the month’s highlights 1

Political JBC: 13 names for Associate Justice post The Judicial and Bar Council (JBC) has received 13 nominees to become the next associate justice of the Supreme Court PAST DEVELOPMENTS (SC), the post vacated by Chief Justice Maria Lourdes Sereno. (see story page on p11) ‘Trillanes not part of crafting China policies’ – Malacañang Malacañang clarified that Sen. Antonio Trillanes IV was not Economy one of the country’s policy makers on affairs with China and he was only allowed by President Aquino to explore an open avenue to ease tensions between the two countries when the Panatag (Scarborough) Shoal standoff broke out nonetheless it PAST DEVELOPMENTS raised serious question as to how the President is conducting negotiations with China. (see story page on p7) PH competitiveness up 10 places anew The Philippines jumped 10 places for the 2nd straight year to Pulse Asia: 78% of Filipinos approve of Pres. Aquino’s end up being the 65th most competitive in the world out of performance 144 countries and economies surveyed in the World Economic The Pulse Asia survey conducted in the first week of September Forum (WEF) Global Competitiveness Report 2012-2013. showed that President Aquino’s satisfaction and trust ratings (see story page on p12) improved to 78%. According to the poll, almost 8 in 10 Filipinos were satisfied with Pres. Aquino’s performance and expressed Peso rate now at 4-year high trust in him. (see story page on p8) The peso rose to a 4-½ year high against the U.S. dollar in the 2nd week of September, peaking at P41.42:$1 by weekend, on Sec. Roxas, Sec. Abaya get CA confirmation for DILG, DOTC expectations that a stronger inflow of foreign funds will occur Department of Interior and Local Government (DILG) Secretary in emerging market economies like the Philippines in the near- Manuel Roxas II received his confirmation from the Commission term. (see story page on p15) on Appointments (CA) after Sen. Miriam Defensor-Santiago withdrew her threat to block it by invoking her one-person veto Less number of poor families in 3Q12 power. (see story page on p8) The number of families who considered themselves poor declined for the 2nd straight quarter to 9.5 million (47%) in the 3rd quarter FUTURE DEVELOPMENTS of 2012 from 10.3 million (51%) in the 2nd quarter, based on the results of the survey conducted by the Social Weather Stations Rep. Arroyo to undergo more intensive physical therapy (SWS) in August. (see story page on p16) Former President and now Pampanga Rep. Gloria Arroyo has to undergo more intensive physical therapy as the muscles holding FUTURE DEVELOPMENTS her cervical spine have atrophied and the pain in her neck has worsened. The 65-year-old Arroyo said in her Twitter account PIDS: manufacturing needs to be revitalized that she will have to undergo thrice-a-week physical therapy Josef Yap, president of the government think-tank Philippine at the Veterans Memorial Medical Center and would have to Institute for Development Studies (PIDS), said the country’s wear her neck brace for longer periods. (see story page on p9) manufacturing sector needs to be revitalized to make growth more inclusive during the launch of the 10th Development Comelec ready for 2013 automated elections Policy Research Month on September 3.(see story page on p13) Commission on Elections (Comelec) Chairman Sixto Brillantes assured congressmen that the poll body is now ready for the Gov’t planning to tap local dollar reserves for borrowing needs combined automated congressional and local elections in May The government is considering the option of buying dollars 2013. (see story page on p9) from the Bangko Sentral ng Pilipinas (BSP) to service part of its maturing foreign obligations or to sell dollar-denominated Gov’t urged to resolve contentious points in Malaysia peace bonds in the domestic market to finance its remaining foreign talks commercial borrowing requirement of $750 million this year. Government peace panel chairman Marvic Leonen urged the (see story page on p14) Moro Islamic Liberation Front (MILF) to immediately resolve the “remaining contentious points” in the peace talks in Malaysia so that they can bring home a viable “framework agreement” Business for a peaceful Mindanao. (see story page on p10)

After 26 years, PCGG to be dissolved PAST DEVELOPMENTS The Presidential Commission on Good Government (PCGG) is preparing to shut down after 26 years of existence, with PCGG More OFW families save remittances - BSP Chairman Andres Bautista saying the agency has ended its global According to a survey conducted by the Bangko Sentral ng search for the hidden wealth of the late President Ferdinand Pilipinas (BSP) during the 3rd quarter of 2012, many remittance- Marcos. (see story page on p10) dependent households are becoming financially literate as more of these households save and invest a portion of the money they receive from abroad. (see story page on p30)

Philippine Alert September 2012 2 the month’s highlights

PH rankings in corporate governance and economic freedom up …as IT solutions also used to improve transparency in other Corporate governance (CG) and economic freedom (EF) have government duties improved in the country. Based on rankings, however, the The Aquino administrations’ Good Governance and Anti- Philippines remained at the bottom with Indonesia in CG while Corruption Cluster Plan (2012-2016) focuses on transparency, it made the highest leap in EF among Asian countries. accountability, and citizen engagement. Besides the reform (see story page on p32) measures being pursued to improve the utilization of the national budget, the government is also tapping IT solutions FUTURE DEVELOPMENTS for the better execution of other public duties. (see story page on p37) Japanese investors’ interest rising The country has been receiving growing interest from Japanese Infrastructure investors. Reasons for the rising interest were indicated in the survey by the Japan External Trade Organization (Jetro). PAST DEVELOPMENTS However, the inability of the government to grant promised Metro Manila flood control master plan gets funding incentives, such as tax rebates, has long affected existing Japanese firms’ operations. (see story page on p28) The newly-crafted flood control master plan for Metro Manila gets traction after receiving P5 billion from the national BSP tightens upon banks’ real estate loan exposure budget. This is the initial funding for the 2-decade master plan that aims to permanently address the problem of flooding The Bangko Sentral ng Pilipinas (BSP) has imposed a new measure in the metropolis. The amount will finance structural flood that will limit exposure of banks on real estate loans. mitigation measures in Metro Manila and nearby provinces. (see story page on p29) (see story page on p45) Growth to accelerate in 4Q2012 but with less expansion plans FUTURE DEVELOPMENTS The 3Q2012 Business Expectations Survey of the Bangko Sentral ng Pilipinas (BSP) indicate a buoyant outlook for 4Q2012 due to NEDA approves LRT-2 East Extension the sound macroeconomic factors of the country and declining business constraints. This upbeat outlook, however, did not The NEDA (National Economic and Development Authority) come with a rise in expansion plans. (see story page on p31) Board recently approved the Light Rail Transit Line 2 (LRT-2) East Extension Project. This is a P9.8-billion project that would Mining, Oil and Gas extend the LRT-2 from its existing terminus at Santolan, Pasig City to Masinag Junction in Antipolo. The NEDA Board approval was earlier deferred to make way for a population study to Philex slapped with P1Bn penalty over Padcal leak determine the project’s viability. The project financing has The Mines and Geosciences Bureau (MGB) is imposing a fine of yet to be finalized, but railway completion is eyed by 2016. P1.034 billion on Philex Mining Corporation for a tailings pond (see story page on p47) leak at its Padcal mine in Tuba, Benguet. Philex Mining has filed an appeal to contest the penalty arguing that paying the fine …and 2 big ticket airport projects in key tourist destinations implies the company’s negligence and liability. Philex maintains The NEDA Board also gave its approval to 2 big ticket airport that the spillage was caused by factors beyond control and not projects in key tourist destinations in the Luzon and Visayas an error or lapse of the company. (see story page on p35) regions. These are: the Bicol Airport Project and the New Bohol Airport Project. Both these projects involve the development Mining IRR revisions finally approved of new domestic airports to replace the existing airports in President Aquino has approved the revised implementing their respective provinces that are hounded by issues of limited rules and regulations (IRR) of the new mining policy Executive capacity for expansion and operational safety concerns. Order (EO) No. 79 after several mining industry players raised (see story page on p49) concerns over the provisions in the original IRR issued. Mines and Geosciences Bureau (MGB) Director Leo Jasareno said the CongressWatch IRR revisions are already final. (see story page on p35) 2013 budget approval by yearend IT Update Both the House of Representatives and the Senate remain on-track in deliberating the proposed P2.006-trillion national Aquino administration taps IT in budget-related anti- budget for 2013. The Lower chamber has approved the budget corruption action plan… on 2nd reading and is expected to transmit its version to the The Aquino administration’s anti-corruption campaign has a Senate before end-October. President Aquino is seen to sign wide reach, extending as well to issues of transparency and the General Appropriations Act (GAA) 2013 into law before accountability in the utilization of the national budget. Reforms yearend. (see story page on p52) like a national payroll system and cashless purchase cards under a government integrated financial management information President Aquino signs People’s Survival Fund bill system (GIFMIS) are underway – reforms that, if successful, President Aquino has signed into law the People’s Survival Fund have the potential of becoming a significant e-governance (PSF) bill. Republic Act 10174 amends the Climate Change Act achievement for the Philippines. (see story page on p36) of 2009 by establishing the People’s Survival Fund to provide long-term finance streams for the government’s climate change adaptation programs. (see story page on p53) Philippine Alert September 2012 CORPORATE BRIEFS 3

WORD FOR WORD

“Why was this special arrangement taken for the case of Mr. Puno?”

Sen. Miriam Defensor-Santiago questioning Undersecretary Rico Puno’s taking over jurisdiction of the Philippine National Police, which is normally the responsibility of the DILG secretary. Mr. Puno is a known shooting buddy of President Aquino.

“There are always people who are unhappy with the leadership of anybody. I cannot please everyone.”

Senate President Juan Ponce Enrile confirming the ouster plans against him by some members of the Upper House.

“The latest survey is an encouragement for the leaders and workers in government to strive even harder to effect national transformation.”

Speaker Feliciano Belmonte Jr. expressing elation over the high approval ratings he and the House of Representatives received in the latest Social Weather Stations survey.

“It’s important that we make clear which areas are ours.”

President Aquino on the administrative order issued by his office renaming the waters west of the Philippines including some islets and shoals being claimed by China as the West Philippine Sea.

Philippine Alert September 2012 4 COMMENTARYCOMMENTARYCOMMENTARY

ueteng is a scourge. Like prohibition in the U.S., it involves nationwide levels of criminality, yet it continues seemingly unstoppable. There are ways of going after illegal gambling operators. The Bureau of Internal Revenue Jcan zero in on the individuals long suspected of involvement in illegal gambling operations, together with their coddlers; tax evasion is certain in these cases. Local government executives can be investigated by the Office of the Ombudsman for unexplained wealth. With sufficient cause, the Anti-Money Laundering Council can step in, preventing jueteng lords from enjoying the proceeds of their illegal activity. There have been enough congressional probes into jueteng operations. If the Aquino administration is really serious about stamping out corruption, it must curb jueteng and hit gambling barons by sending them to prison, or at the very least, preventing them from enjoying the profits of crime.

But better, just legalise it. The trouble is too many politicians profit from it, so the move gains no traction.

he bar for exemplary conduct in public service is set unusually high for members of the High Court, who pass judgment on matters involving all government officials and employees. Expectations are highest for exemplary Tconduct in the case of the Chief Justice. If the President of the Republic is impeached and tried, the Chief Justice is the one who presides over the trial by the Senate. The Chief Justice must at all times show that he or she deserves to be called the first among peers, the primus inter pares.

Ms. Sereno is the country’s first female Chief Justice. At 52, she has 18 years to undo the damage to the institution that was caused by the scandal involving her predecessor, Renato Corona. Critics led by President Aquino pointed out several times the many issues that led to Mr. Corona’s downfall. Ms. Sereno is aware of those issues, and is expected to be different. She takes over as head of a branch of government that has often been criticized for corruption and the glacial pace of administering justice. Judges of lower courts have been described as hoodlums in robes. Cases languish for years in court, depriving the innocent of justice and putting litigation beyond the reach of many people, even with free legal assistance.

Philippine Alert September 2012 SPECIAL REPORT 5

Look into the mirror

Published in the Manila Standard Today under the “Like it is” opinion column, March 30, 2012

’m going to do something I don’t usually do in my column. I’m going to defend an individual. That individual Iis Secretary Rene Almendras. I have two authoritative reasons for being able to do so. One, I’ve known Rene for many years, and I know well how he works.

Two, I’m an electrical engineer so perhaps better understand the problem of Mindanao.

This wasn’t a problem created by this government and least of all by Secretary Almendras who is one of the hardest working people I know. This was a problem known many years ago. The solution was in the hands of those in Mindanao: Pay the full cost, guarantee security, and consistency of demand and the plants would have been built. They didn’t, now they have to.

Calling for Rene’s resignation will achieve absolutely nothing. He is not the reason for the blackouts (they are blackouts by the way. When there’s no power, the room is black, not brown).

The power shortages in Mindanao were expected many years ago, back in Arroyo’s time. They were endlessly discussed and measures proposed, but action never taken. Almendras inherited that non-action when he joined the Cabinet. Mindanaons can lay much of the blame upon themselves. They were spoiled by the low cost of hydro power—at around P3/kwh (versus what we pay in Manila of a little over P5/kwh) and wouldn’t pay for the alternative source power plants that needed to be built.

Mindanaoans denuded the mountains that feed the Pulangui river that powers the run-of-the-river power plant. So the river is all silted up and can’t supply power year round to drive the power plant. Dredging the river would help, but is of no use for as long as a new forest isn’t built as the rain will just bring down the silt to fill the river again. A new forest takes some 10 or 20 years to become effective in silt control. Power from hydro is also dependent upon there being sufficient water level something Almendras certainly has no control over.

So hydro power, which supplies 56%of the grid, will remain only a wet season supplier for years yet to come. Alternative energy sources are essential, and there is a corresponding cost for this which is higher than what hydro power costs. But alternatives must be done, it’s unwise to rely on only one source. And no power is the most expensive power.

There’s another looming problem that Almendras did not create. The Agus plant must be overhauled, that means it must be shut down for about 30 months, worsening the already dire situation. It’s a 59-year-old plant that should have been overhauled years ago, or replaced, but wasn’t. Thirty years is a normal lifetime for a power plant. Who drives a 30-year, let alone 59-year-old motor car these days and expects reliability?

Philippine Alert September 2012 6 SPECIAL REPORT

Investors haven’t wanted to invest in other fuel source plants because their power costs more and Mindanaoans won’t buy it during the wet season. So anyone building such a plant takes a risk. Well, the Alcantaras and the Aboitizes have accepted the risk and are building new plants (200 MW and 100 MW coal power facilities by the Alcantaras and 300 MW by Aboitizes) but these won’t come on stream until 2014.

In the meantime, there will be power shortages. The solution is to bring in power barges. They can provide some 128 MW of power which would meet demand. But they need to be overhauled and must be privatized under the Electric Power Industry Reform Act (Epira) before they can be used. So unless an exemption can be rapidly granted by Congress, the only one that can do so, these barges can’t be used. If they can, it’s still probably close to year end before they can be plugged in. And that’s if everyone moves fast—a highly unlikely possibility. So it’s up to Congress, not Almendras, to effect this solution. If Congress does allow it, the people will have to pay more for their electricity. Refusal to do so in the past has been a reason there’s a shortfall now. They will have to pay, we estimate around P14/kwh for barge power. It can’t be subsidized, we, the taxpayer, should not have to pay for the electricity they consume. They created the problem, they should pay for it.

Why don’t investors flock to Mindanao to build factories, to develop plantations, to open offices and,to create well-paying jobs? Is that the Aquino administration’s fault? I hardly think so. I used to run a factory in Davao and buy and bale abaca from all over Mindanao. It was a good place to do so then. There was power then. Who let it not become so? Why is it now seen as too risky a place to be? Whose fault is it? Not Almendras. Look into a mirror.

