn’t have the money) and India. China has been dribbling out a mild stimulus for most of this year, but there is now discussion of a stimulus package in the next few months. We … except for don’t expect this to be big, but it should provide another small boost to growth going into Japan & India 2013. Korea, Taiwan, HK, and Singapore all have scope to lift their stimulus if they need, while Malaysia has opted for a big pre-election stimulus. Oddly, both China and Singapore have held back on stimulus measures as some argue that their governments used the 2012 downturn to cool overheated parts of their economy (rising property markets and tight labour markets in both cases).

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

Japan

Political & policy issues to watch

Risks in political Japan’s 2-party political system is fragmenting, which is not good for stability or policy. fragmentation The ruling DPJ, led by PM Noda, has seen over 70 of its MPs leave in the last year, mostly to join a new party led by former DPJ heavyweight Ichiro Ozawa. Meanwhile, the … as the LDP opposition LDP faces the emergence of small right-wing parties, the most successful of pushes for an which is the Japan Restoration Party led by Osaka City Mayor Toru Hashimoto. Opinion early poll polls suggest that the LDP, now led by Shinzo Abe (PM 2006-07), should win the next election but it may need the support of smaller parties alongside traditional ally New Komeito. An election is not required until August 2013 but PM Noda is under pressure from the LDP, which has used its upper house majority to delay bond bills (Japan’s own “fiscal cliff”), in a move to bring the poll forward.

And more risk Fragmentation has led to the rise of populist policies, including a spat with China over in the rise of territory (see below), and might even see the law to double the sales tax to 10% by 2015 populist policies rescinded, triggering a sovereign ratings downgrade. PM Noda should shortly call an extraordinary Diet session with the aim of winning delayed approval for bond sales to cover … undermining this year’s spending. The delay has forced Tokyo to cut payments to local governments, the budget which has forced them to reduce their spending. Central government spending would have to be cut from end November if bond sales are not restarted.

… angering The origin of Japan’s spat with China over islets in the East China Sea lies in an effort by China & hurting Tokyo Governor Ishihara to buy the islands (from Japanese owners) in a bout of nationalist exports fervour. PM Noda trumped Ishihara with a national purchase. While the former owners did well from this bidding war, China, which also claims the islets, was peeved and Chinese nationalists were enraged. Japanese firms are now suffering a backlash with a boycott of Japanese goods that will hurt Japan’s China sales and export earnings in Q4’12.

Outlook for the market

Fiscal stimulus After a good first three quarters Japan’s economy is set to slow. The big gain this year (for car sales) came from a 3.5%yoy lift in consumer spending in 1H’12, thanks to a subsidy for eco-cars boosted Q1-Q3 which expired in September. Car sales for the first eight months jumped 50%yoy but will likely fall by 10%yoy over the remainder of 2012. Excluding car sales, retail spending fell … but little 0.4%ytd by August. Without the car subsidy we expect trend growth in consumer spending growth from Q4 to drop towards zero through most of 2013. The spat with China could halve GDP growth onwards in Q4’12 (akin to a briefer version of the Thai flood impact in Q4’11). We’ve lifted our 2012 GDP growth estimate to 2.1% given the surge in car sales, with a drop to 1.1% in 2013. The IMF’s October forecast is for 2.2% GDP growth this year followed by 1.2% in 2013.

The export With the closure of all but two of Japan’s nuclear power stations, gas and coal imports sector is in have jumped, pushing the trade account, traditionally in surplus, into a record deficit. trouble Imports for the first eight months rose 5%ytd (including a 14.5%ytd jump in mineral fuels) against a 0.7%ytd fall in exports. The export sector is clearly hurting due to the strong Yen … despite a and a collapse in exports to Europe (-13%ytd by August) and China (-9%ytd), which has rebound in US more than offset a 17%ytd rebound in exports to the US. Industrial production for the first orders eight months was up 3.1%ytd, but if autos are excluded industrial production undoubtedly contracted (the electrical and electronics sectors are down 5-10%ytd).

A reconstruction The economy has benefitted from reconstruction work this year with the value of civil boost will fade in engineering orders up 14.8%ytd by August while building orders were up 13.8%ytd. This 2013 may last another 3-4 months but growth is likely to drop to 0-2% in 2013.

Deflation and a Japan has dropped back into mild deflation since June despite the BOJ setting a 1% firm Yen inflation goal in February. Efforts to weaken the Yen have come to nothing although the strong Yen may well see overseas acquisitions in 2012 exceed last year’s record US$84bn.

2009 2010 2011 2012 2013 GDP, real growth (2005p), % -5.5 4.5 -0.8 2.1 1.1 CPI, year average, % -1.4 -0.7 -0.3 -0.2 -0.9 Overnight call rate, year end, % 0.10 0.10 0.10 0.10 0.10 Yen to US$1, year average 94 88 80 79 79 Sources: 2009-2011 data from the BOJ and government sources; 2012-2013 forecasts by IMA Asia.

China

Political & policy issues to watch

China remains on China’s new Politburo Standing Committee will be unveiled at the Communist Party track for a stable Congress starting November 8, two days after the US presidential election. The congress leadership change was supposed to be held in October, but was likely delayed by factional disputes over places on the Standing Committee, and while decisions were made on the prosecution of … with Xi former Chongqing mayor Bo Xilai. Xi Jinping should emerge as the new party head with Li Jinping set to take Keqiang given a prominent role in the Standing Committee prior to being appointed over in November premier at next March’s National Peoples’ Congress (when Xi should also be given the title of state president). Sometime next year Xi should also be made head of the military so that he holds China’s three most powerful posts (head of the party, state, and military) as paramount leader. But how much power he actually has in his first 5-year term will depend on the make-up of the Standing Committee and that won’t be known until they step onto the stage in November.

Moving ahead on In late September, the People’s Bank of China released a report on financial reforms over finance reform the 12th Five Year Plan (2011-15). The reforms include greater flexibility for banks in setting interest rates, which should improve competition and move China away from the state allocation of capital. Exchange rate reforms will continue, but convertibility of the capital account will advance slowly. The PBOC also hopes to reduce over-reliance on banks for funding via stronger growth in areas such as corporate bonds.

Talk of a stimulus China’s 2012 stimulus plan is emerging in bits and pieces. The latest measure is a lift in package railway investment to RMB300bn in Q4 from RMB100bn in Q1-Q3. There is, however, talk of the need for a bigger and more coordinated stimulus package to help stabilise growth and this may be unveiled as China moves towards the NPC next March.

Outlook for the market

Growth softened Chinese grew 7.4%yoy in Q3, slightly down from 7.6%yoy in Q2, on softer internal and in Q3 external demand. Retail sales growth eased to 14%ytd by Q3’12, down from 17% in 2011, as a steady fall in consumer confidence led to weaker spending. A weak recovery is … with a mild lift expected to emerge in Q4’12, fuelled by government stimulus, allowing 7.7% GDP growth expected in 2013 in 2012 and 7.8% growth in 2013. The IMF predicts a slightly stronger recovery for China, with GDP growth of 7.8% in 2012 and 8.2% in 2013.

A hint of better After a weak August, manufacturing edged up in September. The HSBC purchasing exports and managers’ index rose to 47.9 from 47.6 (below 50 means contraction). Exports grew manufacturing in 10%yoy in September thanks to increased demand from the US. Exports to ASEAN also September rose 25%yoy, supported by strong government spending in the region. It is, however, too early to talk about a Q4 export recovery as the upturn is unlikely to consolidate until 1H’13 and then only slowly given the scale of problems in Europe. This will keep manufacturing growth around 9% in 2012 and 2013, down from 10.5% in 2011.