Philippine Alert September 2012 7 POLITICAL

‘Trillanes not part of crafting China policies’ – Malacañang

Malacañang clarified that Sen. Antonio Trillanes IV was not one of the country’s policy makers on affairs with China and he was only allowed by President Aquino to explore an open avenue to ease tensions between the two countries when the Panatag (Scarborough) Shoal standoff broke out nonetheless it raised serious question as to how the President is conducting negotiations with China.

eputy presidential spokesperson Abigail Valte also said it would be up to Pres. Aquino to decide whether Sen. Trillanes Dwould continue his back channel talks with China. “That will depend entirely on the President. That’s usually assessed on a case Sadly, this latest controversy, along with the earlier boo-boo’s, to case basis and ultimately it will be the President who will be is undermining the Philippines’s foreign policy. Events in recent making that decision,” she said. Sources revealed that during the days can only reinforce China’s argument that the Philippines has full Cabinet meeting that was also attended by Senate President been inconsistent in its territorial claims over the West Philippine Juan Ponce Enrile and Speaker Feliciano Belmonte Jr. with the Sea. On one hand, there is the DFA officially declaring that the military and the Philippine Coast Guard in July, it was decided that country is standing firm on its territorial claims, particularly in the policies proposed by the Department of Foreign Affairs (DFA) Panatag or Scarborough Shoal, and wants a multilateral resolution be adopted. It was also in this July 5 meeting that Mr. Enrile said of the dispute. On the other hand, there is Mr. Trillanes, a close Mr. Trillanes hurled allegations against Foreign Affairs Secretary ally of Mr. Aquino, reportedly (according to Mr. Enrile) telling the Albert del Rosario. But the meeting ended with agreement on Chinese that Filipinos are not interested in Panatag anyway and the how they would go about implementing policies toward China. dispute should be settled bilaterally – the exact position of Beijing. Mr. Trillanes had made suggestions during this meeting but The Senate President maintains that he has evidence to back these were not adopted. In his speech at the Senate, Mr. Enrile his story about Mr. Trillanes’s dealings with the Chinese. At this revealed the conversations between Mr. Trillanes and Philippine point, it is unclear where this mess began as Mr. Trillanes and Ambassador to China Sonia Brady showed Mr. Trillanes’ Malacañang are pointing at each other as the initiator of “back- alleged pro-China leanings which were not in consonance channelling” with China. Worse, when Mr. Trillanes, who has with the country’s policies as decided by the full Cabinet. no experience in foreign affairs, was told by the Palace to keep Philippine Alert September 2012 8 POLITICAL

Like Sen.Trillanes’ misadventures as a military officer against the Arroyo administration, this coup plot against Sen. Enrile also failed, as Malacañang officials have stressed the Palace’s support for the Upper House’ current leadership.

mum on the issue, he continued to issue statements about “back- In related developments, top government officials seen to channelling” and against the man he admits trying to unseat: Mr. be in the line of succession to the presidency enjoyed high Enrile. Like Mr. Trillanes’ bizarre misadventures as a military satisfaction ratings in the latest SWS survey. Vice President officer against the Arroyo administration, this coup plot against Jejomar Binay’s net satisfaction rating improved to “excellent” Mr. Enrile has also failed, as Malacañang officials have stressed 76 (82% satisfied, 6% dissatisfied) in August from 70 in May. Mr. the Palace’s support for the Upper House’ current leadership. Binay’s latest score surpassed his previous personal best of 74 Sadly, this new foreign affairs mess reflects badly on Pres. in March 2011. Senate President Juan Ponce Enrile also gained Aquino himself and the entire Philippine government. From in his net satisfaction rating, from a “good” 48 to a “very good” his military adventurism to his Senate pronouncements, Mr. 65 (73% satisfied, 8% dissatisfied). Speaker Feliciano Belmonte Trillanes has exhibited symptoms of a superiority complex Jr., meanwhile, recorded a personal best “moderate” 20 (40% bordering on the messianic. It’s curious that someone like him satisfied, 20% dissatisfied), from May’s “neutral” 8 (36% satisfied, was entrusted by the administration with such a delicate task 28% dissatisfied). The survey was conducted from Aug. 24 to in an area where mature circumspection is crucial. Whatever 27, using face-to-face interviews of 1,200 representative adults. gains Mr. Trillanes might have achieved in easing tension between the Philippines and China are being overshadowed by his questionable conduct in this latest brouhaha. Sec. Roxas, Sec. Abaya get CA confirmation for DILG, DOTC Pulse Asia: 78% of Filipinos approve of Pres. Department of Interior and Local Government (DILG) Aquino’s performance Secretary Manuel Roxas II received his confirmation from the Commission on Appointments (CA) after Sen. Miriam The Pulse Asia survey conducted in the first week of Defensor-Santiago withdrew her threat to block it by invoking September showed that President Aquino’s satisfaction her one-person veto power. and trust ratings improved to 78%. According to the poll, almost 8 in 10 Filipinos were satisfied with Pres. Aquino’s Malacañang later thanked Ms. Santiago for her “magnanimous performance and expressed trust in him. gesture.” Mr. Roxas had faced the CA before in various capacities, from Trade secretary to Transportation secretary. Unlike Mr. Only 4% of Filipinos were not satisfied with the President’s Roxas, his successor at the Department of Transportation and performance and did not trust him, while 18% were uncertain. Communications (DOTC), Cavite Rep. Joseph Emilio Abaya, Pres. Aquino’s September 2012 national approval and trust breezed through his confirmation hearing and was even showered ratings (both at 78%) were close to his very first presidential with praise during the plenary session. Mr. Abaya graduated with ratings recorded in October 2010 (79% and 80%), Pulse Asia said. honors from the U.S. Naval Academy in Annapolis where he The President registered “big majority” approval and trust earned his Bachelor of Science degree in Mathematics in 1988. ratings in all geographic areas and socio-economic classes. He also has a degree from Cornell University in Ithaca, New York A majority of Filipinos approve of the administration’s where he completed a Master’s degree in Electrical Engineering. efforts to fight criminality (66%); fight corruption in Sen. Panfilo Lacson had earlier moved to fast track the government (64%); enforce the law equally on all Filipinos confirmation process for Mr. Roxas. Mr. Lacson’s manifestation (59%); improve the national peace situation (57%); create led other lawmakers to raise proposals for a suspension of CA more jobs (51%); and increase the pay of workers (51%). rules in Mr. Roxas’s case, including foregoing the publication Meanwhile, 7 of 10 business executives in the country see less requirements and suspending all the rules on confirming corruption in the public sector under Mr. Aquino compared to the appointments. Mr. Roxas was appointed to the DILG, following the previous administration, the latest survey by the Social Weather death of Interior Secretary Jesse Robredo in a plane crash in August. Stations (SWS) revealed. Preliminary findings of the 2012 SWS Mr. Roxas has promised to sustain the reforms launched by Mr. Survey of Enterprises on Corruption found 71% of 826 business Robredo to promote transparency and good governance among executives saying they see less corruption in the government, and local government units and, up to a certain extent, in the public only 2% see more corruption now. The SWS Survey of Enterprises safety agencies of the DILG: the Philippine National Police, the on Corruption was conducted from July 16 to Sept.14, 2012. Bureau of Jail Management and Penology, and the Bureau of This was an improvement from the May 24 to 27, 2012 survey, Fire Protection. Under Mr. Robredo’s watch, those public safety which showed 64% of executives seeing less corruption and 5% agencies were under the supervision of Undersecretary for peace who saw more corruption. SWS said executives seeing “a lot” and order Rico Puno, but with Mr. Puno’s departure from the of corruption in the public sector fell to 42% in 2012 from 64% DILG, Mr. Roxas will now have a direct hand in peace and order in 2009, after having been 60% or more from the start in 2000. and will be expected to address what is a major public concern. Philippine Alert September 2012 POLITICAL 9

Mr. Robredo’s successor will be expected to have the same personal and professional integrity and continue the reforms he began.

Taking over from Mr. Roxas in the Department of complicated surgery abroad to repair the sliding metal implants Transportation and Communications is Mr. Abaya. As a young in her neck. His pronouncements, however, were criticized Navy officer, Mr. Abaya served as a close-in security aide of by some members of the Philippine Medical Association, Corazon Aquino before he shifted to politics. He is remembered which later said it would defer to the best judgment of her for being the manager of the House prosecution team in the physicians. The Sandiganbayan and the Pasay City regional impeachment trial of former Chief Justice Renato Corona. trial court have placed Ms. Arroyo under hold departure order. Mr. Abaya is taking over an agency whose functions are so In related developments, the Sandiganbayan has decided not broad investors are calling for its division into 2 departments. to allow private lawyers led by Lorna Kapunan to participate in Until that happens, Mr. Abaya must take charge of improving the plunder trial of Ms. Arroyo. In an 8 page ruling issued last the nation’s vastly inadequate transportation infrastructure, Sept. 7, the anti-graft court said lawyers Kapunan, Jose Belmonte and of ensuring that the nation keeps pace with fast-paced and Phillip Sawali cannot be allowed to work with government developments in information and communication technology. prosecutors representing the state. Ms. Kapunan, Mr. Belmonte President Aquino has less than 4 years left to lay the and Mr. Sawali earlier asked the court to allow them to participate groundwork for lasting reforms and sustainable, inclusive in the trial as the legal counsels of private complainants Ms. economic growth. Putting the right individuals in the DOTC and Risa Hontiveros-Baraquel, Mr. Jaime Regalario and Mr. Danilo DILG are critical in the achievement of the President’s goals. Lim. The resolution stated that private counsels could not join the prosecution team because of the absence of private interest in the plunder case. The former president has appealed the Ombudsman’s decision to indict her, arguing that apart from Rep. Arroyo to undergo more intensive sweeping statements, bare allegations, and mere suspicions, the physical therapy anti-graft agency has no evidence that she committed plunder. The Office of the Ombudsman, through the Office of the Special Former President and now Pampanga Rep. Gloria Arroyo Prosecutor, is yet to resolve her motion for reconsideration has to undergo more intensive physical therapy as the that ultimately seeks the dismissal of the plunder charge. muscles holding her cervical spine have atrophied and the pain in her neck has worsened. The 65-year-old Arroyo said in her Twitter account that she will have to undergo thrice-a-week physical therapy at the Veterans Memorial Comelec ready for 2013 automated elections Medical Center (VMMC) and would have to wear her neck Commission on Elections (Comelec) Chairman Sixto brace for longer periods. Brillantes assured congressmen that the poll body is now ready for the combined automated congressional and local She said she had been removing her soft collar neck brace for elections in May 2013. long periods when she was still under detention at the VMMC, as advised by her doctors to prevent her neck muscles from wasting “We can tell you that we have enough funds for next away following a series of surgeries on her cervical spine in year’s elections,” Mr. Brillantes told a House appropriations July and August last year. She said she was advised to undergo subcommittee chaired by Camarines Sur Rep. Rolando Andaya “intensive physical therapy and longer periods with a neck brace” Jr. He was responding to concerns raised by Mr. Andaya and as she waits for a second opinion and appropriate treatment for appropriations committee chairman Cavite Rep. Joseph Emilio her condition. The former leader underwent 3 surgeries where Abaya about the Comelec’s funding problem, which he himself titanium screws were placed to relieve a pinched nerve and raised a month ago in another House hearing. The Comelec chief stabilize her neck bones. However, her doctors said the screws had complained that the Department of Budget and Management were dislodged and are progressively blocking her food and air (DBM) had cut the commission’s 2013 budget from P13 billion ways. They said the risky reconstructive surgery can only be to P8 billion. Mr. Brilliantes said the Comelec needed the done in modern medical facilities abroad, a claim that the Aquino additional P5 billion, and that if the funds were not restored, administration has been disputing. Ms. Arroyo is purportedly the poll body would be forced to conduct a manual election. He getting another medical opinion from a foreign specialist. threatened to resign if the Comelec would have no choice but to The former President was detained for about 8 months at go back to manual voting. Mr. Abaya informed Mr. Brillantes the VMMC on charges of electoral sabotage until her release on and other Comelec officials that Budget Secretary Florencio bail last July. Shortly after her release, Ms. Arroyo underwent Abad told him 2 weeks ago that they have already solved the another medical examination, this time at the Makati Medical commission’s funding problem. Mr. Brillantes confirmed this, Center under Dr. Roberto Anastacio, who later announced that saying Mr. Abad has assured him that the P5 billion would be she has no choice but to immediately undergo another risky and returned to augment Comelec’s P8.4-billion budget for next year.

Philippine Alert September 2012 10 POLITICAL

Mr. Brillantes had earlier complained that the P8 billion Tengku Mohammed, meanwhile, commended both sides for was not enough since P1.8 billion would be spent for the being “very serious in trying to solve the Mindanao problem.” purchase and reuse of the precinct count optical scan (PCOS) In related developments, the MILF has entered into an machines leased by Smartmatic International Corp. in the agreement with the bandit gang of Mr. Ameril Umra Kato for 2010 polls. Aside from the PCOS machines, the poll body them to stop their lawless activities. Speaking to reporters, MILF will also procure election paraphernalia like folders, ballot spokesman Von Al-Haq said the Bangsamoro Islamic Freedom papers and ball pens and will tap the services of teachers who Movement (BIFM) has pledged to stop attacks on military will oversee the polls. The Comelec will also tap the services positions and farming villages in Maguindanao and surrounding of forwarders that will bring the election materials to polling provinces. Close to 30,000 people were forced to relocate to precincts across the country, among other services. The agency squalid evacuation centers when BIFM bandits attacked 5 feared that upcoming polls would revert back to the manual Maguindanao towns: Guindulungan, Datu Saudi, Datu Unsay, counting of votes if the DBM would not increase their budget. Shariff Aguak and Ampatuan. The bandits attacked military The Supreme Court earlier settled the controversy over the positions, plundered villages and harassed evacuees in relief sites PCOS machines when it ruled to allow the Comelec to proceed starting at midnight on Aug. 5 and lasting until Aug. 11. Mr. Al-Haq with the multibillion-peso contract for the purchase of the gadgets said the MILF central committee decided to strike a deal with Mr. for next year’s elections. This came after President Aquino sent a Kato’s gang to prevent them from causing cracks in the cordiality strong message that he no longer wanted any debate on automated of the government-MILF talks. The MILF fears the attacks might polls and made it clear that he wanted the PCOS machines used in imperil its 1997 ceasefire agreement with the government, he the 2010 presidential polls to be used in 2013. Four petitions had added. However, Mr. Al-Haq said the deal will not tactically alleged defects in the machines. The government argued, however, ally the MILF with the BIFM or allow the bandits to use rebel that the PCOS glitches had been fixed and the deal was aboveboard. strongholds that the ceasefire agreement recognizes as sanctuaries. Successful elections can take place next year, but the government must get its act together. With the Comelec’s budget issue settled, the government must make adequate preparations for After 26 years, PCGG to be dissolved next year’s polls. In line with this, the PCOS machines will have to be tested several times before election day. The Comelec must also The Presidential Commission on Good Government (PCGG) ensure that the polls will be honest, orderly and peaceful. Much is preparing to shut down after 26 years of existence, with will depend on the performance of the PCOS machines, which are PCGG Chairman Andres Bautista saying the agency has supposed to drastically reduce poll fraud. Computerization and ended its global search for the hidden wealth of the late automation certainly sped up the release of election results in 2010. President Ferdinand Marcos. There are many other tasks that must be carried out. Voters’ lists need constant purging and validating. Precinct clustering needs “The PCGG which was created during the revolutionary to be reviewed to eliminate the long lines and hours of waiting to government of the late President Aquino is winding up its vote. Security agencies need to prepare to contain election-related operation,” he said. Mr. Bautista said they are now preparing a violence, which is usually at its worst in local political races. final report to President Aquino on the amount recovered and the remaining sequestration cases pending in various courts. He said the 260 cases pending in court will be turned over to the Gov’t urged to resolve contentious points in Office of the Solicitor General, and employees will be given Malaysia peace talks separation pay or lateral entry to other government agencies. The first executive order issued by Corazon Aquino after the Government peace panel chairman Marvic Leonen urged 1986 EDSA Revolution created the PCGG. Soon after she issued the Moro Islamic Liberation Front (MILF) to immediately Proclamation No. 3, providing for the issuance of freeze and resolve the “remaining contentious points” in the peace talks sequestration orders on questionable assets. This indicated the in Malaysia so that they can bring home a viable “framework urgency attached by the post-EDSA government to the hunt for agreement” for a peaceful Mindanao. the vast wealth believed stolen from the nation during the Marcos dictatorship. An urgency that decades later has not gotten very for “In this round of talks, the government proposes to discuss In the so-called Freedom Constitution, the transitory the remaining contentious points that will go into our framework provisions stated that Proclamation No. 3 should remain operative agreement,” Mr. Leonen said. He urged the MILF at the 31st for no more than 18 months following the ratification of the round of formal exploratory talks in Kuala Lumpur to take Charter. This was way back in 1987. The Charter did provide that home a complete product, a consensus draft, even a very the 18 months could be extended by Congress, as certified by the rough draft with some options of a framework agreement. Mr. President, “in the national interest.” The latter has lasted over 2 Leonen cited the need to “make haste so that we can usher in the decades, and the PCGG is still around. None of the Marcoses agreement that will set up the platforms so that we can not only spent a single day in jail for ill-gotten wealth or any other crime build more trust and confidence amongst our constituents but committed during the dictatorship, even if the amount of their catalyze the kind of societies that our peoples deserve.” MILF wealth today is impossibly incommensurate with whatever their peace panel chairman Mohagher Iqbal echoed Mr. Leonen’s legitimate income could have been in their long stay in power. position. Malaysian facilitator Tengku Dato Abd Ghafar The PCGG itself later became embroiled in scandals, with Philippine Alert September 2012 POLITICAL 11

None of the Marcoses spent a single day in jail for ill-gotten wealth. some of its officials linked to influence-peddling and enjoying In other developments, for the first time after over 20 years, junkets overseas at taxpayers’ expense. With litigation over the all SC justices have released their statements of assets, liabilities real ownership of sequestered assets taking an eternity, board and net worth (SALN) for 2011, with Ms. Sereno declaring a seats in PCGG-controlled companies became sinecures for cronies net worth of almost P18 million. Ms. Sereno had total assets of those in power, and part of the system of political patronage. worth P19,227,578.85 and liabilities of P1,242,203.34 at After President Benigno Aquino III assumed power and the end of last year. It was not clear, however, whether her installed his own team in the PCGG, the new management reported earnings for being a lawyer of the government in the was tasked not only to clean up the commission but also to arbitration suits in Singapore and Washington in connection prepare for its shutdown. Mr. Bautista announced that the with the expropriation of the Ninoy Aquino International agency is ready to close and that the functions of the PCGG Airport Terminal 3 were included in the SALN as raised in a will be taken over by the Office of the Solicitor General. In report of the Philippine Center for Investigative Journalism. The its 26 years of existence, the PCGG has managed to recover release of the SALNs came some 2 months after the SC issued billions of pesos worth of assets accumulated during the Marcos guidelines for releasing the SALNs of judges and justices. Various regime, but the amount recovered is way below initial estimates. quarters, including the Integrated Bar of the Philippines, have The agency has been essentially ineffective. called on the SC justices to release their SALNs to usher in a new era of a reformed, transparent judiciary under Ms. Sereno. The bar for exemplary conduct in public service is set unusually high for members of the high court, who pass judgment JBC: 13 names for Associate Justice post on matters involving all government officials and employees. Expectations are highest for exemplary conduct in the case of the The Judicial and Bar Council (JBC) has received 13 Chief Justice. If the President of the republic is impeached and nominees to become the next associate justice of the Supreme tried, the Chief Justice is the one who presides over the trial by the Court (SC), the post vacated by Chief Justice Maria Lourdes Senate. The Chief Justice must at all times show that he deserves Sereno. to be called the first among his peers, the primus inter pares. Ms. Sereno is the country’s first female Chief Justice. At Of the 13 nominees, only 9 had indicated their acceptance of 52, she has 18 years to undo the damage to the institution that the nomination on the day of the deadline set by the JBC. Those was caused by the scandal involving her predecessor, Renato who confirmed their nomination were Court of Appeals (CA) Corona. Critics led by President Aquino pointed out several Justices Noel Tijam, Magdangal de Leon and Isaias Dicdican; times the many issues that led to Mr. Corona’s downfall. Cesar Villanueva, chairman of the Governance Commission on Ms. Sereno is aware of those issues, and is expected to be Government Owned and Controlled Corporations; De La Salle different. She takes over as head of a branch of government law founding dean Jose Manuel Diokno; and former Davao that has often been criticized for corruption and the glacial City Regional Trial Court judge Adoracion Cruz Avisado. CA pace of administering justice. Judges of lower courts have been Presiding Justice Andres Reyes Jr., CA Associate Justice Ramon described as hoodlums in robes. Cases languish for years in Bato Jr. and Securities and Exchange Commission chair Teresita court, depriving the innocent of justice and putting litigation Herbosa, who was among the nominees for chief magistrate, beyond the reach of many people, even with free legal assistance. applied for the post on their own. The other nominees were The SC itself has come under fire for its opaqueness in the peace panel chair Marvic Leonen, National Labor Relations finances of the court and its members. The release of the SALNs Commission Commissioner Joseph Gerald Mabilog, former is a step in the right direction. Much more needs to be done to Energy secretary Raphael Lotilla and SC chief attorney Edna Dino. promote transparency and efficiency in the judicial branch. Ms. Sereno is expected to restore trust in the nation’s court of last resort.

In its 26 years of existence, the PCGG has managed to recover billions of pesos worth of assets accumulated during the Marcos regime, but the amount recovered is way below initial estimates.

Philippine Alert September 2012 12 ECONOMY

PH competitiveness up 10 places anew The Philippines jumped 10 places for the 2nd straight year to end up being the 65th most competitive in the world out of 144 countries and economies surveyed in the World Economic Forum (WEF) Global Competitiveness Report 2012-2013.

he Philippines is now in the top 45% of the global competitiveness ranking, the first time it reached this Thigh in the WEF survey. In overtaking 10 countries, it helped that 6 countries, including Sri Lanka and Vietnam, deteriorated in ranking. The Philippines, though, deservedly got the lift more on the significant gain in the global competitiveness index (GCI), representing the average score in WEF’s so-called 12 pillars of competitiveness, to 4.23 (7 is best, 1 is worst) in 2012-2013 from 4.08 in 2011-2012. Only 13 countries posted 10-notch gains or better. The pace-setters were Turkey, up 16 places to 59th; Bulgaria, up 12 places to 74th; Cambodia, up 12 places to 85th; and Ecuador, up 15 places to 86th. The rise in the Philippine index was due to the improvement of its performance in 11 out of 12 of the pillars, especially in Institution, where it moved up 23 notches to 94th place. The PHILIPPINES: GLOBAL COMPETITIVENESS INDEX* Global Competitiveness Report 2012-2013 noted advances in (7=most competitive; 1=least competitive) terms of respect to public institutions and of trust in politicians, 5.0 presumably a result of Pres. Aquino’s visible campaign against corruption (the “straight path”) and abuse of authority by public 4.6

officials (ban on “wang wangs”). The WEF, though, was quick 4.2 to point out that the 23-notch gain comes from a very low base. Acknowledged by the report as “one of the strongest 3.8

aspects of Philippine performance,” the Macroeconomic 3.4 Environment pillar rose 18 places to 36th. The economy’s 3.0 growth of 6.1% in 1H2012, among the fastest in Asia '2004 '2005 '2006 '2007 '2008 '2009 '2010 '2011 '2012 during the period, provided a boost to the ranking. * WEF Global Competitiveness Index scores started to be reported only in 2004 The highest-ranked pillar was market size at 35th position, Source: World Economic Forum (WEF), The Global Competitiveness Reports, although it experienced only a 1-notch gain from the previous year. 2004 to 2011-2012 WBF thinks that while progress in the ranking is possible, gaining 20 notches might be ambitious. Philippine Alert September 2012 ECONOMY 13

RANKINGS OF SELECTED ASIAN COUNTRIES/ECONOMIES IN THE GLOBAL COMPETITIVENESS INDEX 2011-2012 2012-2013 2011-2012 2010-2011 Country/Economy Global Global Global Score Score Score rank rank rank 1 Singapore 2 5.67 2 5.63 3 5.43 2 Hong Kong 9 5.41 11 5.36 11 5.30 3 Taiwan, China 13 5.26 13 5.26 13 5.21 4 Korea, Rep. 19 5.12 24 5.02 22 4.91 5 Malaysia 25 5.06 21 5.08 26 4.88 6 Brunei Darussalam 28 4.87 28 4.78 28 4.77 7 China 29 4.83 26 4.90 27 4.84 8 Thailand 38 4.52 39 4.52 38 4.51 9 Indonesia 50 4.40 46 4.38 44 4.43 10 India 59 4.32 56 4.30 51 4.33 11 Philippines 65 4.23 75 4.08 85 3.96 12 Sri Lanka 68 4.19 52 4.33 62 4.25 13 Vietnam 75 4.11 65 4.24 59 4.27 14 Cambodia 85 4.01 97 3.85 109 3.63 15 Bangladesh 118 3.65 108 3.73 107 3.64 16 Pakistan 124 3.52 118 3.58 123 3.48 17 Timor-Leste 136 3.27 131 3.35 133 3.23

Total number of countries/economies covered by the GCR 144 142 139 survey Source: World Economic Forum (WEF), The Global Competitiveness Reports 2012-2013 and 2011-2012

The performance in the other pillars is as follows: The National Competitiveness Council (NCC) is targeting the Philippines to be in the top one-third by 2016. That Places up Rank means reaching the Top 45 or ranking better than Indonesia • Business Sophistication 8 49th and India today. The NCC says this is doable. The key • Financial Market Development 13 58th would be sustaining Pres. Aquino’s anti-corruption drive • Higher Education and Training 7 64th and improving bureaucratic efficiency, spending more on • Technological Progress 4 79th infrastructure, and raising labor market efficiency. Getting • Goods Market Efficiency 2 86th genuine, perceptible results in these pillars would be the • Innovation 14 98th game changer, as this is where the country ranks very poorly. • Infrastructure 7 98th WBF thinks that while progress in the ranking is possible, gaining 20 notches to 45th place in 4 years might be ambitious • Labor Market Efficiency 10 103rd given doubts about the government’s ability to deliver dramatic results particularly in infrastructure, labor policy reforms and The country’s ranking in Health and Basic Education, human development. Two years since the change of leadership, however, slipped 6 levels to 98th place, largely reflecting nothing yet of great significance has occurred along these areas. the fact that it was lagging behind in some of its targets under the UN Millennium Development Goals (MDG). Despite the gains, the Philippines remained in the bottom half of the rankings of emerging market economies in East and PIDS: manufacturing needs to be revitalized South Asia. Ahead were Singapore (2nd in the world), Hong Kong (9th), Taiwan (13th), South Korea (19th), Malaysia Josef Yap, president of the government think-tank Philippine (25th), Brunei (28th), Thailand (38th), Indonesia (50th) and Institute for Development Studies (PIDS), said the country’s India (59th). Behind were Sri Lanka (68th) and Vietnam (75th), manufacturing sector needs to be revitalized to make growth which the Philippines overtook this year, Cambodia (85th), more inclusive during the launch of the 10th Development Bangladesh (118th), Pakistan (124th) and Timor-Leste (136th). Policy Research Month on September 3. The most competitive country in the world, according to WEF, was Switzerland with an index score of 5.72. Rounding “A more dynamic manufacturing sector would have out the Top 5 were Singapore (#2, 5.67), Finland (#3, 5.55), provided more higher-paying jobs to the less educated work Sweden (#4, 5.53) and Netherlands (#5, 5.50). The United force, thereby hastening poverty reduction,” Dr. Yap noted. He States came in 7th with a score of 5.47, also outranked added that Philippine manufacturing has not benefited from by Germany (6th, 5.48). Of the Top 10, 6 were in Europe. the economic integration that occurred in Asia, especially within ASEAN. As a percentage of gross domestic product (GDP), manufacturing fell from 23.6% in 2006 to 21.4%

Philippine Alert September 2012 14 ECONOMY

While the Philippines made considerable progress in trade liberalization, this hasn’t led to rapid industrial growth.

FIRM ENTRANTS, EXITORS AND SURVIVORS IN MANUFACTURING % of firms that were… Year Number of Firms Entrants Exitors Survivors 1996 2,576 33.3 NA NA 1997 2,599 0.4 35.7 64.0 1998 2,263 7.8 8.0 84.2 2000 2,043 1.4 16.8 81.8 2002 2,072 0.3 22.0 77.8 2003 2,031 1.6 17.7 80.8 2005 3,365 0.6 15.0 84.4 2006 3,866 5.7 24.4 68.9

Total 20,815 6.5 17.8 67.4 Source: Rafaelita Aldaba, “Surviving Trade Liberalization in Philippine Manufacturing,” Philippine Institute for Development Studies Discussion Paper 2012-10, April 2012

in 2010. It was 26% in the 1980’s. In contrast, the shares expensive credit cost, would need to be addressed. The SMEs also in Malaysia and Thailand increased during the 2000’s. have to build technological capabilities. FDI can provide support Low value-added and weak linkages with the in terms of technology upgrading and access to export markets. domestic economy in mostly assembly-type activity PIDS is crafting an integrated manufacturing road map were to blame for the decline in manufacturing, that will consolidate the barriers and measures identified in according to the study done by Rafaelita Aldaba of PIDS. individual road maps to revitalize about 30 industries. These Aldaba’s study observed that while the Philippines made specific industry road maps were formulated by the private considerable progress in trade liberalization since the 1980’s, mainly sector stakeholders themselves. WBF coordinated and assisted through the removal of tariff and non-tariff barriers, this hasn’t in the preparation of the road map for the copper industry. PIDS led to the fulfillment of the expectation of rapid industrial growth. is targeting the release of the integrated version in October. With the implementation of the ASEAN Free Trade Agreement (AFTA), firms that closed down actually exceeded those that opened up by a ratio of 3-1 in the first half of the Gov’t planning to tap local dollar reserves for 2000’s. The highest “exitors” were in the garments, leather, non-metallic products and furniture industries. The most borrowing needs vulnerable firms were the newly established small and medium enterprises (SMEs) with lower productivity. They were also The government is considering the option of buying dol- less capital-intensive and largely sold to the local market. lars from the Bangko Sentral ng Pilipinas (BSP) to service Entry rates improved in the 2nd half of the 2000’s, although part of its maturing foreign obligations or to sell dollar- still exceeded by exit rates. The new entrants were in basic denominated bonds in the domestic market to finance its and fabricated metal products, chemicals, rubber products, remaining foreign commercial borrowing requirement of plastic products, and machinery and transport equipment $750 million this year. (mostly parts and components). The successes and survivors generally shared the common attributes of relatively high and The purpose of either of the two options is to help contain improving levels of productivity and foreign equity participation. the appreciation of the peso against the US dollar and to The PIDS study suggested that government policy should reduce the foreign exchange risk of the government. These focus on measures to enhance firm productivity and to attract measures will increase the demand for locally-available dollars, foreign direct investment (FDI) in manufacturing that would link tempering the peso appreciation. The alternative of sourcing with local companies. It conceded though that making SME’s the foreign currency abroad would lead to an increase in the internationally competitive is “a major challenge requiring inflow of dollars, boosting the country’s foreign exchange government support and close coordination between the reserves and raising the value of the peso vis-à-vis the US dollar. government and the SME sector.” Specifically, SME financing issues, such as inadequate working capital, insufficient equity and

Gov’t policy should focus on measures to enhance firm productivity and to attract (FDI) in manufacturing.

Philippine Alert September2012 ECONOMY 15

The gov’t is issuing up to $1.5 Bn in peso and dollar notes, $500 Mn dollar- denominated and sold to the domestic market; up to US$1 Bn peso notes and old to foreign investors.