Investment Fixed investment growth is expected to slow to 8% in 2012 from an estimated 12.5% in growth has 2011. Residential real estate investment, a key driver, grew 11%ytd in Sep, down from slowed 30% in 2011. Foreign direct investment (FDI) is also weak, falling 3%ytd by August, as funds from US and Europe slowed. Investment growth will likely remain steady at 8% in 2013, with public infrastructure projects playing a prominent role.

Inflation to ease Weak demand saw inflation drop to 1.9%yoy in Q3 from 2.9%yoy in Q2, and as we look into next year we think inflation could drop towards 1% given the scale of the … but wheat demand/supply imbalance in the manufacturing sector. However, food inflation will likely prices to rise rise following a government mandated 10% increase in the wheat price. Overall, there is room for monetary easing going into 2013.

The RMB is up but In mid-October the RMB rose to 6.29 to the US$ from 6.32, with the PBOC allowing strong may pause to help demand to push the currency up. Given the soft export outlook we don’t think the PBOC is exports interested in letting the currency come up much further in the next year.

2009 2010 2011 2012 2013 GDP, real growth, % 9.2 10.4 9.2 7.7 7.8 CPI, year average, % -0.7 3.3 5.4 2.5 1.0 PBOC 1-year loan, at Dec., % 5.31 5.81 6.56 5.75 5.00 Yuan to US$1, year average 6.83 6.77 6.46 6.31 6.31 Sources: 2009-11 data from CEIC and government agencies; 2012-13 forecasts by IMA Asia.

Hong Kong

Political & policy issues to watch

Government HK Chief Executive CY Leung is trying to recover from a tough start to his first five-year policy focuses on term. Corruption disputes and difficulties liaising between the Chinese government and HK livelihood issues residents have damaged his popularity. Popularity is a bigger concern for Leung than for previous HK leaders as he will likely face a democratic election in 2017 if he seeks a second term. To boost his popularity, Leung has moved away from economic reforms and focused on livelihood issues. In his speech at the opening of the new Legislative Council (LegCo) in mid-October, he outlined his four policy goals: reducing poverty, helping the elderly, better housing, and the environment. More details are expected in coming months. This agenda appears to have helped Leung, with his approval ratings edging up. His main livelihood policy so far has been a doubling of the elderly monthly allowance to HK$2,200, although plans to means-test the increase have caused uproar.

Watch out for The new LegCo’s effectiveness looks uncertain. Political scandals and filibusters dogged policy paralysis the end of the last LegCo, slowing or sinking even uncontroversial bills. The new legislature may see more of the same, particularly after pro-China legislators pushed out … caused by almost all democrats from LegCo committees and panel chairs. This is a clear departure LegCo disputes from the past, and diminishes the role of pro-democracy parties, despite their winning a majority of the popular vote. This could trigger further street protests in coming months.

Little systemic Hong Kong has very low systemic risk in the event of an escalation of the Euro crisis or a risk further slowdown in China. The government has no net debt and retains a triple A rating with S&P. The economy would, however, suffer. A further slowdown in China would hurt … but plenty of HK’s sizeable transport and logistics sector. Continued quantitative easing in the US has economic issues also contributed to surging real estate prices (as interest rates are held at record lows and investors look for any asset, such as HK property, that might hold value let alone rise).

Outlook for the market

Little growth in Given a high dependency on global trade and investment, HK’s economy is slowing. 2012 Added to the global downturn there has also been a fall in spending by tourists from the mainland. This will likely reduce 2012 GDP growth to 1%, from 5% in 2011, with a mild … with a weak recovery to 2.5% in 2013 as China’s upturn consolidates and a global trade recovery 2013 upturn gradually emerges. The IMF expects growth of 1.8% in 2012 and 3.5% in 2013.

A slump in HK is a services city with little manufacturing. Of total exports some 95%+ are re-exports services growth while all HK’s trade surplus comes from services exports (logistics, financial, tourism, etc). Almost across the entire services spectrum, growth is down this year. Funds raised on the stock market were down 77%ytd by August while turnover in the futures/options market is down 7%yoy. Container movements are down 2%ytd and air cargo is flat. Mainland tourist arrivals are up 23%ytd but, as noted, their spending is down.

… which has The services slowdown has undermined consumer spending, with retail sales rising 4%yoy hurt consumer in Jul-Aug compared to 15%yoy in 1H’12. Weak retail spending will likely continue through demand to mid-2013, keeping real consumer growth on the GDP measure to 3.6% in 2012 and 2013, down from 8.5% in 2011.

Inflation heads Inflation slowed to 3.8%yoy in August from 4.7% in April. We expect inflation to ease to down 3.2% in 2012 and 0.5% in 2013 from 5.3% in 2011. A glut of manufacturing products and a strong currency (due to the US$ peg) will keep price pressure low.

… while the HK$ The HK$ will likely stay tied to the US$ over the forecast period. When China removes its peg stays capital controls, HK may consider re-pegging to the Yuan.

2009 2010 2011 2012 2013 GDP, real growth, % -2.6 7.1 5.0 1.0 2.5 Composite CPI (04/05), year average, % 0.6 2.3 5.3 3.2 0.5 Discount window base rate, % year end 0.50 0.50 0.50 0.50 0.50 HK$ to US$1, year average 7.75 7.77 7.78 7.76 7.76 Sources: 2009-2011 from Censtat, HKMA, and CEIC; 2012-2013 by IMA Asia.

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

Taiwan

Political & policy issues to watch

A 2nd term focus President Ma Ying-jeou of the KMT is focusing his second 4-year term (to 2016) on on signing trade boosting trade ties, which will require China to ease its long-established objection to deals (FTAs) international recognition of Taiwan. During his first term (from 2008) he led a major swing to better commercial ties with China, which reduced cross-straits tensions and opened up … if China new growth opportunities for Taiwan (notably tourism from China). A litmus test for his agrees second term will be progress on free trade agreements (FTAs) with Singapore, NZ, and the US. At present only a small proportion of Taiwan’s exports benefit from lower tariffs under … + visa-free bilateral trade deals, which weakens growth opportunities in export manufacturing. As travel to the US 2012 closes, President Ma is doing a good job in skirting tricky issues surrounding the leadership changes underway in the US and China and over disputed control of islands in the East China Sea. In return, the US has sent out a strong positive signal by allowing Taiwanese visa-free travel for tourism or business to the US (for 90 days) from November.

A continued small The government has announced a mild fiscal stimulus package that will see it run a 10% fiscal stimulus bigger budget deficit in 2013 (its 5th consecutive deficit). There are no tax cuts or new into 2013 spending initiatives; the stimulus is simply a decision not to try returning to a budget surplus in a year of weak economic growth. This will lift gross public debt to GDP to 37.1% in 2013 from 35.6% this year (still under a constitutional cap of 40%).