The central bank is receptive to the idea, given that gross Peso rate now at 4-year high international reserves (GIR) have already reached another all-time high of $80 billion (one-third of the country’s GDP) The peso rose to a 4-½ year high against the U.S. dollar in as of August and the exchange rate has risen in value vs. the the 2nd week of September, peaking at P41.42:$1 by weekend, US dollar by 4.2% from January to August. BSP Deputy Gov. on expectations that a stronger inflow of foreign funds will Diwa Guinigundo said buying dollars from the BSP would occur in emerging market economies like the Philippines benefit the government, the central bank and the economy. in the near-term. The first option involves the government borrowing pesos in the domestic market, then using these pesos for buying The likelihood of reverse capital flight towards emerging dollars from the central bank to pay off its near-term foreign markets including the Philippines increased after the U.S. interest and principal obligations. The Finance department Federal Reserve announced on Sep. 13 that it would spend $40 and the BSP are reportedly coordinating just exactly how billion a month to buy mortgage bonds to make home buying much foreign currency should the government be buying. more affordable. This 3rd round of bond-buying or quantitative The second option deals with the government sourcing the easing (QE3), intended to spur U.S. economic recovery after remaining $750 million of its $2.25 billion planned commercial recent jobs data indicated lack of substantial progress, is seen to borrowing for 2012 locally instead of issuing global bonds. The further depress yields on U.S. financial assets, driving investors $1.5 billion was already secured in January through a 25-year to markets with higher yields especially the Philippines. global bond flotation. Finance officials believe the local market can A similar situation is anticipated in the Euro area, easily absorb it as banks have at least $30 billion in FCDU accounts. where a German court ruled that the German government The government, however, announced 2 weeks later on can implement the European Stability Mechanism (ESM), Sep. 20 that it would issue up to $1.5 billion in peso and dollar a Euro 190 billion ($650 billion) permanent bailout fund notes shortly, not just the balance of $750 million from the for financially troubled economies in the area, which commercial borrowing program for 2012. Nonetheless, $500 will boost liquidity and force yields to drop in Europe. million of these bonds would be dollar-denominated and sold The central bank reminded banks of a rule it passed in July to the domestic market, which is a near fulfillment of the 2nd disallowing the deposit of foreign funds in the special deposit option. Up to US$1 billion would be in the form of peso notes account (SDA), where the rates remained globally attractive at and sold to foreign investors. The government said it decided to 4%. It asked banks to put up a system for detecting the sources still consider this option of selling debt papers abroad to keep the of funds being invested in the SDA facility. Now that U.S. and Philippines “within the radar screen of foreign lenders.” Although Euro interest rates are likely to remain at depressed levels, this doesn’t add to the dollar inflow, the purchase of pesos to the BSP thinks the facility could be used to park speculative pay for the peso-denominated global bonds using dollars could capital, contributing to the further appreciation of the peso. impact negatively on the value of the US dollar vis-à-vis the peso. Other factors cited for the rising exchange rate are The government has drastically reduced its foreign borrowing the Philippine economic growth performance, the third requirement to 25% of its overall borrowing program for 2012 and highest in Asia-Pacific in 1H12, and the credit rating 2013. The equivalent amounts for this year are P175 billion foreign upgrades of Moody’s (June) and Standard and Poor’s (July). and P529 billion local borrowings. The finance department, though, noted that the dollar amount planned to be raised would not be enough to pay for its projected interest and principal obligations this year. Hence, it needs to purchase extra dollars to PESO-DOLLAR RATE (JAN-SEPT 2012) close the gap. This has presented an opportunity for stabilizing the 50 exchange rate by tapping the dollars available with the BSP. The extra peso borrowing for the purchase of dollars will also help 48 absorb some of the excess peso liquidity in the domestic market These options are seen as short-term measures to minimize the 46 peso appreciation that would be potentially damaging to the country’s 44 exports and business processing outsourcing (BPO) industry.

42

40 J'12 F M A M J J A S

Philippine Alert September 2012 16 ECONOMY

The last time the exchange rate reached the mid-41 level was Self-rated poverty scores improved in 3 major geographical in April 2008. Volume of daily transactions, though, was relatively areas of the country. It was down to 57% from 65% in small at less than $1 billion, indicating that the market was unsure Mindanao; to 35% from 41% in Metro Manila; and to 38% if the peso’s gain would be sustained given the reported active from 43% in Balance (Rest of) Luzon. But it worsened to 63% intervention of the BSP in the market. The BSP, however, said it is from 57% in the Visayas. It would seem that inclusive growth sticking to its policy of allowing market forces to dictate the rate has yet to reach families in the Visayas, with conditional and will only participate to smooth out sharp fluctuations. On the cash transfers not having the desired effect in the area. 3rd week of September, the rate was back to the high 41 level. The self-determined poverty threshold, or the minimum amount of monthly budget respondents said they would need to consider themselves non-poor, remained at a median of P15,000 in Metro Less number of poor families in 3Q12 Manila and P10,000 in the Visayas. It fell to P8,000 from P9,000 in rest of Luzon and drastically to P7,000 from P10,000 in Mindanao. Given that the thresholds have not moved upwards for several The number of families who considered themselves poor years now, in some cases even moving downwards despite inflation, declined for the 2nd straight quarter to 9.5 million (47%) SWS said households have continuously tightened their belts and in the 3rd quarter of 2012 from 10.3 million (51%) in the lowered their living standards. This means that the improvement 2nd quarter, based on the results of the survey conducted in self-rated poverty in areas like Mindanao, could be due more by the Social Weather Stations (SWS) in August. to Filipinos raising their threshold of suffering than to them increasing their incomes to levels that meet basic needs and wants. This was also an improvement over the 10.4 million (52%) The latest SWS survey was conducted on Aug. 24-27, who perceived their families to be impoverished in 3Q11. But it involving face-to-face interviews with 1,200 adults nationwide. was still off the all-time best of 43% recorded in the 1st quarter There were 400 respondents each in Metro Manila, Balance of 1987, which was equaled in 1Q10. The 1Q87 performance, Luzon, Visayas and Mindanao. The national results have a however, remained unbeaten in terms of absolute numbers at 4.5 margin of error of +3%, while the area percentages have +6%. million as the percentage result 2 ½ years ago translated into a higher number of 8.1 million who considered themselves poor.

Philippine Alert September2012 ECONOMIC INDICATORS 17

SEPTEMBER INFLATION DECELERATES TO 3.6% inflation rate (%), 2006 = 100 The annual headline inflation decelerated to 3.6% in September from 3.8% in 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 inflation 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 123.1129.4 125.6 233.4- 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 Alert September 2012 18 ECONOMIC INDICATORS

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

April 76.54 68.49 42.70 43.24 2.33 0.79

May 76.08 68.85 42.85 43.13 2.33 1.10 Php: US$ EXCHANGE RATE GROSS INT'L RESERVES June 76.13 69.00 42.78 43.37 2.33 2.68 -40 100

July 79.76 71.88 41.91 42.82 1.90 2.40 -42

Aug. 80.78 75.94 42.05 42.42 1.47 1.53 -44 80

Sept. - 75.17 41.75 43.03 1.00 0.56 -46 60 Oct. - 75.83 - 43.45 - - -48 Nov. - 76.21 - 43.27 - 0.94 -50 40 '10 M M J S N '11 M M J S J '12 M M J S J'10M M J S N J'11M M J S NJ '12M M J Dec. - 75.30 - 43.65 - 1.56

91-DAY T-BILL RATE DECREASES TO 1% IN SEPTEMBER BSP REFERENCE RATES The yield for the benchmark Treasury bill (t-bill) continued to slide from 1.47% Peso equivalent per unit of foreign currency in August to an average of 0.997% from the 2 auctions held in September (Sept. 3 as of September 03, 2012 and Sept. 17) as investors prefer short-term debt papers. The 6-month t-bill rate Month % also decreased as bids reached an average of 1.58% in September from 1.73% last Ave. month while the yield for the 1-year tenor also slid to a rate of 2.06%. According ago Change to National Treasurer Roberto Tan, the decline in T-bill rates was expected given Australian dollar 43.47 43.97 (1.1) the latest developments in the domestic and external fronts. Bahrain dinar 111.88 110.97 0.8 Brunei dollar 33.71 33.47 0.7 Canadian dollar 42.82 41.71 2.6 E.M.U. euro 53.08 51.47 3.1 Hong Kong dollar 5.44 5.40 0.8 91-DAY T-BILL RATE Indonesian rupiah 0.0044 0.0044 - 4.0

3.5 Japanese yen 0.54 0.54 0.7

3.0 Kuwaiti dinar unquoted unquoted unquoted 2.5 Saudi Arabian rial 11.25 11.16 0.8 2.0 Singaporean dollar 33.85 33.61 0.7 1.5 Swiss franc 44.21 42.85 3.2 1.0 Thai baht 1.35 1.33 1.4 0.5 '10 M M J S N '11 M M J S NJ '12M M J S UAE dirham 11.48 11.39 0.8 UK pound 66.96 65.58 2.1 US dollar 42.18 41.83 0.8 Others ( not convertible with BSP ) Argentinian austral 9.10 9.13 (0.3) Brazilian real 20.73 20.39 1.7 Indian rupee 0.76 0.75 0.9 Korean won 0.04 0.04 0.5 Malaysian ringgit 13.51 13.40 0.8 Mexican new peso 3.20 3.14 1.7 New Zealand dollar 33.80 33.86 (0.2) Norwegian kroner 7.28 6.95 4.8 Pakistani rupee 0.45 0.44 1.0 South African rand 5.02 5.10 (1.7) Swedish kroner 6.37 6.15 3.6 Syrian pound 0.63 0.64 (1.2) Taiwanese nt dollar 1.41 1.40 0.9 Venezuelan bolivar * 9.83 9.75 0.8 * Effective 01 Jan. 2008 Venezuela’s official exchanre rate was changed to 2.15 bolivars per dollar tyo 2,150 per dollar Philippine Alert September 2012 ECONOMIC INDICATORS 19

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

Banking System 9,559 9,276 3.1%

Public Sector 43,657 42,800 2.0%

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 0 0

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 Alert September 2012 20 ECONOMIC INDICATORS

JULY TOTAL TRADE ROSE TO $10Bn MERCHANDISE IMPORTS January to July 2012 in US$ million Total merchandise trade for July 2012 increased to $9.7 billion from $9.4 billion 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 10,083 8,342 20.9 deficit of $236 million. Telecom eqpmt & elec's eqpmt 4,871 4,214 15.6 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 2,177 1,965 10.8 Devices (Semiconductors) exports decline by only 12.1% from its July 2011 Office and EDP machine 1,215 1,008 20.6 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 731 594 23.0 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 339 320 5.9 nd Lubricants and Related Materials ranked 2 but fell by 12.3% in its reported RAW MATERIALS & INTER. GOODS 12,781 15,426 (17.1) 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 11,468 14,013 (18.2) volume of inward shipment. Unprocessed raw materials 1,313 1,413 (7.1)

MINERALS, FUELS & LUBRICANTS 8,180 7,329 11.6

Crude petroleum 4,455 4,633 (3.9) FOREIGN TRADE Others 3,314 2,355 40.7 6000 CONSUMER GOODS 4,299 4,084 5.3 IMPORT EXPORT Non-durable 2,305 2,319 (0.6)

5000 Durable 1,994 1,765 13.0

SPECIAL TRANSACTION 369 473 (22.0)

4000 TOTAL IMPORTS 35,712 35,655 0.2

3000 MERCHANDISE EXPORTS '10 M M J S N '11 M J A O DJ'12M M J 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/(Deficit) 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 4,807 4,429 4,964 4,999 (157) (570) Furniture & Fixtures 108 95 14.3 Aug. - 4,123 - 4,925 - (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 Alert September 2012 ECONOMIC INDICATORS 21

NATIONAL ACCOUNTS PERCENTAGE DISTRIBUTION OF TOTAL FAMILY EXPENDITURE 2nd QUARTER 2012 By major expenditure group Year-ago Year-on- Data level year growth NATIONAL ACCOUNTS In PB In PB 11-12 Expenditure group 2009 2006 GROSS NATIONAL INCOME Percent 100.0 100.0 (at constant prices) 2,083.7 1,973.6 5.6% Food 42.6 41.4 (at current prices) 3,474.5 3,225.5 7.7% Alcoholic Beverages 0.7 0.7 GROSS DOMESTIC PRODUCT (at constant prices) 1,593.8 1,505.0 5.9% Tobacco 0.8 0.9 (at current prices) 2,620.8 2,432.6 7.7% Fuel, Light and Water 7.1 7.6 GNP (at constant prices) by Expenditure Shares Transportation & Communication 7.7 8.2 1. Household Final Consumption Expenditure 1,090.6 1,030.5 5.8% a. Food and Non-alcoholic beverages 455.0 427.2 6.5% Household Operation 2.3 2.3 b. Alcoholic beverages, Tobacco 16.2 15.2 6.7% Personal Care and Effects 3.8 3.7 c. Clothing and Footwear 19.8 19.0 4.5% Clothing Footwear & Other Wear 2.2 2.4 d. Housing, water, electricity, gas and 125.8 120.8 4.1% other fuels Education 4.3 4.4 e. Furnishing, household equipment and 66.8 65.7 1.7% routine household maintenance Recreation 0.4 0.5 f. Health 23.8 21.5 10.5% Medical Care 2.9 2.9 g. Transport 93.2 93.7 -0.5% Non-Durable Furnishing 0.2 0.2 h. Communication 60.9 55.4 10.0% Durable Furniture and Equipment 2.7 2.7 i. Recreation and Culture 23.5 22.3 5.4% j. Education 32 32 0.7% Rent/Rental Value of Dwelling Unit 12.8 12.7 k. Restaurants and Hotels 42 39 8.5% House Maintenance and Minor Repairs 0.6 0.6 l. Miscellaneous goods and services 132 122 7.7% Taxes Paid 2.0 1.6 2. Government Final Consumption 187.7 177.2 5.9% Expenditure Special Family Occasions 2.7 2.8 3. Capital Formation 268.1 262.0 2.3% Gifts and Contributions to others 1.4 1.4 4. Exports 847.0 782.2 8.3% 5. Imports 784.0 751.3 4.4% Other Expenditure 2.9 3.0 GNP (at constant prices) by Industrial Origin Other Expenditures 2.9 2.9 1. Agriculture 162.4 161.3 0.7% Total Family Expenditures 3,239 2,561 2. Industry Sector 505.4 483.1 4.6% a. Mning & Quarrying 23.7 25.6 -7.3% Source: Family Income & Expenditure Survey (FIES) Final Results 04 February 2009 b. Manufacturing 337.5 324.6 4.0% 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, UNEMPLOYMENT AND 249.1 232.1 7.3% Motorcycle & Household Goods UNDEREMPLOYMENT RATES c. Financial Intermediation 117.1 109.2 7.3% d. Real Estate, Renting & Business 180.8 166.6 8.5% Activities 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 (New Definition) 2011 2012

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 OFW DEPLOYMENT Underemployment (%) 19.4 19.4 19.1 19.1 18.8 19.3 22.7 hires and rehires

Philippine Alert September 2012 22 philippinephilippine regional regional update update

NCR – NATIONAL CAPITAL REGION (METRO MANILA)

14 flood control projects in master plan The Department of Public Works and Highways (DPWH) has identified 14 priority projects worth a total of P5 billion under the P352-billion Metro Manila flood control master plan recently approved by Pres. Aquino as chair of the National Economic and Development Authority (NEDA) Board. The 14 projects include the Valenzuela-Obando-Meycauayan river improvement project (P830 million); the Caloocan-Malabon-Navotas-Valenzuela flood control and drainage improvement project (P800 million); the Manila Bay seawall and floodgates (P765 million); improvement of inflow rivers to Laguna de Bay (P750 million); the upper Marikina river improvement project (P370 million); the western Manggahan floodway project (P262 million); and a number of other flood control and drainage projects in Metro Manila and nearby provinces. The master plan covers a total of 4,350 square kilometers, which include the river basins of the Pasig-Marikina River and Laguna Lake and the attached river basins in Central Luzon and Southern Tagalog. The master plan in envisaged to be implemented till 2035.

100-km dike along Laguna lakeshore planned Pres. Aquino announced a plan to put up a 100-kilometer dike around Laguna de Bay during his visit to an evacuation center in Montalban, Rizal where 9,100 flood-affected families were temporarily sheltered. The dike will protect nearby areas from persistent flooding. The President said the project is in the conceptualization stage. He also revealed that a P2.2-billion, 8-kilometer dike will be built in Valenzuela City to mitigate constant flooding there. These are among the long-term measures (as differentiated from the near-term priority projects) identified in the Metro Manila flood control master plan.

Manila Mayor vetoes dismantling of oil depot Mayor Alfredo Lim of Manila vetoed a proposed city ordinance 8283 reclassifying the area where the petroleum refineries and oil depot of the major oil companies are located from heavy industrial to high intensity commercial/mixed use zone. If implemented, the ordinance would force the pullout of the oil companies’ facilities within the zone. Mayor Lim’s veto came after he concurred with the advice of the city legal officer that the proposed ordinance is “prejudicial to public welfare” as it will result in “the city suffering huge budget deficit, especially since it is already experiencing a shortfall as a result of substantial tax credits granted to several businesses.”

Ayala Land bags Food Terminal property Ayala Land Inc. (ALI) won the bid for the acquisition of the 74-hectare portion of the 120-hectare Food Terminal Inc. property in Taguig City. ALI’s bid of P24.3 billion bested 2 other tenders – Robinson’s Land Corp. (P14.7 billion) and Empire East Land Holding Corp. (P11.3 billion) – and was more than double the government’s minimum price of P10.2 billion. ALI will make an initial payment of P19.5 billion in October.

CAR – CORDILLERA ADMINISTRATIVE REGION

Another tailings dam spill in Benguet Philex Mining Corp. reported another leak at its waste facility in Itogon, Benguet province on Aug. 30. The leak was contained 4 hours after it occurred, company officials said. Meanwhile, repair work on the firm’s tailings dam No. 3, which experienced an overflow of sediment and tailings pond water on Aug. 1, has been hampered by further bad weather. The regional director of the Mines and Geosciences Bureau (MGB) ordered stoppage of operations at the Padcal mine on Aug. 2. Philex also faces a P326 million fine from MGB for discharging 6.5 tons of sediment on Aug. 1 into the Balog river. The Bureau of Fisheries and Aquatic Resources (BFAR), however, concluded that the fish grown in the dam were not contaminated by the tailings released from the leak.

Region III – CENTRAL LUZON

IFC to invest in Clark The International Finance Corp. (IFC), the private lending arm of the World Bank, will invest up to $50 million to implement the first phase of the Sabah Al Ahmad Global Gateway Logistics City. The project is a large-scale business park and infrastructure development at the Clark Freeport Zone in Pampanga. The first phase includes the construction of a medical city, commercial plaza, office towers, a warehouse and a university campus. The developer is Global Gateway Development Corp. (GGDC), a special purpose vehicle owned by private equity fund The Port Fund L.P. IFC’s investment is in the form of a loan to GGDC ($42.5 million) and preferred shares of GGDC ($7.5 million). The entire project, which will be developed on a 177-hectare site leased from Clark International Airport Corp., is estimated to cost $200 million.

Philippine Alert September 2012 philippine regional update 23

Crop losses: P1.18BN The Department of Agriculture reported that crop damage due to Typhoon “Gener” and the heavy monsoon rains in early August reached P723 billion in Central Luzon, the biggest loss among the regions affected by the natural calamity. Total nationwide damage was P1.18 billion. Among the region’s provinces, the most destruction was experienced by Pampanga (P281 million), Tarlac (P163 million) and Bulacan (P104 million). In terms of commodities, rice, corn, fisheries and livestock were the most hit nationwide. Almost P500 million damage to the country’s irrigation facilities was also reported.

Region IV – SOUTHERN TAGALOG

Region IV-A – CALABARZON

Batangas port fees cut Pres. Benigno Aquino III has approved a request made by former transportation secretary Manuel Roxas III to cut port charges at the Batangas International Port by 50%. The request came after consultants from the Japan International Cooperation Agency (JICA) made the recommendation to the Department of Transportation and Communications (DOTC) to reduce the fees to divert international cargo traffic to Batangas and decongest Port of Manila.

Laguna Lake dredging project mulled The Laguna Lake Development Authority (LLDA) is planning the construction of a 7.2-kilometer underground spillway to Manila Bay to pump out excess water from the heavily-silted Laguna de Bay as soon as possible, the Laguna provincial government said. This is different from the ring road dike project announced by Pres. Aquino. The spillway will cost P5 billion and will be financed by a soft loan from the Korean government. Construction will take 2 years and will be completed before the end of the term of Pres. Aquino. Lake-based groups, however, are reportedly demanding further study of the project, fearing it could be more destructive and would simply be a source of corruption.

NEDA approves light rail extension to Antipolo The Investment Coordination Committee of the National Economic and Development Authority (NEDA-ICC) has approved the Light Railway Transit Line 2 East Extension Project. The project aims to extend the line from the Santolan station and depot in Pasig City to Masinag Junction in Antipolo City in Rizal province, adding 2 stations (one along Emerald Drive in Cainta town before reaching the Masinag Junction) to the existing line. The 4-km extension is estimated to cost P9.76 billion and will increase Line 2’s coverage to almost 17 kilometers.

Nestle opens coffee center Nestle Philippines opened up its Nestle Lipa Integrated Commercial Center in Lipa City, Batangas in August. The 5-hectare center will house a Robusta seedlings production nursery, a local R&D center for new coffee selections, a training and techno-demo center, a buying station and a composting facility for organic fertilizer. The experimental and demonstration farm in Batangas will have the capacity to produce at least 500,000 seedlings annually.

Japanese toy maker to set up factory in Batangas Bandai Namco Group of Japan, maker of Tamagotchi virtual pet electronic game and Power Ranger action figures, will set up a P400-million toy manufacturing facility at the Lima Technology Center in Lipa and Malvar, Batangas province. Construction of the 10,000-square meter factory begins in October, while operations will commence next year.

Region IV-B – MIMAROPA

Napocor to put up 8 MW power plant in Palawan State-owned National Power Corp. (Napocor) will put up an 8-megawatt power plant to close the gap in power supply in Palawan projected between December 2012 and October 2013. The gap is expected given that it would take time for the DMCI Power Corp.’s 25-MW diesel plant to be installed. DMCI won the bid to supply electricity to Palawan Electric Cooperative (Paleco) at a generation rate of P9.38 per kilowatt-hour.

Palawan airport upgrade gets P3Bn loan The government signed a $71.61-million (P3-billion) loan agreement with the Export-Import Bank of Korea (KEXIM) for the upgrade of Puerto Princesa airport. The loan will be used for the construction of a new terminal with modern facilities and an access road, improvement of the runway, and acquisition of navigational aids. The airport is being envisaged to revitalize the transport and trade links with BIMP-EAGA (Brunei Darussalam-Indonesia-Malaysia-Philippines East ASEAN Growth Area).

Philippine Alert September 2012 24 philippine regional update Wind power project in Puerto Galera Philippine Hybrid Energy Systems Inc. (PHESI) disclosed that it has started construction of the first phase of a 48-megawatt Wind Energy Power System (WEPS) in Puerto Galera, Oriental Mindoro in September. To be developed in 3 phases, each phase consists of a 16-MW plant to be built at a cost of P2 billion. PHESI is a joint venture between Construction Management & Consultancy Asia Inc. (94%) and Delaware-based BreezeElectric Llc.

Region VII – CENTRAL VISAYAS

Cebu bus rapid system to start next year Implementation of the bus rapid transit system in Cebu City is expected to commence next year. The peso counterpart fund of P975 million has already been earmarked for the Cebu Bus Rapid Transit (CBRT) in the 2013 budget of the Department of Transportation and Communications (DOTC). The infrastructure component and consulting services for detailed engineering design will be proposed for funding by the World Bank. The rolling stock, or the bi-articulated buses, as well as the project’s operation and maintenance, will be opened to private investors through the public-private partnership (PPP) scheme. Road right-of-way acquisition and widening will be the main project implementation activity in 2013.

Region VIII – EASTERN VISAYAS

Airport projects in Eastern Visayas The Civil Aviation Authority of the Philippines (CAAP) disclosed that 9 airport projects totaling P2 billion will be implemented in Eastern Visayas between now and 2015. The major projects consist of the upgrade of the following airports: Tacloban Airport transformation into an international airport, involving the construction of a new apron, taxiway and passenger terminal (P680 million); Ormoc Airport, mainly involving the rehabilitation of runway and completion of the terminal building (P173 million); Catarman Airport in Northern Samar, including the improvement of the passenger terminal building, construction of an administration building, installation of additional air navigation facilities and construction of a new taxiway (P172 million); the construction of a new passenger terminal building and an administration building, upgrading of runway, expansion of taxiway for the Borongan Airport in Eastern Samar (P147 million).

Region XII – SOCCSKSARGEN (CENTRAL MINDANAO)

Western Pacific Ocean re-opens to tuna fishing The government is preparing the list of local fishing companies that will be awarded the right to catch tuna in the limited portion of the western Pacific Ocean, which the Western and Central Pacific Fisheries Commission (WCPFC) opened up for fishing in April. WCPFC imposed a 2-year ban on purse seine fishing in parts of the western Pacific Ocean in January 2010. The Bureau of Fisheries and Aquatic Resources (BFAR) said companies would be chosen via the drawing of lots. Fishing in the re-opened area is expected to start in October. Central Mindanao is the country’s top tuna-producing region, generating $300 million worth of tuna exports in 2010.

Region IX – ZAMBOANGA PENINSULA (WESTERN MINDANAO)

Businessmen want power plant fast-tracked The Zamboanga Peninsula Chapter of the Philippine Chamber of Commerce and Industry (PCCI) and the Zamboanga Peninsula Business Council passed a resolution during the 8th Zamboanga Peninsula Business Conference stressing the importance of having a reliable base load supply of electricity to sustain the growth of business in the region. They asked for the early completion of the P12-billion, 100-megawatt San Ramon Power Plant in Zamboanga City by 2015. The project is a coal-fired power plant being put up and to be operated by San Ramon Power Inc., a subsidiary of Alsons Consolidated Resources Inc.

ARMM – AUTONOMOUS REGION IN MUSLIM MINDANAO

Del Monte to invest in a banana plantation in ARMM Del Monte Fresh Produce (Philippines), Inc., through its subsidiary Delinanas Development Corp., is investing $60 million (P2.5 billion) for a 3,000-hectare banana plantation in the Autonomous Region in Muslim Mindanao (ARMM). An initial investment of P569 million will be made to start operations in the town of Datu Abdullah Sangki in Maguindanao province, according to the records of the Regional Board of Investments (RBOI)-ARMM.

Tawi-Tawi bridge completed The Sanga-Sanga-Lapid-Lapid steel bridge project in Tawi-Tawi province has been completed at end-September. The bridge serves as a transport link between the towns of Panglima Sugala, Sapa Sapa and Languyan. The project was built at a cost of P674 million, with financing provided by the national government (P337 million), the United Kingdom government (P245 million), and the Growth with Equity in Mindanao (GEM) Program of the US Agency for International Development (P92 million).

Philippine Alert September 2012 philippine regional update 25

REGIONAL ECONOMY GRDP REAL GRDP POPULATION PERSONS/ GRDP/CAPITA REGION LAND (PM at current prices) Growth Rate ('000) AREA sq km (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 Alert September 2012 26 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 Alert September 2012 philippine regional update 27

EMPLOYMENT RATE BY REGION (IN%) (New Definition) 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 Definition) 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 Alert September 2012 28 BUSINESSBUSINESS

Japanese investors’ interest rising

The country has been receiving growing interest from Japanese investors. Reasons for the rising interest were indicated in the survey by the Japan External Trade Organization (Jetro). However, the inability of the government to grant promised incentives, such as tax rebates, has long affected existing Japanese firms’ operations.

he Philippines is gaining high interest from Japan as several Japanese investors have announced fresh business ventures Twhile others have inquired on potential investment areas. The Nippon Keidanren (Japan Business Federation) has sent a business delegation to find new investment areas, among others. The Nippon Keidanren is the most extensive and largest economic organization in Japan and has an estimated 1,600 member companies. Seven Japanese companies have announced plans to build manufacturing factories in the country. These companies include Canon Inc. (printer manufacturer), Brother Industries Ltd. (printer manufacturer), Murata Manufacturing Co. (electronics components), Fujifilm (optical lenses, projectors, and surveillance cameras), Bandai (toys-Power Rangers and Gundam), Cemedine Co. Ltd. (adhesives), and Furukawa Electric Co. Ltd. (electronics components). Total initial capitalization of these companies has reached an estimated 10.7 billion yen PH FOREIGN TRADE WITH JAPAN ($ BILLION) 10 (P5.7 billion). The National Statistical Coordination Board EXPORTS (NSCB) reported that Japan committed P17.4 billion worth IMPORTS of investments, which comprised the bulk (39.6%) of the total 8

approved foreign direct investments (P44.1 billion) in the 2Q2012. 6 Eighteen member-companies of Nippon Keidanren recently

met with the Department of Trade and Industry (DTI), the National 4 Competitiveness Council of the Philippines (NCCP), etc. to discuss new investment opportunities in tourism, infrastructure, 2 electronics, and energy sectors. The 18 member-companies 0 included Toyota Motor Corp., Sumitomo Corp., Toshiba Corp., 2007' 2008' 2009' 2010' Marubeni, East Japan Railway Company, Dai-ichi Life Insurance Source: National Statistical Coordination Board

Underlying reasons for the high investor interest from Japanese businessmen are the country’s innate and developed strengths.

Philippine Alert September 2012 BUSINESS 29

Tax credits of Japanese firms have reached billions of pesos, which have been due as far back as 2002.

PH EXPORTS BY COUNTRY ($ BILLION) Despite industry issues, Japan remains the biggest investor 10 in the Philippines. The Investment Promotion Agencies (IPAs) approved P77.4 billion worth of investments from Japan in 2011, 8 the largest among investing countries. Import of Philippine products

6 by Japan is also the largest as it increased from $7.80 billion in Netherlands 2010 to $8.90 billion in 2011, which is 14.8% of total imports. 4 Hongkong Manufacturing is the engine of the economy. The China Manufacturing Institute stated that compared to other sectors, 2 Japan manufacturing has the highest multiplier effect of 1.4 to the U.S. 0 economy. For instance, for every liter of paint produced, it needs 2007' 2008' 2009' 2010' Source: National Statistical Coordination Board (NSCB) a (1) supply of raw chemical materials and plastic containers, (2) delivery trucks for distribution, (3) chemists, engineers, and operators to supervise the plant, (4) services, such as Co. Ltd., Nippon Yusen Kaisha (NYK Line), Showa Denko, The financial, marketing, sales, and logistics, etc. The Philippines Bank of Tokyo-Mitsubishi UFJ Ltd., and All Nippon Airways with its high rate of unemployment needs investments in Co. Ltd. Strengthening the regional economic cooperation and manufacturing, which the Japanese investors can provide. The social security agreement were also discussed during the meeting. Japanese investors, however, are not only eyeing the Philippines Underlying reasons for the soaring investor interest from but Vietnam and Indonesia as well. Thus, it is imperative Japanese businessmen were the country’s strategic location (just that the country must compete well with these countries. 4.5 hours away from Japan), high literacy rate, stability of cost of labor, abundance of manpower, and the hardworking nature of the Filipino workers, among others, according to Endo Yoshiaki, BSP tightens upon banks’ real estate loan principal of Japanese Practice of Manabat Sanagustin & Co. exposure (MS&C). MS&C is one of the top auditing and advisory firms in the country, whose majority of clients are Japanese companies. The The Bangko Sentral ng Pilipinas (BSP) has imposed a new country’s strong macroeconomic fundamentals amid the financial measure that will limit exposure of banks on real estate loans. woes in the United States and Europe is another primary reason. Efficiency in operation of existing Japanese firms in the The Bangko Sentral ng Pilipinas (BSP) has expanded the country was also mentioned as a reason for the increasing investor coverage in the computation of real estate exposure of the interest. The Japan External Trade Organization (Jetro) survey, Philippine banking sector. Starting 4th quarter of 2012, a bank’s conducted from August to September 2011, showed that Japanese real estate exposure will include loans extended to individuals for firms in the Philippines have the least problems in financial costs, the acquisition or construction of real estate for own occupancy, recruiting general staff and executives, worker competency, and loans granted to land developers and construction companies quality control, etc. The Jetro-survey covered 731 Japanese for the development of socialized and low-cost housing, manufacturing and service firms with operations in the Philippines, and investment in real estate companies’ debt and equities. Indonesia, Vietnam, Burma, India, Thailand, Malaysia, and China. The BSP said that real estate activities under the new These strengths, however, are not enough to secure method are defined as “the construction and development of these investments as government promised incentives, such real estate projects as well as other ancillary services like buying as tax rebates, have not been given to existing Japanese and selling, rental and management of real estate properties.” firms for years. The Japanese Chamber of Commerce and Previously, only loans to corporate borrowers engaged in real Industry of the Philippines (JCCIP) has long been urging estate were considered. By expanding the definition, BSP the government to employ a more flexible tax rebate system Governor Amando Tetangco said that it will provide BSP with by allowing cash refunds, cross utilization, and fast releases “the complete picture of the exposure of banks to real estate.” of reimbursements. Tax credits of Japanese firms have He added that BSP will be able to effectively monitor how reached billions of pesos, which were due way back in 2002. real estate companies are funding their activities. He stressed, however, that the move is not an indication of an asset price

The Japanese investors are not only eyeing the Philippines but Vietnam and Indonesia as well.

Philippine Alert September 2012 30 BUSINESS

With the expanded measure, it will push banks closer to the ceiling and cause banks to be more selective in approving real estate loans.

ANNUAL GROWTH OF PHILIPPINE REAL ESTATE LOAN More OFW families save remittances - BSP 30 According to a survey conducted by the Bangko Sentral 25 ng Pilipinas (BSP) during the 3rd quarter of 2012, many remittance-dependent households are becoming financially 20 literate as more of these households save and invest a portion 15 of the money they receive from abroad.