Outlook for the market

The chance for a Taiwan’s massive integration into global supply chains that run through China makes it one mildly positive of the most exposed Asian markets to global demand swings. Exports to August fell finish to 2012 5.6%ytd before a surprise jump to 10.4%yoy growth in September, which was due to a 15.8%yoy rise in China shipments for September. We think this reflects a surge in … as electronics component shipments for iPhone 5 assembly in China along with a revival in US demand exports lift on US linked to a traditional pre-Christmas order cycle. The key question is whether this is demand sustainable. We are cautiously optimistic and expect export growth to stay in a 2-8%yoy range through end-2012. This should help lift industrial production growth to 1-3%yoy over … after little the final months of 2012 after a fall of 2.8%yoy for the first seven months. We are raising growth in Q1-Q3 our GDP forecasts to 1.2% in 2012 (from 0.8%), and 2.1% in 2013 (from 1.5%) on a stronger electronics demand. Meanwhile, the IMF has cut its overly-optimistic May forecast to 1.3% in 2012 (previously 3.9%) and 3.9% in 2013 (previously 4.8%). We may lift our 2013 forecast once it’s clear that the US has avoided a fiscal cliff in January and that China’s mild stimulus is working.

Tourism from Taiwan’s consumer sector remained soft with declining confidence reducing retail sales China has helped growth to 3%ytd by August from 6.5% for full 2011. Tourist arrivals have supported retail sales spending, up 25%ytd in Aug from 10% growth in 2011. Stronger exports will likely raise worker’s overtime hours in coming months, increasing household incomes and purchases. This will likely lift consumption real growth to 1.8% in 2013 from an expected 1.1% in 2012.

A weak housing Residential approvals spiked up 17%yoy in Jun-Aug’12, but this growth is unlikely to be market sustained due to weak investor sentiment. Investors are complaining about finance and tax issues, which will likely slow construction over the next 15 months. We forecast 82,500 housing approvals in 2012 and 55,000 in 2013, down from the 2011 level (93,000).

Little inflation and Inflation slowed to 3%yoy in Sep from 3.4%yoy in Aug, as food prices eased following a a steady NT$ typhoon-driven spike. We expect inflation to ease to 2.1% for 2012 and 1.3% in 2013 on weak demand. Stronger exports will also provide some support for the NT$, which appreciated to 29.3 to the US$ in Sep from about 30 in August.

2009 2010 2011 2012 2013 GDP, real growth, % -1.8 10.7 4.0 1.2 2.1 CPI, year average, % -0.9 1.0 1.4 2.1 1.3 Official discount rate, year end, % 1.25 1.63 1.88 1.88 1.88 NT$ to US$1, year average 33.1 31.6 29.5 29.7 29.7 Sources: 2009-2011 government data and CEIC; 2012-2013 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]

South Korea

Political & policy issues to watch

Dec 19 election South Korea’s presidential poll will take place on December 19. It will either be a 3-way contest between two liberals and one conservative, which would likely be won by the … a muddled conservative Ms Park Geun-hye of the ruling Saenuri party, or a much closer 2-way contest opposition helps if Moon Jae-in of the opposition DUP and software mogul Ahn Cheol-Soo (an independent) Ms Park can agree to one liberal candidate. Ms Park promises a softer conservative line than outgoing President Lee Myung-bak, while the liberal camp would favour social policies and a return to former President Kim Dae-jung’s “sunshine policy” in dealing with North Korea. Korea’s large corporates and foreign firms (both common political targets) would face a mild shift to less supportive policies under a liberal government.

RISK While a global downturn normally boosts country risk for a big export manufacturer like Korea, the latest IMF Article IV report suggests improved resilience supported by rising … the IMF cites foreign exchange reserves and improved management of short-term debt by local banks (a greater financial weak finance sector has been Korea’s Achilles heel for decades). As a result, the current strength in this slump in growth shouldn’t be the trigger for a domestic crisis. The IMF directs Korea’s downturn attention to two big long-term issues: income inequality and a rapidly ageing population. Fixing both will require a big lift in service sector productivity and this will require substantial deregulation, something Korea hates. Reform to the services sector, where most Koreans now work, is critical to lifting trend growth from under 3% to back above 4%.

A mild lift in fiscal Some US$12.6bn in fiscal stimulus has been announced so far this year to counter the & monetary trade-driven slowdown. The focus has been on business incentives, short-term welfare stimulus payments, and tax cuts. The Bank of Korea has also helped with a 25bp interest rate cut to 2.75% in October. There’s room for more fiscal and monetary stimulus if needed.

Outlook for the market

Watch for better With exports falling 1.6%ytd by September and industrial production up 2.2% for the first exports to lift 2013 eight months (from 7% for full 2011), overall GDP growth this year will slow to 2.2%. Next growth year should be better as we expect a strong US recovery (not the consensus view) and firmer growth in China, which will boost Korea’s exports and lift growth to 3.5%. The IMF’s October forecast is for 2.7% in 2012 and 3.6% in 2013 on stronger exports and investment.

… although At present there’s no sign of a lift in export manufacturing. The HSBC Purchasing Korea lags Taiwan Managers Index fell to 45.7 in Sept (under 50 means a contraction), the lowest level since & China in a late early 2009. While air cargo shipments were up 1.7%yoy in September after two negative 2012 export lift months, there’s little sign of a firmer lift emerging as in Taiwan or China. The big loss is EU-bound exports (down 13%ytd by Sep) and exports to China (-2%ytd), while US exports are up 6.7%ytd. We expect exports to fall 1.5% this year followed by 7.5% growth in 2013. Industrial production should finish 2012 with 2.2% growth, and lift to 4.8% in 2013.

Soft local demand While housing approvals have risen, anecdotal evidence suggests that many projects have hits construction not started as a 27%ytd fall in apartment transactions has undermined sentiment. and retail sales Construction growth on the GDP real measure will likely fall 0.5% in 2012 before rising 1.1% in 2013 on an uptick in civil engineering work under a new administration. Retail sales slowed to 1%yoy growth in August as factory overtime pay evaporated. We expect real consumer growth of just 0.9% in 2012 (from 2.3% in 2011), with a lift to 1.7% in 2013.

Little inflation and Inflation rose to 2%yoy in Sep from 1.4% in Aug, but remains at the bottom end of the a weak Won Bank of Korea’s 2-4% band. Inflation is likely to ease over the next year on weak local and global demand. This will provide room for interest rate cuts as necessary. The Korean government is expected to maintain a weak Won strategy through 2013.

2009 2010 2011 2012 2013 GDP growth, % 0.3 6.3 3.6 2.2 3.5 CPI, year average, % 2.8 2.9 4.0 2.1 1.4 BOK Overnight call rate, year end, % 2.00 2.50 3.25 2.75 2.50 Won to US$1, year average 1,281 1,159 1,108 1,135 1,125 Sources: 2009-2011 government data (NSO, BOK) and CEIC; 2012-2013 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]

Indonesia

Political & policy issues to watch

Prabowo gets a Gerindra leader Prabowo Subianto, already a top contender in the 2014 presidential race, boost for the 2014 will ride the tailwind of Joko Widodo’s (Jokowi) victory in the Jakarta elections. Jokowi’s presidential race success was extraordinary given his outsider status against a heavily favoured incumbent. As the primary backer of Jokowi and the national figure most associated with his campaign … from Jokowi’s for integrity, pluralism, and change, Prabowo will get a boost in the 2014 presidential race. big win in Jakarta Equally important was Prabowo’s public support of Basuki Tjahaja Purnama (Ahok, Jokowi’s ethnic-Chinese, Christian running mate) in the face of sectarian attacks. This could be a pivotal point in Prabowo’s effort to address the baggage of his past as a senior general linked with the 1998 Jakarta riots and attacks on the Chinese community, possibly the biggest factor weighing against his presidential bid. It is, however, uncertain whether Gerindra can meet the requirement for nominating a presidential candidate; in 2009 this was winning 20% of the vote or 25% of the seats in the prior parliamentary election. That hurdle might be reset by the 2014 election law, which is still being debated.

While Bakrie’s run By contrast, Golkar, which is one of the two parties that should easily win sufficient for 2014 struggles votes/seats to nominate a candidate, is increasingly uneasy over party chairman Aburizal Bakrie’s presidential bid. Golkar is slated to hold a national congress this October, where Bakrie will have to rigorously defend his candidacy. In addition to Bakrie’s poor ratings and business troubles, the party is facing renewed scrutiny for corruption after a report showed Golkar to be the most corrupt party based on the number of Golkar governors, district chiefs, and regional leaders facing corruption investigations. It would not be surprising if intra-party conflict spilled into the open in the next few months.

Outlook for the market

A sharp slump in Talk of Indonesia’s economy overheating is waning as Europe’s recession and weaker commodity growth in India and China slash demand for Indonesia’s commodities. Exports, which fell exports 2.6%ytd for the first seven months, plunged 24%yoy in August. The price of palm oil, of which Indonesia is the world’s largest exporter, is at a two-year low and recently saw the … pulls down largest monthly drop since the 2008 GFC. Rubber, of which Indonesia is also a major growth in 2H’12 exporter, is near three-year lows. Sugarcane farmers, meanwhile, are warning of a free- fall in local sugar prices amid a glut in supplies with the government’s decision to allow raw sugar imports. We’ve trimmed our 2012 estimate to 6% (6.8% before) but bumped up 2013 to 6% (5.5% before) on a strong lift in fixed investment. The IMF’s October forecast is for 6% this year and 6.3% in 2013.

Watch for weaker After two years of strong growth the consumer sector will retreat for several quarters as consumers rural households find their incomes down as the harvest season gets into high gear. Motorcycle sales are a key barometer of middle-income Indonesia, and they are down … with a mild lift 13.2%ytd by August with a bigger fall likely in Q4’12. Real growth in private consumption, by mid-2013 which rose 5% in 1H’12 after 4.7%yoy growth in 2010 and 2011, will likely slow to 4% for full 2012 before a mild lift to 4.8% in 2013.

But capex should The upside for the next 12 months lies in investment, which accelerated to 11%yoy growth remain strong in 1H’12 from 8% growth in 2010 and 2011. This looks set to continue with parliament’s recent approval of US$20.3bn in infrastructure spending in the 2013 budget, up 15% from … with a boost this year (the legislature is expected to pass the 2013 budget this October.) Meanwhile, for infrastructure Jakarta’s closely watched mass rapid transport (MRT) project, which is Japanese-funded, should see tender winners for key segments announced in the coming month. If … & growth in successful this would be a big win for the government’s public-private partnership (PPP) manufacturing scheme. Manufacturing, which grew 6.2% in 2011 and 5.5% in 1H’12, is also emerging as a key growth driver with firms as diverse as Toyota, Pirelli, Foxconn, and L’Oreal committing to expansion.

2009 2010 2011 2012 2013 GDP, real growth, % 4.6 6.2 6.5 6.0 6.0 CPI, year average, (2007=100), % 4.8 5.1 5.4 5.0 6.0 Central bank policy rate (Repo) at Dec., % 6.50 6.50 6.00 6.25 6.25 Rupiah to US$1, year average 10,356 9,086 8,776 9,401 9,388 Sources: 2009-2011 government data (BPS, BI) and CEIC; 2012-2013 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]

Malaysia

Political & policy issues to watch

Another big pre- With an election fast approaching (April 2013 at the latest, but November 2012 most likely), election budget PM Najib Razak’s FY2013 budget has expanded the flood of government cash that has been rising since mid-2011. Tax rates will be cut by 1 percentage point for annual incomes … as PM Najib of M$2,500-50,000, poor households will receive M$500, public servants will get an prepares for an additional bonus of one month’s salary, and civil servants’ minimum pensions will rise to early poll M$820 a month. The budget extends a 50% stamp duty waiver for first home buyers to December 2014, but raised the real property gains tax to 15% from 10% for properties sold … while public within two years of purchase. Savings of M$4.8bn will come from a cut in the sugar debt & deficits subsidy and promises of other subsidy cuts with the goal of trimming the budget deficit need watching from 4.5% of GDP in 2012 to 3% by 2015 and keeping public debt below 55% of GDP (53.7% in 2012). To get there, the budget projects slower public consumption (1.2% growth in 2013 from 11.3% in 2012) and investment (4.2% in 2013 from 15.9% in 2012). Rating agencies have threatened a downgrade if Malaysia doesn’t reduce its deficit by widening its tax base, slashing fuel subsidies, and reducing its excessive dependence on oil & gas revenues.

Elections boost PM Najib hopes that a public spending-fuelled surge in growth will win sufficient support the stock market from disaffected Chinese and urban Malays for his UMNO-led coalition to regain the two thirds majority it lost in the 2008 elections. Sentiment and UMNO finances have also been … but will the lifted by a booming stock market, with the help of three massive IPOs: Felda (US$3.3bn, a French torpedo palm oil producer), IHH (US$2.1bn, a regional hospital operator), and Astro (US$1.5bn, in Najib? pay-TV). Opinion polls suggest the race is too close to call. A wild card to watch is a French court case that is examining alleged corruption in Malaysia’s purchase of two submarines in 2002 when Najib was defence minister.

Outlook for the market

Surging local With GDP up 5.1%yoy in 1H’12, Malaysia has defied the global slowdown with a hectic demand in 2012 expansion in domestic spending. Private consumption was up 8.1%yoy, government consumption up 8.4%yoy, and fixed investment up 21.3%yoy, offsetting a massive 28%yoy … but watch for fall in net exports. While the surge in public spending was driven by election slower growth in considerations, it happily coincided with weak export demand. Domestic activity is also public spending in underpinned by construction work on several large projects that are part of the 2013 government’s US$444bn investment program to 2020. We expect the pullback in public spending projected in the FY2013 budget to coincide with a better export environment that will lift growth to 4.3% in 2013 from 4% in 2012. In its October update, the IMF kept its Malaysian GDP growth forecasts unchanged at 4% for 2012 and 4.7% in 2013.

A surge in capital Booming consumption and investment lifted import growth to 7.4%yoy for the year to goods imports for August, while exports rose just 1.5%yoy. Exports have weakened in recent months, with a construction 4.5%yoy fall in August after a 2.6%yoy decline in July. By contrast, imports of capital goods soared 23.8%yoy in the first eight months, while intermediate goods (used in … but a stall in manufacturing) fell 1.3%yoy. Manufacturing activity grew 5.3%yoy for the first seven manufacturing months on strong local demand but then fell 1.7% in August on weaker output across the industrial spectrum. A mild revival in exports in 2013 should allow more balanced growth next year.

Inflation drops Bank Negara has wisely avoided cutting its policy rate since May 2011, which has helped inflation fall from a mid-2011 peak of 3.5%yoy to 1.4%yoy in August despite surging local … but no rate demand. No change is expected until well into 2013. The M$ has stayed within a narrow cut and a firm M$ range of 3.0-3.2 on the US$ since September 2011 but should lift towards 2.9 in late 2013 as global growth rebuilds.