10 The Bangko Sentral ng Pilipinas (BSP) has reported in its 3rd quarter consumer expectations survey that 36.8% of 5 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 overseas Filipino workers’ (OFW) households are into saving Source: Bangko Sentral ng Pilipinas their remittances, an improvement from 35.5% in the 3rd quarter of 2011. It has also reported an increase in the number of OFW households who allocated their remittances to education (from bubble – a speculative increase in the price of assets. Nonetheless, 69% to 75%); medical expenses (from 56% to 67%); debt the BSP is showing some concern over rising asset prices. payments (from 47% to 51%); and the purchase of appliances The annual increase in real estate prices began accelerating and consumer durables (from 27% to 29%) compared to last year. in 2010. In the 1st quarter of 2012, the average price for a From this report, BSP Deputy Governor Diwa Guinigundo luxury 3-bedroom apartment in Makati has increased by 4.8% said that there has been a general increase in the number of to P114,000 per square meter; in Rockwell it has increased by households that are saving money although there are some 11.4% to P119,000 per square meter; and in Global City it has fluctuations on a short-term basis. “Looking at the trend since increased by 8.6% to P112,900 per square meter. According 2007, one may see that there are more and more households to Colliers International, high-end residential real estate dependent on remittances that are into saving,” he added. prices will continue to rise by 9.9% in the next 12 months From the first survey for OFW remittances conducted in 1st while a significant rise in housing stock is expected with quarter of 2007, BSP reported that only 7% of OFW households 8,253 units to be built in Metro Manila by the end of the year. saved their money (see chart). In 2011, average percentage of The BSP currently imposes a 20% limit on the exposure of OFW households that saved their remittances increased to 41% banks to real estate loans. At present, 14% of banks’ loan portfolio from the 2007 average of 15% (see table). OFW households are is in real estate corporate loans. With the expanded measure, it also becoming more inclined to invest. The number of OFW will push banks closer to the ceiling and cause banks to be more households that spent part of their remittances to purchase selective in approving real estate loans. As of the 1st quarter of houses also increased from 2% in 2007 to 12% in 2011, while 2012, total loans extended to the real estate sector stood at P400 those who purchase appliances and consumer durables increased billion, up by 25.4% from the same period in 2011 (see chart). Of from 8% to 29%. According to BSP, these are partly attributed this amount, 57% were made to land developers and construction to the increased incomes received by OFWs from 2007 to 2011. companies while 7% were for socialized and low-cost housing. On a quarter-on-quarter basis, however, OFW households that The BSP will conduct a review of the ceiling once it receives saved their money have dropped from 44.5%. BSP director for the report from banks for the 4th quarter to determine if further Economic Statistics Rosabel Guerrero said that this may have been changes in rules on the real estate loan ceiling are necessary. the effect of some short-term reduction in income due to the crisis According to Moody’s Investors Service, this new measure in the Eurozone area, which decreased their number of working will prompt banks to tighten their credit on high-growth areas in real estate where risks may have escalated. Among PERCENTAGE OF OFW HOUSEHOLDS BY TYPE OF USE OF OFW Moody’s rated Philippine banks, the ones identified to be most REMITTANCES PER QUARTER (2007-2012) affected by the new measure are Metropolitan Bank and Trust Company, Rizal Commercial Banking Corporation, Allied Banking Corporation, and United Coconut Planters Bank.

Philippine Alert September 2012 BUSINESS 31

BSP: “Although there are some fluctuations on a short-term basis, there has been a general increase in the number of households that are saving money.”

AVERAGE PERCENTAGE OF OFW HOUSEHOLDS BY TYPE OF USE OF OFW REMITTANCES 2007 2011 Change (’07-’11) 2012 * Food 93.83 96.73 2.9 95.77 Education 42.63 69.65 27.0 69.57 Medical Expenses 19.68 59.55 39.9 61.67 Debt Payments 21.78 46.80 25.0 48.13 Savings 15.05 40.88 25.8 41.33 Purchase of Appliances/ Consumer Durables 8.00 29.33 21.3 26.30 Purchase of House 1.95 12.05 10.1 13.17 Investment 4.20 7.00 2.8 6.13 Purchase of Car/ Motor Vehicle 2.00 7.38 5.4 8.90 Others 1.43 3.33 1.9 2.53 *1Q-3Q hours and overtime pay. Although the number of OFW households The improvement in business constraints in the current who saved dropped, those who invest remained stable at 5%. On quarter further strengthened the buoyant outlook for the the other hand, those who purchase a house increased from 11% next quarter. Firms that view high interest rates, lack of in the 2nd quarter to 13% in the 3rd quarter while those who equipment, competition, labor problems, and lack of materials purchase cars or motor vehicles also increased from 6% to 12%. input as business constraints have declined over the last The BSP said that the improved numbers indicated that 5 quarters. Companies that perceive unclear economic OFW households have become more conscious in saving laws, insufficient demand, and access to credit as industry and investing. Monetary officials are saying that financial problems have also decreased from the 4Q2011 to 3Q2012. education among the households must continue to better secure A majority of the sectors share the buoyant outlook for the their future. Currently, the BSP is promoting financial literacy next quarter ahead. The outlook index from the wholesale and through seminars on saving and investing throughout the retail trade, services, and industry sectors rose by 22.6, 15.4, and country and cities with large communities of OFWs abroad. 8.2 percentage points, respectively. Most of the segments, except the community and social services, under the services sector also posted considerable increases with hotels and restaurants Growth to accelerate in 4Q2012 but with less recording the highest outlook increase of 40.4%. The construction sector is the only major sector that sees a less buoyant outlook expansion plans for the fourth quarter due to fewer construction activities during the rainy season and the slow start of government projects. The 3Q2012 Business Expectations Survey of the Bangko The less upbeat outlook of the construction sector, however, Sentral ng Pilipinas (BSP) indicate a buoyant outlook for did not dampen the overall outlook on the volume of business 4Q2012 due to the sound macroeconomic factors of the activity index in the quarter ahead. Firms see more business country and declining business constraints. This upbeat activity as its volume of business activity index rose by 10.2% outlook, however, did not come with a rise in expansion plans. percentage points from 46.1% in the 2Q2012 to 56.3% in 3Q2012. Firms also expect a surge in hiring of manpower as the Growth is likely to accelerate in the last quarter of the year employment outlook index reached a record high of 27.4% since as the overall business outlook of firms hits an all time high 1Q2007. Firms specializing in financial intermediation, hotels of 59.6% since the 1Q2007. The outlook of firms operating and restaurants, business activities, transportation, and real estate within the NCR reached a record high of 64.5% while those are likely to hire additional manpower in the fourth quarter. outside of the NCR posted its 3rd highest index of 50.3%. The upbeat employment outlook of firms, however, does Factors that contributed to the upbeat outlook of firms not come with an increase in expansion plans. Firms in the include low interest rates, manageable inflation, and steady electricity, gas, and water, agriculture, fishery, and forestry, and growth of overseas Filipino remittances. In addition, the manufacturing industries are less likely to undertake expansion expectations of (1) a continued increase in orders and projects plans than firms in mining and quarrying. Companies in the leading to higher volume of production, (2) expansion of electricity, gas, and water industry recorded the highest decline businesses and new product lines, (3) increased government in expansion outlook of 5.1%. Companies in the mining and infrastructure spending, and (4) brisker business during the quarrying sector, on the other hand, posted a 14.5% increase in Christmas season and the run-up towards the 2013 elections also expansion outlook despite numerous controversies in the industry. contributed to the upbeat outlook of firms for the quarter ahead.

Philippine Alert September 2012 32 BUSINESS

Firms also expect a surge in hiring of manpower as the employment outlook index reached a record high of 27.4% since 1Q2007.

CONFIDENCE INDEX: ALL SECTORS PH rankings in corporate governance and 70 economic freedom up 60

50 Corporate Governance (CG) and Economic Freedom (EF) have improved in the country. Based on rankings, however, 40 the Philippines remained at the bottom with Indonesia in CG 30 while it made the highest leap in EF among Asian countries. 20 Next Quarter

10 Current Quarter The Philippines attained one of the highest improvements in the “The Corporate Governance (CG) Watch 2012: Market Rankings”, 0 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 a major regional survey that assesses macro corporate governance Source: Bangko Sentral ng Pilipinas, Business Expectations Survey quality in 11 Asian markets. The country’s total CG score rose by 4 points from 37 in 2010 to 41 in 2012. Korea posted the same point increase while other countries (Singapore, Hong Kong, Thailand, BUSINESS OUTLOOK INDEX BY SECTOR 4Q2012 Malaysia, and India) recorded 1 to 3 points increases. China, 80 Japan, and Taiwan, meanwhile, indicated 2 to 4 points decreases. 70 Out of 5 CG macro-determinants, the country’s scores fell 60 only on a single determinant – the internationally generally Services Sector accepted accounting principles (IGAAP). This decline, from 75 50 Wholesale/Retail Trade in 2010 to 73 in 2012, shows the country’s sluggish progress 40 Construction Sector Industry Sector in adhering to this code. The country’s rules and practices 30 was also lethargic as its score remained at 35. Considerable

20 progress, however, was recorded on enforcement, political 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 Source: Bangko Sentral ng Pilipinas, Business Expectations Survey and regulatory, and CG culture as its scores rose by 4 to 10 points. The reported attributed the improvement in most of the country’s determinants to the concerted effort among

BUSINESS OUTLOOK INDEX ON OWN OPERATIONS 4Q2012 government, regulators, nongovernment organizations (NGOs), 60 and companies alike to improve standards, which was greatly influenced by the reforms of the Aquino administration. 48 The progress in most of the categories was able to lift the country’s rankings by a notch but not enough to break out from Volume of Business Activity Index 36 the bottom 2. The Philippines rose from the 11th spot in 2010 to the 10th spot in 2012, beating only Indonesia. Indonesia fell to 24 the bottom of the rankings in 2012 from 10th spot in 2010. Both countries have been the bottom 2, switching places, over the last 12 Employment Outlook Index 9 years. The report attributed the inability of the Philippines to

0 break out from the bottom 2 to the lack of solid evidence among 2Q11' 3Q11' 4Q11' 1Q12' 2Q12' 3Q12' many companies that their approach to corporate governance is Source: Bangko Sentral ng Pilipinas, Business Expectations Survey more than a compliance exercise imposed on them by regulators, who still lack the resources to enforce better corporate behavior. Singapore and Hong Kong have always been in the top 2. The 3Q2012 Business Expectations Survey, conducted Unlike its sluggish progress in CG ranking, the Philippines by the Bangko Sentral ng Pilipinas (BSP), surveyed 1,581 attained a big leap in the “Economic Freedom (EF) of the World firms nationwide from July 2 to August 13, 2012. The total rankings”, a study that describes how the policies and institutions number of respondent firms comprises 607 companies from of 144 countries are supportive of economic freedom. The country the NCR and 974 firms outside the NCR. The business outlook jumped by 15 notches from 76th in 2008 to 61st in 2010, the biggest of respondent firms, measured by the confidence index, was increase among Asian countries. Four Asian countries (Indonesia, generated by subtracting the negative from the positive responses. Taiwan, Malaysia, and Japan) also posted increases in rankings by 4 to 14 points. Rankings of Thailand China and India, meanwhile,

Philippine Alert September 2012 BUSINESS 33

The inability of the Philippines to break out from the bottom 2 is due to lack of solid evidence among companies that their approach to corporate governance is more for the sake of compliance to what is imposed on them by regulators, who still lack the resources to enforce better corporate behavior.

Corporate Governance

Asian Countries Score Rank

2012 2010 Change 2012 2010 Change

Singapore 69 67 2 -1 1 0

Hong Kong 66 65 1 2 2 0

Thailand 58 55 3 3 4 1

Japan 55 57 -2 4 3 -1

Malaysia 55 52 3 5 6 1

Taiwan 53 55 -2 6 4 -2

India 51 49 2 7 7 0

Korea 49 45 4 8 9 1

China 45 49 -4 9 7 -2

Philippines 41 37 4 10 11 1

Indonesia 37 40 -3 11 10 -1

PHILIPPINE CORPORATE GOVERNANCE RANK PHILIPPINE CORPORATE GOVERNANCE MACRO-DETERMINANTS 0 100

2 80

4 60 6 40 8 20 10

12 0 2005' 2007' 2010' 2012' 2005' 2007' 2010' 2012' CG Culture Political &Regulatory Source: CG Watch 2012: Market Rankings IGAAP Enforcement CG Rules and Practices

Source: CG Watch 2012: Market Rankings

While it is good to know about these gains, it is far better to know if these gains are sustained over the long term.

Philippine Alert September 2012 34 BUSINESS

Economic Freedom

Asian countries Ratings Rank

2010 2008 Change 2010 2008 Change

Singapore 8.69 8.70 0.01 2 2 0

Hongkong 8.90 9.05 0.15 1 1 0

Thailand 6.70 7.06 -0.36 87 58 -29

Japan 7.64 7.46 0.18 20 24 4

Malaysia 6.96 6.72 0.24 71 77 6

Taiwan 7.72 7.48 0.25 15 22 7

India 6.26 6.51 -0.25 111 87 -24

Korea 7.40 7.28 0.12 37 37 0

China 6.35 6.65 0.30 107 82 -25

Philippines 7.12 6.77 0.35 61 76 15

Indonesia 6.88 6.44 0.44 76 90 14 Source: Economic Freedom of the World, Annual reports

dropped by 29, 25, and 24 notches, respectively. The considerable increase in the country’s rankings has allowed it to join the upper PHILIPPINE ECONOMIC FREEDOM RANKINGS half of the participating countries for the first time. Singapore and 0 Hongkong have occupied the top 2 spots over the last 8 years. The country’s considerable rise in ranking was brought about by the improvement in most of the areas measured by the EF 20 survey. These areas included size of government (from 15th to 9th), sound money (from 78th to 39th), and regulation (from 84th 40 to 74th). Progress in these areas means that the country encourages private spending for individual, household, and business needs; promotes ownership of foreign bank accounts and has a stable 60 rate of inflation; and primarily allows market forces to set wages, conditions of hiring, etc. and not labor market regulations. 80 Progress in other areas, such as the legal system and property rights 2002' 2004' 2006' 2008' 2010' (remained at 110th) and freedom to trade internationally (fell from Source: Economic Freedom of the World, Annual reports 80th to 97th) were dawdling. In order to score high in these areas, the government needs to strengthen the security of property rights, promote the independence in the judiciary, impose low tariff rates, and provide effective administration of customs, among others.