2009 2010 2011 2012 2013 GDP, real growth, % -1.5 7.2 5.1 4.0 4.3 CPI, year average (2010=100), % 0.6 1.7 3.2 1.6 2.0 Central bank overnight policy rate, Dec, % 2.00 2.75 3.00 3.00 3.00 Ringgit to US$1, year average 3.52 3.22 3.06 3.12 3.06

Sources: 2009-2011 government, Bank Negara, & CEIC; 2012-2013 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]

Philippines

Political & policy issues to watch

Aquino riding Two years into his 6-year term, President Aquino is on roll. He is running a successful high on anti- anti-corruption campaign that has put ex-President Arroyo under arrest for plunder and corruption and vote-rigging, and impeached Chief Justice Corona for corruption. Aquino extended the economic growth fiscal gains made under Arroyo, which will likely see the country returned to investment grade debt within a year. He aims to slow down the country’s excessive population growth (a major contributor to poverty) with greater availability of contraception, against stiff opposition by the powerful Catholic church. The government’s US$14.3bn infrastructure program is also belatedly gathering momentum, with large private sector participation. These positive steps have encouraged local and foreign investors, with the stock market at record highs and the Peso reaching a four-year high against the US$.

Mindanao peace Aquino’s latest breakthrough is a peace deal signed with rebels of the Moro Islamic deal has a good Liberation Front (MILF) to end a 40-year secessionist conflict in the southern island of chance of Mindanao. The deal provides a road map for a new self-governing entity (Bangsamoro), success with the power to impose taxes and share mining revenues with the central government. It requires approvals from Congress and a local referendum, and is likely to face resistance from splinter Muslim groups, and legal challenges at the Supreme Court. Aquino hopes to overcome these obstacles and get the peace process completed by 2016, his last year in office. Attempts by previous administrations to end the conflict failed, leading to a heavy death toll and making the island’s rich mineral deposits inaccessible to miners. However, there is a better chance for the current deal to succeed, as it enjoys wider Muslim support in Mindanao and there is a more determined government in Manila.

Outlook for the market

Investment-led GDP expanded 6.1%yoy in 1H’12, from 3.9% in full 2011, on the back of a 12.3%yoy growth increase in government spending and solid 5-6%yoy growth in private consumption and fixed investment. However, growth momentum is likely to ease in 2H’12, as an investment- driven rise in domestic activity will lift imports. We maintain our growth forecast of 4.8% in 2012 and 5.8% for 2013. Next year’s higher growth figure reflects expectations of a stronger world economy. In its October review, the IMF raised its Philippines GDP forecast for 2012 to 4.8% (from 4.2%) and adjusted its 2013 projection to 4.8% (from 4.7%).

Strong domestic High-frequency indicators point to continuing strength in domestic spending. Consumer spending and confidence strengthened in 3Q’12, while the pace of remittances from overseas Filipino OFW remittances workers (OFW) accelerated to 7.6%yoy in August from 5.4%yoy in July. OFW remittances account for 10% of GDP and are a significant driver of consumer spending, which in turn accounts for a relatively high 70% of GDP. However, exports declined 9%yoy in August, after defying weakening global demand in the early part of this year. Industrial production, which is broadly correlated with exports, eased to 3%yoy in August from a recent high of 13.5%yoy in March. The emerging weakness in exports and industrial output is in line with our expectation of softer GDP growth in 2H’12.

A low inflation Over the last 10 years the Philippines made a remarkable transition from a high inflation, and country with high interest rate and weak currency country to one of low inflation and borrowing costs, an appreciating and a rising exchange rate. Inflation remains historically low, even though it edged up to currency 3.6%yoy in September from a March low of 2.6%yoy. The central bank cut its policy interest rate to 5.75% from 6% in July, and could be tempted to lower it further in order to discourage an unwelcomed increase of “hot money” inflows from abroad. Strong capital inflows have turned the Peso intp one of Asia’s fastest rising currencies against the US$ in 2012; a trend we expect to persist into 2013.

2009 2010 2011 2012 2013 GDP growth, % 1.1 7.6 3.9 4.8 5.8 CPI, annual average, % 3.3 3.8 4.7 2.9 3.5 Central bank overnight loan rate, year end 6.00 6.00 6.50 5.75 6.00 Peso to US$1, annual average 47.6 45.1 43.3 42.0 40.0

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]

Singapore

Political & policy issues to watch

Singapore lets the As a global trade and investment hub, Singapore is directly exposed to the global downturn global downturn (exports and imports each account for over 200% of GDP). Rather than attempting to cool its tight counter the downturn with stimulus measures, the government appears happy to use the economy global slump to help correct some macro-imbalances that emerged from the rapid rebound after the 2009 GFC. Both fiscal and monetary policy settings have been kept moderately tight since early this year (see below). Despite a very liberal inward migration policy, the labour market remains tight and house prices keep rising to record levels. The unemployment rate dipped to 2.8% in Q2’12 as 31,700 new jobs were created, up from 27,100 in Q1’12. The housing market has been defying repeated government measures to cool it down. Its main price index edged up to a new record high in Q3’12, even though the pace of its ascent eased to 1.1%yoy from a heady 38.2%yoy in Q2’10.

High immigration In recent years, Singapore has been trying to overcome the supply constraint of slow domestic population growth with a policy of fast inward migration. This resulted in … critical for foreigners with work permits and permanent residency visas rising to a third of the economic strategy country’s 5.2m population. It is estimated that about 70% of the 122,600 new jobs created in 2011 went to foreign workers. Public discontent with overcrowding and increased … but also a big competition for jobs and public services contributed to the ruling PAP party’s smallest political issue election win in 2011 since Singapore’s independence in 1965. The government responded with a mild tightening of migration inflows, but made it clear that significant foreign worker intake will continue. Immigration is likely to remain a key political issue, with the authorities trying to balance the economy’s dependence on foreign labour with local sensitivities.

If you like building Associated with high population growth is a very high level of fixed investment per capita things you’ll like (our Asia Forecast Book puts this at US$11,729 in 2011, well above the US at $6,143, HK Singapore at $7,525, and Japan at $8,713) as Singapore upgrades and expands its infrastructure. A massive urban/port redevelopment is likely to the west of the CBD over the next decade. As part of this, Singapore Terminals has announced a S$3.5bn (US$2.9bn) plan to add 15 new berths to its Pasir Panjang port, which will lift Singapore’s container handling capacity to 50m 20-foot equivalent units per year by 2020. In 2011, Singapore ranked 2nd in the world to Shanghai in container movements at 29.9m TEUs.

Outlook for the market

Growth drops GDP growth slowed to 1.3%yoy in Q3’12 on preliminary data, from 1.9%yoy in 1H’12 and towards 1% 4.9% in full 2011. Weak manufacturing (1.3%yoy) and services (1.1%yoy) more than offset a robust 8.6%yoy lift in construction. Declining external demand was a key factor … as exports behind the growth slowdown, as the 12-month trade surplus fell to US$33.3bn in slump September from US$48.4bn in July 2011. However, domestic spending also seems to be losing momentum. Excluding cars, retail sales growth slowed to 2.5%yoy in August from … & domestic 11%yoy in mid-2011. Moreover, the 12-month rolling sum of construction contracts demand cools awarded (in value terms) fell 7.7%yoy in August after a 5.7%yoy decline in July. Private contracts were down 1.6%yoy, while public contracts fell 16.1%yoy. We expect a modest … watch for a lift to 3.5% GDP growth in 2013, from 2% in 2012, as global demand recovers. In October, mild lift into 2013 the IMF cut its Singapore GDP forecast to 2.1% for 2012 and 2.9% for 2013 (from 2.7% and 3.9% respectively).