PHILIPPINE AREAS OF ECONOMIC FREEDOM The CG survey is prepared by the Asian Corporate 0 Governance Association (ACGA) in partnership with the CLSA –Asia Pacific Markets. The ACGA prepares the 2 market analysis while CLSA provides the data on individual companies in the 11 Asian countries. The EF of the World 4 survey, on the other hand, is released by the Fraser Institute, a top research and educational organization in Canada. The EF 6 2012 issue is based on the latest comprehensive data in 2010. 8 While it is good to know about these gains, it is far better to know if these gains are sustained in the long term. Unfortunately, 10 2002' 2006' 2010' previous CG and EF rankings of the country depict a continued fall Regulation Sound Money from 2005 to 2010 and 2002 to 2008, respectively. An unwavering

Freedom to trade Legal System/Property Rights commitment to further strengthen good governance and promote internationally Size of Govt. economic freedom from government officials, the business sector, and the public is imperative to maintain the gains in the long term. Source: Economic Freedom of the World, Annual reports

Philippine Alert September 2012 BUSINESS 35

MINING, OIL, & GAS rehabilitation efforts are also costing Philex as much as P220 million a month. The company has committed to shoulder the costs of clean-up efforts in affected rivers and lost livelihood opportunities for communities near the mine. Despite heavy rains and mounting costs to the company, Philex has stepped Philex slapped with P1Bn penalty over Padcal up its efforts to come up with long-term solutions that will leak prevent further outflows of sediment in the future. The firm reported that it has already fully plugged the broken pipe and The Mines and Geosciences Bureau (MGB) is imposing a the sinkhole of its Padcal mine’s tailings pond. Philex is also fine of P1.034 billion on Philex Mining Corporation for a planning to build at least one new tailings pond for the mine tailings pond leak at its Padcal mine in Tuba, Benguet. Philex as a long-term replacement for its current tailings facility. Mining has filed an appeal to contest the penalty arguing that paying the fine implies the company’s negligence and liability. Philex maintains that the spillage was caused by Mining IRR revisions finally approved factors beyond control and not an error or lapse of the company. President Aquino has approved the revised implementing Based on MGB’s investigations, about 20.7 million metric rules and regulations (IRR) of the new mining policy tons of waste has been discharged due to the spillage. The Executive Order (EO) No. 79 after several mining industry Environmental Management Bureau (EMB) sent Philex the Notice players raised concerns over the provisions in the original of Adverse Findings, where an additional fine of P50,000 will be IRR issued. Mines and Geosciences Bureau (MGB) Director imposed for violation of Environmental Compliance Certificate Leo Jasareno said the IRR revisions are already final. (ECC). The letter signed by EMB-Cordillera Administrative Region Regional Director Oscar Cabayanan said Philex violated At the mining industry conference on September 19, the “Condition No. 2” of its ECC that states “pond effluent discharges industry threatened to sue the Aquino government for the “patently shall conform with the standards set forth under RA 9275, illegal” provisions in the IRR released last September 11. These otherwise known as the Clean Water Act, and its implementing provisions include the no new mining permit policy (Section rules and regulations.” The letter also stated that non-compliance 7); and the cut in the term of mining contracts from 50 to 25 with any of the ECC’s conditions may justify cancellation or years (Section 9). The controversial provisions prompted the suspension of ECC, together with a fine not exceeding P50,000. government to revise the IRR and suspend the implementation Meanwhile, EMB Director Juan Miguel Cuna said that Philex’s of the policy until all revisions have been incorporated. ECC is unlikely to be revoked because of insufficient grounds. The IRR was supposed to take effect on September 29. Philex has earlier expressed its decision to contest the P1-billion Under the revised Section 7, issuance of new mining permits penalty. According to Philex Senior Vice President Mike Toledo, is still suspended until a law rationalizing the revenue-sharing the company is not bothered with the huge fine but the implications scheme between government and mining firms is approved of its imposition. “It is not the amount but the admission that we by Congress. Some words in Section 7 were changed to still were negligent. If you are liable to a fine, it supposes that you allow for expansion of mining areas if necessary such as in the are negligent.” Mr. Toledo said. The company official reiterated operations of cement companies, which regularly get permits that Philex put in place standard procedures in operating its to access indigenous raw materials for their manufacturing tailings pond and employees were not remiss in ensuring the process. The cement industry earlier expressed fear with the integrity of the facility. The leak in the mine site occurred first version of the revised Section 7 saying that their industry amid a series of typhoons and monsoon rains in the province. might be the “collateral damage” of the new mining policy. According to the MGB investigation, heavy rainfall brought Section 9 of the IRR, on the other hand, was revised to about by Typhoons Ferdie and Gener reached 331.80 millimeters remove the condition that mining companies would have to on the day of the spill. The rainfall volume exceeded the previous renegotiate their contracts after their first 25 years of operations. Padcal rainfall record, which stood for 50 years, of 234.50 mm. The industry had argued that this section shortened their project for a single day. Philex stressed that the findings of MGB only period from the maximum of 50 years guaranteed by law. This proved that the spillage was brought by “force majeure” incidents section was the most contested by the mining industry players. or factors beyond control, which ascertain that Philex has not The revision maintained there will be no automatic renewal of committed negligence. He said their Mineral Production Sharing contracts after the first 25 years. However, it said contracts shall Agreement with the government provides for force majeure be renewed “subject to existing laws, rules, and regulations at incidents. MGB Director Leo Jasareno, however, said that Philex the time of renewal” and provided that: 1) mining contractors, cannot avoid the fine by invoking “force majeure” since this whose tenements are expiring from September 1, 2012 to April 30, principle is relevant only in so far as criminal liability is concerned. 2013, shall be given 30 calendar days from the effectivity of these Apart from the P30-million losses in daily revenue, ongoing implementing rules and regulations to file renewal applications;

Philippine Alert September 2012 36 BUSINESS

and 2) mining contractors, whose tenements expire after April The initial phase of this plan requires that the integration of 30, 2013, shall file their renewal application not later than 6 financial systems start with the DBM, BTr, and CoA. To pave the months prior to the expiry of their mining contract/agreements. way for the integration of the systems of other government agencies, Also part of the revised IRR is the addition in the Section a joint administrative order was also issued by the initiating 3 of the definition of expired mining tenements, which will agencies in January 2012 that requires all national agencies to “refer to mining contract/agreements whose 25- or 50-year submit their bank accounts with a waiver and authorization letter term has lapsed: Provided, that in the case of the initial 25- allowing the BTr to check, verify and undertake reconciliation year term, the mining contract/agreement shall be considered procedures. Some P979 million ($23 million) had been allotted expired if the parties concerned fail to agree on the terms of in the 2012 national budget for the 1st phase of the GIFMIS. the renewal pursuant to Sections 32 and 38 of R.A. No. 7942, Along with the systems integration, the administration is also the Philippine Mining Act of 1995, and other pertinent laws.” keen on kick-starting another key component of the plan – the In a statement by the Chamber of Mines of the Philippines, National Payroll System (NPS). In preparation for its full-scale they said that they will no longer ask for changes in the IRR of implementation, Malacanang issued Executive Order No. 31 in the mining directive. The group earlier sought for clarifications March mandating all agencies to submit a complete list of their on the first version of revisions that were released. The personnel to DBM, which the department will collate and turn Mining Industry Coordinating Council (MICC) crafted the into the “Comprehensive Database on Government Manpower”. revisions in the IRR following the confusion expressed by With the NPS, the BTr will directly pay the salaries of national the stakeholders. With the revisions, the MICC hopes that government personnel; this includes payments to the tax bureau, the IRR provisions were already clear to the industry players. GSIS, and Social Security System (SSS). Government agencies will only prepare the payroll but no longer handle the payroll fund. All government employees will now need to have bank accounts, through which they will receive their salaries. The NPS is expected to put an end to the practice of “ghost employees” in some agencies. “By bypassing the agency, there will be little opportunity I.T. UPDATE to convert NPS allocation into other uses… Recent history showed that the conversion of payroll money was a source of graft,” House Deputy Speaker Lorenzo Tanada explained. Aquino administration taps IT in budget- About P1 in every P3 spent by the government goes to fund its employee payroll, which was allotted P641.3 billion related anti-corruption action plan… (32% of the total) in the proposed 2013 national budget. The full-scale implementation of the NPS is targeted for The Aquino administration’s anti-corruption campaign has 2013. Meanwhile, the current pilot run of the system will a wide reach, extending as well to issues of transparency be expanded to include the personnel of the Department and accountability in the utilization of the national budget. of Education (DepEd), following a memorandum of Reforms like a national payroll system and cashless purchase agreement signed by the DepEd with the DBM and the cards under a government integrated financial management Government Service Insurance System (GSIS) in September. information system (GIFMIS) are underway – reforms that, Some 1.5 million employees work for the national if successful, have the potential of becoming a significant government and DepEd personnel account for almost 40% of e-governance achievement for the Philippines. the total. Apart from the problem of ghost employees, DepEd’s integration in the NPS aims to solve the problem of non- The reform measures fall under the Philippine Financial remittance of GSIS contributions. Particularly the case of the Management Reform Roadmap, which follows the department failing to remit the GSIS premiums of its employees Aquino administrations’ Good Governance and Anti- during the period of July 1997 to December 2012, so that the Corruption Cluster Plan for the years 2012 through teachers were no longer allowed to take out loans in the GSIS. 2016. Among the targets of the roadmap for this year are: According to Budget Secretary Florencio Abad, the The integration of the financial management systems of the other agencies that are next in line for the NPS are the Department of Budget and Management (DBM), Bureau of Treasury Department of Public Works and Highways, AFP, and the (BTr), and Commission on Audit (CoA) as first phase of the GIFMIS; national police. The cashless purchase card system has also The pilot run of the national payroll system in the been started in the DBM and the AFP, which is aimed to DBM, Department of Finance (DOF) and the CoA; avoid conversions of often-abused cash advances and ensure The pilot rollout of cashless purchase cards in the automatic liquidation of funds (see next article for details). DBM and the Armed Forces of the Philippines (AFP); and Compliance by all 24 national government departments with the budgetary disclosure requirements. The roadmap aims to put in place a financial management system that links all national government agencies with the DBM, BTr, and CoA to enable, among others, the timely generation of a comprehensive and reliable government financial status report.

Philippine Alert September 2012 BUSINESS 37

…as IT solutions also used to improve aims to engage the public as an active partner in its drive against transparency in other government duties tax evaders, smugglers, and erring officials of the department. When it comes to procurement, the DBM and AFP are currently piloting the cashless purchase card system. Employees The Aquino administrations’ Good Governance and authorized to make small-value and high-volume purchases for their respective agencies are assigned a Purchase Card that Anti-Corruption Cluster Plan (2012-2016) focuses on they can use, in lieu of cash, to pay for the transactions. Each transparency, accountability, and citizen engagement. Card has customized restrictions as to the nature of items that Besides the reform measures being pursued to improve it is allowed to purchase, and as to how much, and from which the utilization of the national budget, the government is particular suppliers or vendors transactions may be made. The also tapping IT solutions for the better execution of other Purchase Card is linked to the Cashless Procurement Card public duties. System, which is an online program that collates data from transactions made on every card and generates a comprehensive Besides the development and implementation of the GIFMIS and customized report accessible to authorized personnel. (next previous article for details), another budgetary transparency The full implementation of the system is seen next year. initiative of the DBM is the eTAILS (electronic transparency “This will minimize corruption in the agency level, since and accountability initiative for lump sum funds). Started last there will no longer be any middleman, so to speak, who can year, the eTAILS is an information system that digitizes the juggle public funds, just like the fund conversion scheme of the processing of lump sum funds and supports real time disclosure AFP, where it earned interest…It will cover all expenditures of of budget releases in the DBM website. This tool makes it easier agencies. Just like in the AFP, 46% of their expenditures were for the public to track the utilization of funds, particularly the via cash advances,” Budget Secretary Florencio Abad said. Priority Development Assistance Fund (PDAF) of the members The Philippine Government E-Procurement System of the Philippine Congress, the internal revenue allotment (PhilGEPS) will also undergo improvements. It will be expanded of local government units, and the School Building Fund. to include an e-bidding system where bids and proposals of The 2nd phase of the eTAILs is the online budget monitoring qualified bidders will be posted together with the solicitations, site Budget ng Bayan (the nation’s budget, www.budgetngbayan. and an e-payment service that will require the posting of com) that shows the entire budget preparation. It also the winning bidder on the PhilGEPS site as a prerequisite to includes a citizen’s portal, where the public is encouraged to the release of funds upon the completion of the transaction submit photos, videos, and other files on actual government- or project. The PhilGEPS, which started in 2000, currently funded projects being undertaken in their area, serving features an electronic bulletin board for posting of notices as an alternative source of updates about certain projects. and awards, a supplier registry, automatic bid matching and The DOF is undertaking a similar initiative – the Pera ng Bayan virtual store of common supplies of the Procurement Service. (the nation’s money) website. The website will have a feedback mechanism where citizens will be able to report on, for example, the exemplary performance of DOF officials as well as any incidence of improper action, negligence, evidence of lavish lifestyle and other illegal practices of the same. With Pera ng Bayan, DOF

Philippine Alert September 2012 38 BUSINESS

BOI-REGISTERED FIRMS SEPTEMBER 2012 Project Cost Equity Industry Activity (IN PHP Local/Foreign MILLION) AGRICULTURE, FISHERY AND FORESTRY 92% Filipino L’Arc En Ciel Corporation Producer of Smoked Fish 8.5 8% Chinese General Tuna Corporation Producer of Frozen Tuna Loins 120 100% Filipino APPAREL AND TEXTILE MANUFACTURES Knit Trends Ph, Inc. Producer of Garments 6 100% Filipino 44% Filipino 56% Foreign Indo Phil Textile Mills, Inc. Modernization of Spun Yarn 265.6 (British Virgin Is, Indian,Panama) ELECTRICITY, WATER, AND GAS South Luzon Thermal Energy Corporation Operator of a Coal- Fired Power Plant (SLTEC 2) 9569 100% Filipino (SLTEC) HOTEL, RESTAURANT, AND LEISURE SERVICES 96% Filipino Araneta Center Hotel, Inc. Operator of Tourist Accommodation Facility (Novotel Manila- Araneta Center) 2500 4% Singaporean Modern Asia Hotel & Resort, Inc. Operator of Tourist Accommodation Facility (Princesa Garden Island Resort and Spa) 595 100% Filipino Operator of Tourist Accommodation Facility-DEVERA HOTEL (formerly Rema Dadira, Rema Dadira, Inc. 66 100% Filipino Inc.) MINING and quarrying Greenstone Resources Corporation Producer of Gold and Silver 6660 99.99% Filipino MISCELLANEOUS MANUFACTURES 60% Filipino Legacy Renove, Inc. Producer of Handicrafts 2.5 40% British OFFSHORING AND OUTSOURCING Techsupportglobal, Inc. IT-Enabled Service Provider (Subscriber-based Technical Support Contact Center) 2.7 100% Filipino REAL ESTATE AND PROPERTY DEVELOPMENT BJS Development Corporation Developer of Low-cost Mass Housing Project (Holiday Homes – 3 Subdivision) 308.2 100% Filipino Communities Cagayan, Inc. Developer of Low Cost Mass Housing (Camella Butuan) 340.6 100% Filipino DMC-URBAN Property Developers, Inc. Developer of Low-Cost Mass Housing project ( Palmetto Place Building 2) 205.9 100% Filipino Borland Development Corporation Developer of Low-Cost Mass Housing Project (Berkeley Heights Subdivision A) 39.9 100% Filipino Borland Development Corporation Developer of Low-Cost Mass Housing (Terraza De Antipolo) 178.3 100% Filipino Builders 2000 Inc. Developer of Low-Cost Mass Housing Project (Pacific Coast Residence 342.5 100% Filipino Firm Builders Realty Development Developer of Low Cost Mass Housing Project (Amber Hills Subdivision) 104.5 100% Filipino Corporation Communities Isabela, Inc. Developer of Low Cost Mass Housing Project (Camella Isabela Phase 1 Extension) 52.3 100% Filipino STORAGE AND WAREHOUSING Weal Builders, Inc. Operator of Cold Storage Facilities 259.3 100% Filipino TOBACCO MANUFACTURES Blaugrana Corporation Producer of Pre-rolled Cigar Wraps and Cones 3.2 100% Filipino TOTAL 21,630

Philippine Alert September 2012 BUSINESS 39

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 outflow of $161 Mn as other capital account.