Inflation eases The inflation rate retreated to 3.9%yoy in August after staying above 5%yoy for most of the 12 months to June. However, this was not enough for the MAS to reverse the monetary … but the S$ is tightening it adopted last April; the central bank points to inflationary pressures still present set for a record in the tight labour market and rising food prices. At its October policy review, the MAS high decided to keep the S$ on a mildly appreciating slope against an undisclosed basket of currencies. Since January, the S$ has been the best performer among Asia’s 11 most- traded currencies, rising 6%ytd on the US$. It is about to revisit, and likely exceed, its 1.2 record high of August 2011.

2009 2010 2011 2012 2013 GDP, real growth, % -1.0 14.8 4.9 2.0 3.5 CPI, year average, % 0.6 2.8 5.2 4.0 2.5 3 month interbank interest rate, Dec, % 0.69 0.44 0.38 0.38 0.45 S$ to US$1, year average 1.45 1.36 1.26 1.26 1.22 Sources: 2008-2011 government data and CEIC; forecasts for 2012-2013 by IMA Asia.

Thailand

Political & policy issues to watch

PM Yingluck The government’s rice price support scheme is under sustained attack from the opposition needs to halt a and independent observers for being hugely inefficient, expensive, corruption prone, and disastrous rice damaging to Thailand’s position as a premier rice exporter. The scheme cost Baht 270bn price support (US$8.9bn) in 2011 including administration and warehousing. This could rise to Baht 1 scheme trillion if the program is extended into 2013. It would be a lot cheaper to support farmers’ income through direct cash payments. The current scheme, which is the brain child of ex- PM Thaksin, offers huge potential for political patronage in rural areas for the government. In a recent interview, Thaksin offered a spirited defence of the program and praised PM Yingluck’s skills in navigating Thailand’s treacherous political landscape. The authorities have so far refused to disclose details of loss-making rice sales abroad in deals that many are questioning given lack of parliamentary oversight.

The battle over Thaksin’s praise of PM Yingluck is reasonable. As his younger sister and a relative political Thaksin continues novice, she has managed to strike a balance between the interests of the Shinawatra family and the Thai elite. Her recent withdrawal of plans to amend the 2008 Constitution and an amnesty bill that would have allowed Thaksin’s return to Thailand defused a potentially volatile situation. However, the shadow play between the two camps continues. In October, the country’s Supreme Court issued a new arrest warrant for Thaksin, who has lived overseas since 2008.

Outlook for the market

A strong local GDP growth edged up to 2.2%yoy in 1H’12 after the devastating floods of last November recovery runs into kept growth flat in full 2011. The recovery was led by a 7.7%yoy lift in fixed investment, an export slide with good private consumption growth (4.2%yoy), and a big inventory rebuild. However, the rebound was restrained by an 18.7%yoy plunge in net exports. The weak external environment has continued into 2H’12, and there are signs that domestic demand is also … holding softening. Exports fell 7%yoy in August after a 4.5%yoy fall in July, while imports reversed down GDP growth a solid 10.5%ytd expansion for the first seven months with a steep 8.8%yoy decline in August. Manufacturing output has been losing ground since mid-2011 with the index down 4.5%yoy for the first seven months followed by an 11.3%yoy fall in August. We’ve kept our GDP growth forecasts of 3.7% for 2012 and 4.4% for 2013. In its October review, the IMF forecast 5.6% for 2012 (previously 5.5%) and lowered 2013 to 6% from 7.5%.

But capex has Private fixed investment remains one of the bright spots as 2012 closes. Private jumped as firms investment in plant and equipment jumped 11.7%yoy in real terms in 1H’12 as factories expand factories rebuilt while private investment in construction rose 6.3%yoy. Construction area permits, & distribution which climbed steeply in 2011, have levelled off some 30% above the trend for the prior decade (cement consumption, which grew 5.5%yoy in 1H’12 by volume, jumped 16% in July and 11%yoy in August). Even the rolling 12-month total for commercial vehicle sales was up 23%yoy by August as companies pushed out their distribution networks.

A small rate cut After resisting growing political pressure for much of this year, the Bank of Thailand (BOT) that may be finally gave in to the government and cut its policy interest rate to 2.75% from 3% in reversed in 1H’13 October. While the economy is turning soft, inflation accelerated to 3.4%yoy in September from an April low of 2.5%yoy. Moreover, the labour market remains tight and some of the … watch for a government’s populist policies have a clear inflationary bias. A speedy reversal of the lift in the Baht interest rate cycle is likely in 2013 if the BOT’s inflation worries turn into reality. Persistent once global risk global economic uncertainty confined the Baht within a narrow range of 29.6-31.8 on the eases US$ since August 2011. We expect the Baht to exit on the strong side of this band once a global recovery emerges.

2009 2010 2011 2012 2013 GDP, real growth, % -2.3 7.8 0.1 3.7 4.4 CPI (2002 index), year average, % -0.8 3.3 3.8 2.7 3.0 Central bank, policy rate, year end, % 1.25 2.00 3.25 2.75 3.75 Baht to US$1, year average 34.3 31.7 30.5 31.4 30.5 Source: 2009-2011 data from the IMF and CEIC; 2012-2013 forecasts by IMA Asia. 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]

Vietnam

Political & policy issues to watch

A split in the Tensions inside Vietnam’s ruling elite have spilled into the open as a 2-week internal party ruling elite examination of errors culminates. The loser is PM Nguyen Tan Dung, who will keep his job for now but lose much of his authority. His rivals, President Truong Tan Sang and … weakens PM Communist Party General Secretary Nguyen Phu Trong, attacked him for accumulating Dung excessive power and championing the profitless expansion of corrupt and inefficient state owned enterprises (SOEs). Several top SOE executives who flourished under the easy … watch for a credit regime launched by Dung when he took over in 2006 have been arrested. A major reshuffle of top realignment of patronage networks can now be expected as government and SOE SOE execs managers associated with PM Dung are replaced by supporters of Sang and Trong.

RISK Concerned about the prospect of slower growth and increased banking risk, Moody’s cut Vietnam’s credit rating from B1 to B2 in late September. This is five notches below … lots of it in investment grade and at the same level as Egypt and Cambodia. The slow speed of the bank sector banking reform and a lack of transparency were additional factors in Moody’s downgrade. By contrast, S&P upgraded its risk assessment of the bank sector. While S&P noted “very … but it may be high risk” in Vietnam’s banking framework, it felt that macroeconomic risks have fallen about to ease following a major rebalancing of the economy. This helped cut credit growth, deflate the property bubble, and dramatically reduce inflation and the trade deficit. The divergent views reflect the uncertain transition to a more balanced economy in which estimates of bad bank loans range from 4.5% to 20% of total loans. A banking reform plan launched in late-2011 has yet to show results with progress apparently delayed by complex interlocking relationships between banks, SOEs, and rival factions within the Communist Party. Those ties may now be broken so we will see if the reform program can now push ahead.

Outlook for the market

Export factories With the cheap credit tap firmly turned off, a property bust, and a collapse in global lift the economy demand Vietnam’s outlook would seem grim. Yet it is doing OK thanks to the rapid expansion of export manufacturing. GDP grew 5.4%yoy in Q3’12 from 4.4%yoy in 1H’12, … as the fall in due to faster growth in manufacturing (5.4%yoy) and services (7.3%yoy), and a slower fall construction in construction (-0.9%yoy in Q3 from -5.4%yoy in 1H’12). We expect the bottoming out of slows the construction cycle to be followed by a gradual recovery in domestic demand. Domestic activity has been weak since mid-2011, led by a steep fall in fixed investment (-10.4% in … with a lift in full 2011). A recovery in domestic spending should be confirmed by a pickup in the pace of growth for 2013 imports as 2012 closes (at September imports grew by a weak 3.8%yoy). We expect GDP to grow 4.8% in 2012 and 6% in 2013. The IMF has cut its growth forecasts to 5.1% in 2012 and 5.9% in 2013 from 5.6% and 6.3% respectively.

Record FDI likely In 2012, Vietnam’s foreign direct investment (FDI) inflows are set to exceed their 2008 in 2012 record of US$9.5bn, but fall short of the official target of US$15-16bn. For the first nine months realised FDI inflows reached US$8.1bn and new FDI pledges US$9.5bn. It is … drawn by encouraging that the bulk (65%) of incoming FDI goes to export-oriented manufacturing, manufacturing helping the economy withstand a turbulent adjustment to a more balanced growth pattern. opportunities Export growth lifted to 22.1%yoy in September from 9.3%yoy in July, despite very sluggish global demand. September exports grew much faster than imports (21.1%ytd versus 8.7%ytd), delivering a significant boost to GDP from a rapid fall in the trade deficit.

Interest rates on Inflation edged up to 6.5%yoy in September, after a steep descent to 5%yoy in August hold until inflation from 23%yoy in August 2011. Aiming to preserve hard-won macroeconomic improvements, drops further the central bank paused its monetary easing, having reduced its policy interest rate to 10% in July from 15% in February. The easing could resume if the CPI starts to subside again. … which has The Moody’s credit downgrade failed to shake the recently-found tranquillity of the market helped stabilise Dong rate, which has been stable near the official reference rate of 20,828 on the US$ the Dong since late-2012. The close alignment to the official rate suggests that market participants do not expect a new round of Dong depreciations in the months ahead.

2009 2010 2011 2012 2013 GDP, real growth, % 5.3 6.8 5.9 4.8 6.0 CPI, yoy, % (2005=100 from 2007) 6.7 9.2 18.7 9.1 6.0 Central bank refinancing rate, year end, % 8.0 9.0 15.00 10.00 8.00 Dong to US$1, year average 17,860 19,151 20,511 20,860 21,000 Source: 2008-2011 data from the IMF and CEIC; 2012-2013 forecasts by IMA Asia.

India

Political & policy issues to watch

At last India talks India faces a tough and very uncertain year. Oddly this is not deterring portfolio investors, about reforms to as the local stock index has jumped 8% and foreign portfolio inflows have surged lift growth US$7.7bn since Finance Minister Chidambaram announced a string of long-delayed reforms. Yet, delivering those reforms - which include relaxing the foreign direct investment (FDI) caps in insurance, pensions, retailing, and aviation – will be hard. In … but reform September, the ruling UPA coalition lost its majority as West Bengal Chief Minister Mamata has opponents Banerjee pulled her Trinamool Congress out of government. While UPA holds onto office inside & outside thanks to outside support from the BSP and Samajwadi Party, neither of these want of government reforms. UPA ministers, conscious of the looming 2014 elections, have also voiced anti- reform views. It is no surprise that pundits (and Ms Banerjee) are talking about the early fall of the UPA government.

Watch for India’s Chidambaram’s biggest challenge is to curb a soaring budget deficit. He must announce plan to curb the his plans soon if he is to win the support of the Reserve Bank of India (RBI) and prevent a budget deficit loss of India’s investment grade rating with S&P and Fitch. Yet the UPA government has shown no interest in fiscal restraint in the past. Strong opposition to cuts will come from … which will Congress Party chief Sonia Gandhi, who favours big welfare programs, all the way down to face opposition Oil Minister Jaipal Reddy, who prefers fuel subsidies over riots.

The RBI has little The RBI, a key player in India’s outlook, has its hands tied for the moment. India’s room to move economy needs a quick boost and that has typically come from a cut in interest rates after a bout of inflation has been tamed. Yet, the latest WPI inflation rate saw a rise to a 10- … until inflation month high of 7.8%yoy for September, making any cut in the current 8% policy rate before drops & fiscal early 2013 unlikely. Moreover, the RBI has made clear it wants to see implementation of policy is tightened fiscal restraint before it eases monetary policy.

Outlook for the market

Growth of 4-5% Last month we slashed our 2012 forecast to the low end of 4-5% as it was hard to see any reversal in the downward trend across many indicators before 1H’13. The IMF’s October … until reforms forecast comes close to ours: 4.9% this year and 6% in 2013 (on the GDP Production & better fiscal measure). Our pessimism reflects the low probability of FM Chidambaram pulling off the policy start two big fixes he needs to deliver – reform and fiscal tightening. If he can deliver about half of what is needed in both areas, India would quickly bounce back to growth in the 6-7% range.

There is scope for India’s underlying consumer market is good with car sales up 10%ytd and 2-wheeler sales a quick upturn (a useful pointer to rural demand) up 5.7%ytd. Real consumer growth on the GDP measure was 5%yoy for 1H’12, not far off the full 2011 result of 5.4% and we expect 4.8% … as consumer for full 2012 followed by 5.2% and 5.6% for the following two years. This is not a bad base demand is sound for national growth if reforms are initiated and investor sentiment lifts. Indeed the services side is doing well, with real growth of 10.4%yoy for 1H’12 in the finance/insurance sector, … construction 7.8%yoy for construction, and around 5.5%yoy for utilities and the trade, transport and & services do well hotels sectors. These areas may slow modestly in the next few quarters but they won’t face a sharp downturn; moreover, they should lift quite quickly if and when reforms start.

The key lies in a The big challenge lies in manufacturing (no growth in 1H’12) and fixed investment recovery in capex (2.2%yoy in 1H’12). Both have been hit by high interest rates and difficulty in obtaining & manufacturing funds. These two areas have to lift if we are to get GDP growth back above 5% and that depends on sentiment, which depends on reforms, better fiscal policy, and lower interest rates.

Calendar year starting January 2009 2010 2011 2012 2013 GDP (Production), real growth, % 7.6 8.9 7.5 4.5 5.9 GDP (Expenditure), real growth, % 5.7 10.4 7.9 4.1 4.7 Inflation - WPI, year average, % 2.4 9.5 9.5 7.0 5.8 Inflation - CPI, Indust workers, yr avg, % 10.9 12.0 8.9 8.0 6.5 RBI lending (repo) rate, year end, % 4.75 6.25 8.50 7.75 7.00 Rupee to US$1, RBI Ref Rate, yr avg. 48.3 45.8 46.6 56.2 57.3 Sources: 2009-2011 data from the government (NCI, RBI) and CEIC. 2012-2013 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]

Australia

Political & policy issues to watch

Labor should hold PM Julia Gillard leads a minority Labor government that should serve out most of its three onto power thru year term with the next election due before 30 November 2013. The recent resignation of mid-2013 the lower house speaker means Labor needs the support of five out of seven independents to maintain government. The independents are unlikely to dump Labor as they have … but may lose unusual strength under this arrangement, although Gillard has not always bowed to their the next election demands. Opinion polls give the Liberal-led opposition a steady 53% to 47% lead over Labor, putting opposition leader Tony Abbott on track to become the next PM. Labor may dump Gillard (possibly in favour of ex-PM Rudd) if she can’t lift Labor’s poll numbers by early 2013.

Expect few new With 12 months to the next election Gillard’s big policy moves are over. They’ve included a policies carbon-tax, a super tax on mining, and roll-out of the national broadband network (Abbott has vowed to reverse all three, although he may have to opt for modification rather than … despite the termination). The IMF’s latest Article IV report points to Australia’s exposure to volatile need for more commodity prices and an entrenched 2-speed economy. The IMF recommends boosting reforms labour mobility, greater skilled migration, and applying tax measures to redistribute money across regions. All good points but unlikely to be tackled before the next election.

Tightening fiscal The Reserve Bank of Australia cut interest rates by 25bp to 3.25% in October. This is part policy to allow of the government’s plan (supported by the IMF) to return to a budget surplus this fiscal monetary easing year, which should leave the central bank with room to ease monetary policy. We expect a further 25bp rate cut in early 2013 to strengthen the economy.

Outlook for the market

Steady growth at Australia’s economy has the potential for 4% GDP growth, based on strong wage growth, a 3% huge investment pipeline, and falling interest rates. However, we (and the IMF) think a soft external market will likely keep GDP growth to about 3% in 2012 and 2013 as growth in … resource exports and investment trends lower through to late 2013. Exports for March to August fell exports slow a bit 3%yoy led by an 11%yoy fall in iron ore exports. The cutback in mineral exports has overshadowed strong gains in agriculture exports, which have benefited from higher demand and prices due to drought-affected cuts to US agricultural exports.

… but capex Fixed investment should grow 8% in 2012. More than half of all fixed investment in remains strong Australia is in the resource and related infrastructure sector. The main driver is long-term gas projects, with over US$150bn in projects underway. Some rescheduling of coal and iron-or projects on weaker demand may see fixed investment growth slow in 2013.

… & a mild lift in Australian households are benefitting from strong wage growth (4%yoy in 1H’12), reduced consumer debt repayments as interest rates drop, and lower inflation. These factors helped lift retail demand has sales growth to 4%yoy over May-August, up from 2.4% for full 2011. Car sales were started strong, rising 12%yoy. Real growth in consumer spending should be close to 3.4% in 2012. Provided China’s stimulus gains some traction and a Euro crisis is avoided this uptick in consumer demand should continue through into 2013.

Housing to Residential construction is stabilising, as lower interest rates started to lift housing demand stabilise in September. We expect some 140,000 residential approvals in 2012, down from 147,700 in 2011, with a mild lift to 145,000 units in 2013.

A firm A$ and low Demand for the $A has been solid, due to strong foreign direct investment inflows and inflation global portfolio investors seeking a safe asset. This should keep the $A above parity on the US$ through 2013, which will help keep inflation below the RBA’s 2-3% band.

Year ending December 31 2009 2010 2011 2012 2013 GDP, real growth, % 1.4 2.5 2.1 3.1 3.0 CPI, year average, % 1.8 2.8 3.4 1.2 1.2 RBA cash rate, year end, % 3.75 4.75 4.25 3.25 3.00 A$1 = US$, year average 0.80 0.92 1.04 1.03 1.03 US$1 = A$, year average 1.27 1.09 0.96 0.97 0.97

Source: 2009-2011 data from the ABS; 2012-2013 forecasts by IMA Asia. Andrew Hordern, Regional Economist, IMA Asia Tel: +61-2-9252 4336  Email: [email protected]

New Zealand

Political & policy issues to watch

PM Key aims to PM John Key of the National Party is one year into his second 3-year term. His minority push ahead on government has a 4-seat margin with support from the Maori Party (3 seats), and the privatisations United Future and ACT parties (1 each). Key’s main policy focus for the next year will be an ambitious partial privatisation of three power companies, a coal miner, and Air NZ, … of power, which could raise as much as US$5.6bn. This would allow the budget to return to surplus coal, and the by 2015 and trim already low public debt (currently just 12% of GDP). Maori rights claims national airline and weak global investor sentiment might slow or derail some of the planned sales but PM Key is committed to pressing ahead. Management of the introduction and passage of the associated bills is likely to dominate parliament’s legislative schedule over the next year.

A more unified NZ’s single-chamber parliament resumes in mid-October after a 2-week break, with the opposition latest opinion poll putting an opposition coalition of Labour, the Greens, and NZ First ahead emerges for the first time following a string of gaffes by the government. The opposition parties appear to have smoothed over differences and should offer a stronger challenge in the next year.

Consumer debt Lower inflation and steady interest rates will help ease concern over a high level of risk should ease household debt (142% of disposable income), which constrains growth in consumer spending and might at worst trigger a local bank crisis, as banks have to fund a significant proportion of their lending from international markets. Banks have accordingly tightened control over some types of consumer lending.

Outlook for the market

Steady growth NZ grew 1.9%yoy in Q2’12, in line with 1.8%yoy growth in Q1’12. The economy has proved resilient thanks to rising demand for agricultural exports and a lift in reconstruction … as rural work in the wake of the 2010 Canterbury earthquake. As a result, we’ve nudged up our exports and 2012 GDP forecast to 1.8% from 1.6% while our 2013 forecast rises to 2.3% from 2.1%. reconstruction lift The IMF predicts slightly higher growth in both 2012 (2.2%) and 2013 (3.1%) on the assumption of a stronger global trade recovery, so there is upside potential to our forecast.

Home rebuilding Construction in Q2 grew 2.6% on the real GDP measure due to rising housing demand. accelerates Residential consents in Canterbury have picked up since May, as developers begin rebuilding the 10,000 homes destroyed by the earthquakes. Housing demand in Auckland is also growing on strong population growth. We expect housing consents to lift to 16,600 units in 2012 and 19,400 units in 2013 from 13,700 units in 2011.

Rising rural Exports staged a solid recovery in Jun-Aug, rising 4%yoy from a 6%yoy fall in Jan-May. exports will lift The turn-around is driven by the US drought, which pushed up demand for NZ’s agricultural manufacturing products. Sustained demand for agricultural products will likely support manufacturing growth of 2% in 2012 and 2013, in line with 2011 levels.

Consumers focus Households will benefit from 3-3.5% wage growth and lower debt servicing costs as interest on paying down rates drop. However, this may not flow through to a lift in spending as consumers, worried debt by global risks, use their extra cash to retire debt. This will keep real consumer growth in a 2-2.5% band in 2012 and 2013, in line with the 2001-11 annual average.

Low inflation, CPI inflation at the bottom of the RBNZ’s 1-3% target range. The policy interest rate has stable rates, & a been at 2.5% for the past 18 months and is unlikely to be cut as the central bank is steady NZ$ concerned about capacity constraints as construction lifts. Solid demand for NZ’s commodities is expected to keep the NZ$ around 80 US cents through 2012 and 2013.

Calendar years 2009 2010 2011 2012 2013 GDP(Expenditure), real growth, % -0.2 0.9 0.3 1.8 2.3 GDP(Production), real growth, % -2.4 1.8 1.3 2.1 2.4 CPI, year average, % 2.1 2.3 4.0 1.3 2.0 Official cash rate, year end, % 2.50 3.00 2.50 2.50 2.50 NZ$1 = US$, year average 0.62 0.72 0.79 0.81 0.80 US$1 = NZ$, year average 1.60 1.39 1.26 1.23 1.25 NZ$1 = A$. year average 1.28 1.28 1.32 1.28 1.28 Source: 2009-2011 data from Statistics NZ; 2012-2013 forecasts by IMA Asia.

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.kabcltd.com 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]