INDUSTRIAL PERFORMANCE Data Year-on-year Year-to-date JULY 2012 (2000=100) (index) growth growth FDI:BOP CONCEPT Volume of Production Index (VoPI) 101.8 4.7 4.7 US$ million 2500 a. Food 131.8 12.1 12.6 b. Beverage 115.7 21.7 4.6 2000

c. Tobacco 5.0 -35.1 -28.7 1500 d. Textile 51.4 13.7 4.8 1000 e. Footwear and Wearing Apparel 42.5 78.6 74.9

f. Wood and Wood Products 59.0 25.8 25.5 500 g. Furniture & Fixtures 635.2 151.0 96.5 0 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 h. Basic Metals 67.8 -39.8 -23.1 i. Iron and Steel 81.5 15.9 20.0 j. Non-ferrous Metals 53.4 -74.3 -58.2 k. Fabricated Metal Products 278.3 20.5 -2.3 l. Machinery Excluding Electrical 25.8 -0.4 5.1 m. Electrical Machinery 91.2 6.8 6.2 MOTOR VEHICLE SALES n. Transport Equipment 152.7 25.0 32.4 AUGUST 2012 Year-Ago Growth rate Data o. Other Mfg Industries 174.5 -13.3 -11.4 level (%) p. Paper & Paper Products 79.1 -15.2 -8.1 Motor Vehicle Sales 11,351 11,558 -1.8 q. Publishing & Printing 37.8 -31.0 3.2 Passenger Car Sales 3,491 4,026 -13.3 r. Leather Products 5.4 100.0 45.6 Commercial Vehicle Sales 7,860 7,532 4.4 s. Rubber Products 261.1 2.1 11.3 t. Chemical Products 114.1 1.0 -1.5 u. Petroleum Products 58.5 -2.2 -13.2 UNIVERSAL AND COMMERCIAL BANK’S v. Non-Metallic Mineral Products 135.8 0.1 4.6 LOANS OUTSTANDING TO THE REAL ESTATE SECTOR (P Bn) w. Glass & Glass Products 149.0 11.2 10.6 % to Total % to Total x. Cement 154.2 -3.0 5.8 Mar.-12 RE loan Mar.-11 RE loan y. Misc. Non-Metalic Mineral 97.0 2.1 -2.7 Residential 132.01 33 96.88 30.4 Products Commercial 267.89 67 221.96 69.6 VALUE OF PRODUCTION INDEX (VAPI) 166.4 4.6 6.0 AVERAGE CAPACITY UTILIZATION 83.3 -17.0 83.4

Philippine Alert September 2012 40 BUSINESS 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 0 - - - - - VISITOR ARRIVALS GROWTH DECELERATES TO 12% IN JAN-JUN 2012 MAR 0 - - - - - Total visitor arrivals for the period of January to June 2012 grew by APR 0 - - - - - 12.1% to 2,032,803 but decelerated when compared to the 13.1% growth MAY 0 - - - - - registered in the previous month. Of this total, 5.4% are overseas Filipinos. Korea remained the largest source market followed by the US and Japan. JUN 0 - - - - - Arrivals from Korea decelerated to a 10.5% growth. US visitor arrivals also JUL 1 - 20 - 160 - decelerated to a 4.8% growth, while visitor arrivals from Japan accelerated to a 7.8% growth. AUG ------SEP - 1.00 - 3,700 - 3,700 OCT ------NOV ------DEC ------

STRIKES DECLARED TOTAL 1 2 20 3,828 160 3,828

5.500

4.375

3.250

2.125

1.000 J06 A J S NJ07O A S O NJ08F M J AF09M JM10A M TOURISM ARRIVALS

MAN-DAYS LOST

25000

20000

15000

10000

5000

0 J07F M A S O N DJ08M A J A S O N DF09M J A S OM10A M

Visitor Arrivals Survey on the Monthly Occupancy Rates & Length of Stay JANUARY - JULY 2012

Country 2012 2011 % Change Rank 2012 2011 2012 / 2011

KOREA 578,062 523,468 10.43 1 JAN-MAY JAN-MAY Growth Rate USA 406,822 390,028 4.31 2 De Luxe Hotels JAPAN 231,439 212,684 8.82 3 Occupancy Rates 74.42 73.69 0.99 CHINA 166,219 127,985 29.87 4 Length of Stay 3.02 3.03 -0.33 TAIWAN 136,663 103,421 32.14 5 First Class Hotels AUSTRALIA 106,069 95,016 11.63 6 Occupancy Rates 61.51 62.55 -1.66 CANADA 74,824 70,300 6.44 7 Length of Stay 2.34 2.36 -0.85 SINGAPORE 84,960 77,970 8.96 8 Standard Hotels HONGKONG 67,844 66,701 1.71 9 Occupancy Rates 65.78 68.18 -3.52 UNITED KINGDOM 66,592 61,151 8.90 10 Length of Stay 2.37 2.39 -0.84 MALAYSIA 59,988 52,971 13.25 11 Economy Hotels GERMANY 39,936 35,325 13.05 12 Occupancy Rates 60.97 59.64 2.23 OVERSEAS FILIPINO 133,885 127,765 4.79 Length of Stay 2.07 1.94 6.70 OTHERS 367,639 335,399 9.61 TOTAL 2,522,954 2,282,195 10.55 Philippine Alert September 2012 CORPORATE BRIEFS 41

AUTOMOTIVE TRADE

Isuzu Autoparts expands local assembly plant Isuzu Autoparts Manufacturing Corp., the assembly unit of Isuzu Philippines, has begun expanding its transmission assembly factory in the country and expects to finish by yearend. The expansion will increase the capacity of the company’s facility to 300,000 units from its current capacity of 200,000 units in order to meet increasing global demand for the firm’s vehicles. The facility currently assembles manual transmission units for Isuzu vehicles, where 98% of its output is exported to Isuzu’s vehicle assembly factories in Southeast Asia.

WNB eyes CNG-powered vehicle plant in PH Tokyo-based organization World Network Bridges (WNB) is planning to put up a $1-billion manufacturing plant in the Philippines for compressed natural gas (CNG)-powered vehicles, which uses Japanese technology. The group identified the Philippines’ huge natural gas deposits as its main advantage over other countries that they have considered. The company’s officials are expected to negotiate the terms of the project with concerned agencies within the year for its request for a pioneer investment status with entitlement to incentives. The planned facility will initially produce CNG-powered cars and then expand to light vans, heavy vehicles, and shipping vessels.

Toyota Motor outlines green vehicle plan Toyota Motor Corp., Japan’s top automaker, has announced its green vehicle plan for the next 3 years. The green vehicle plan included the production of 21 new hybrids and a fuel cell vehicle by 2015. The plan also includes the release of an estimated 100 electric compact car, which will be called EQ, by the end of the year. EQ will be based on the iQ model and will only be available in Japan and the U.S. Toyota’s green vehicle plan primarily aims to address global warming by reducing fuel usage.

CONSTRUCTION

Ayala, Aboitiz eye joint venture for MCIA Ayala Corp. and Aboitiz Equity Ventures, Inc. have signed a memorandum of agreement on a 50-50 joint venture that will bid for the development of a new Mactan-Cebu International Airport (MCIA) terminal under the government’s public-private partnership (PPP) pro- gram. They are also seeking partnerships with global airport operators to complete the consortium. The MCIA project cost amounts to P10.15 billion. The project involves the construction of a new passenger terminal and includes an operation and maintenance contract.

ELECTRICITY, WATER AND GAS

EGCO eyes partnership with Meralco Electricity Generating Public Co. Ltd. (EGCO), a power firm from Thailand, is looking to tie-up with Manila Electric Co. (Meralco) for the expansion program of Quezon Power, its local energy unit. Meralco will act as the off taker as Quezon Power will under- take the second phase expansion of its coal-fired power plant in Mauban Quezon. Necessary permits and community support have already been secured for the planned expansion. The transmission line and a plan to synergize operations of the first and the planned second unit, which can decrease operation costs, have also been prepared. Financing is expected to be sourced mostly from local banks. The second phase expansion is projected to be finished in 3 years.

FINANCIAL INTERMEDIATION

BDO issues P5Bn worth of certificates of deposit BDO Unibank, Inc. (BDO) is planning to issue P5-billion worth of Long-Term Negotiable Certificates of Deposits (LTNCDs) in sup- port of its medium-term growth objectives. LTNCDs are certificates of deposits representing a bank’s obligation to pay a face value upon its maturity with periodic interest payments prior its maturity. BDO’s issuance of LTNCDs is expected to lengthen the maturity profile of its funding sources. It will have a maturity of 7 years and a minimum investment of P100,000 with increments of P50,000. Interests will be paid quarterly and investors holding the LTNCD for at least 5 years will be exempted from tax. The certificates are covered with the Philippine Deposit Insurance Corporation up to a maximum amount of P500,000 per depositor.

Philippine Alert September 2012 42 CORPORATE BRIEFS

Lucio Tan group sells stake in U.S. Oceanic bank The Lucio Tan group has sold its 27.8% share in Oceanic bank, a San Francisco-based banking unit, to First National Bank of Northern California (FNB Corp.). The divestment of the Lucio Tan group has allowed the merger of Oceanic Bank and FNB Corp. on September 24; all branches of Oceanic reopened under the name of FNB Corp. on the same day. The divestment is also a prerequisite imposed by the U.S. Federal Reserve for the merger of 2 local banks under the Lucio Tan group (Allied Bank and Philippine National Bank (PNB)). In October 2011, the U.S. Federal Reserve placed the shares of Allied Bank in Oceanic Holding in a temporary trust and directed an independent trustee to sell the stakes. The combined entity of the Allied Bank and PNB will become the fourth privately owned domestic bank with the largest asset in the Philippines.

FOOD & BEVERAGE MANUFACTURES

Pepsi Cola Phils. launches coco water product Pepsi-Cola Products Philippines Inc. (PCPPI) has launched its new product Coco Quench under the Tropicana brand, aiming to capture P1 billion of the estimated P1.2-billion coco water market. The new product is expected to boost the company’s total revenue sales. This expansion is also expected to put the firm’s non-carbonated drinks sales at par with carbonated drinks in 3 years. Currently, the company’s non-carbonated drinks sales account for 30% of its total sales. The plan for the Coco Quench product is to export it in Tetra Pak packaging to Southeast Asian countries, North Asian countries, and Gulf countries. The packaging of Coco Quench in is partnership with Peter Paul Philippines Corporation. PCPPI is currently exporting coco water to the U.S. under the “ONE” brand name.

Splash Foods to penetrate Myanmar market Splash Foods, the local food unit of Splash Corp., plans to enter Myanmar’s food industry through a partnership with the Dragon group of companies, one of the largest business corporations in Myanmar. Splash has decided to enter Myanmar as it is regarded as the new frontier in Southeast Asia. It also plans to expand its food business in other Asian countries. The Dragon Group is engaged property development, construction, timber business, agriculture and plantation, and hospitality and retail businesses. Splash, on the other hand, is branching out to the food business from homegrown personal care manufacturing.

HOTEL, RESTAURANT AND LEISURE SERVICES

Starwood Hotels re-enters the PH market Starwood Hotels and Resorts Worldwide Inc., the operator of the high-end Sheraton hotel, re-enters the Philippine market through a preliminary agreement with Resorts World Manila. The agreement indicates the intention of the Starwood Hotels to explore the possibility of constructing Sheraton hotel in Newport city. Initial operation of the Sheraton hotel usually requires 300 to 350 rooms per hotel, whose construction costs amount from $350,000 to $ 500,000 per room. Starwood supervises more than 1,000 hotel and leisure properties in 100 countries. These properties include St. Regis, The Luxury Collection, W Hotels, Westin, Le Méridien, Sheraton, Four Points by Sheraton, and Aloft and Element, among others.

SMPH opens 46th shopping mall

SM Prime Holdings, the country’s largest shopping mall developer, has opened its 46th shopping mall in P. Laurel Avenue in Barangay Lanang, Davao City on September 28, 2012. Tenants of the new mall, which have occupied 88% of its retail space, include Watsons, Ace Hardware, Kultura, Forever 21, Centerstage, Vikings, Cha Time, Mesa, Jollibee and KFC, among others. Key features of the new mall comprise 5 cinemas, an Imax Theater, a bowling center, a Science Discovery Center, and parking slots for more than 1,500 vehicles. It also features a Skygarden with water fountains, art installations, and landscaping. SM Lanang is the fifth SM mall opened in 2012 and the second SM mall in Davao.

MINING AND QUARRYING

MacroAsia acquires mining claims in Negros Occidental MacroAsia Corp. has recently acquired mining rights in Negros Occidental, as part of its expansion plan into the mining business. The company said it has signed an agreement with Buluwan Mining Corp. for 62 mining claims and PNB Madecor and Development Corp. for 61 mining claims. The 2 companies’ rights, interests, and obligations under their respective operating agreements with Philex was transferred to MacroAsia. Meanwhile, MacroAsia is currently engaged in aviation-related services and holds a mining right at Infanta Mineral and Industrial Corporation in Palawan covering 1,114 hectares of total land area, which has at least 88 million tons of nickel ore reserves.

Philippine Alert September 2012 CORPORATE BRIEFS 43

Philex begins Silangan copper-gold mine in 2017 Philex Mining Corp. has delayed the start of its Silangan copper-gold mine operations in Surigao del Norte to 2017 due to the is- suance of Executive Order 79, which temporarily blocks the grant of new mining contracts pending an amendment of the Mining Act’s provision on mineral production sharing agreements (MPSAs) between government and mining companies. Currently, the project is still undergoing a pre-feasibility study, which will be completed by February 2013. The project will initially involve $1.2 billion for the mine’s operations development covering the period 2014 to 2016. SRK Perth, mining consultant, has revealed that the said mine contained 5 million pounds of copper and 9 million ounces of gold, which is estimated to be worth around $35 billion. Philex has clarified that the delay does not have any relation with the leakages at its Padcal mine.

Coal Asia in talks for supply deals Coal Asia Holdings, Inc. is under negotiations with large firms for coal supply deals. These large firms included Global Business Power Corp., Aboitiz Power Corp., Manila Electric Co., TeaM Energy Corp., the Alcantara Group, FDC Utilities, Inc., and DMCI Holdings, Inc., among others. The energy crisis in Mindanao coupled with the growing demand for fuel has prompted Coal Asia to negotiate supply deals, which is expected to be closed ideally within the year. Coal Asia is scheduled to hold its initial public offering on October 9-15, which will offer 800 million shares for P1 apiece. Listing on the stock exchange’s first board is expected on October 23, 2012.

OFFSHORING AND OUTSOURCING

Noda Company Inc. expands in PH Noda Company Inc., a Russian software developer, is expanding its operations in the Philippines spurred by the country’s com- petitiveness in the business process outsourcing (BPO). The expansion will provide software solutions for BPO firms, particularly in networking and voice over Internet Protocol (VOIP) systems. The company said it will give a cost-effective mechanism in managing inbound and outbound calls by setting up an interactive voice response (IVR) system and providing documentation for key performance indicators (KPIs). The company is currently based in Soviet Union territories making the Philippines the first Asia-Pacific country in its operational network.

PETROLEUM PRODUCTS

Galoc consortium pursues $188Mn expansion The consortium behind the Galoc project in offshore Palawan has approved an investment of $188 million for the Phase 2 de- velopment of the Galoc oil field. The Phase 2 will include the drilling of 2 subsea wells tied to the oil field’s existing floating production storage and offloading facility. It is expected to improve the oil field’s output from 5,600 barrels of oil per day (bopd) to 12,000 bopd and to extend the field life of the Galoc project. The remaining recoverable volumes of the oil field are estimated at 8.9 million barrels on a proven basis and 13.4 million barrels on a proven and probable basis. The Galoc consortium includes Otto Energy Ltd., Galoc Productions Co., Nido Petroleum Ltd., Oriental Petroleum and Minerals Corp., The Philodrill Corp., and Forum Energy Philippines Corp.

REAL ESTATE AND PROPERTY DEVELOPMENT

Vista Land adopts new concept in condominium market Vista Land and Lifescapes Inc. is planning to adopt the vertical-village strategy in tapping the condominium market. The firm explained that the vertical concept will improve the space in condominium units from the usual box structures into a space similar to subdivision houses and townhouses. Vista Land said that projects adopting this concept could contribute 10% to 15% of revenues in 2013 from its current 7%. Among its projects, Camella is undertaking vertical-village developments in Metro Manila and Cagayan de Oro City. Camella Condo Homes (CCH) currently has 5 medium- and high-rise vertical projects in Metro Manila, Taguig, Pasig, Taft, and Katipunan.

Filinvest sets MRB projects for launch Filinvest Land, Inc. is ready to launch its first series of mid-line building (MRB) projects, named One Spatal Pasig. It will be composed of 7 buildings with 6 floors each located along Amang Rodriguez St. in Pasig City. Each unit of the said project is set to bring P1.8 million, amounting to P1.5 billion total sales. The prices of each unit are around 20% to 25% less than those offered in Filinvest’s other MRB projects. One Spatal will be built free of beams and columns to give its potential homeowners more space in each unit. Filinvest Land currently has 12 MRB projects located in Metro Manila, Cebu, and Davao City.

Philippine Alert September 2012 44 CORPORATE BRIEFS

Century Properties builds property in QC Century Properties Group, a real estate developer, has decided to build an 8-tower mid-rise condominium called The Residence at Commonwealth by Century in a 4.4-hectare community in Quezon City. The initial investment will amount to P4.1 billion. The project will consist of 2,300 units designed by award-winning firm Broadway Malyan with its in-house architecture team. It will integrate a world-class design with pioneered amenities and features. The project aims to attract local and overseas buy- ers, particularly young professionals and startup families, with a budget of P1.5 to P3 million. The first tower, Osmeña West, is expected to finish by 2015 with 11 floors and 200 units.

TELECOMMUNICATIONS

Globe obtains P2Bn loan facility Globe Telecom Inc. has acquired a P2-billion loan facility from the Philippine American Life and General Insurance Co., the Insu- lar Life Assurance Co. Ltd., and Sunlife of Canada (Philippines), Inc. The loan facility, whose lead arranger is Insular Investment Corp., is payable for 10 years with a fixed rate. It is earmarked for debt refinancing and capital expenditure (capex) require- ments for 2013. Total capex for 2013 is approximately $400 million, of which $130 million will be set aside for the completion of its network modernization program. The remaining will be used to fund operational expenses. The network modernization program aims to provide faster data download and transfer among Globe subscribers.

TRANSPORT SERVICES

PH, KSA ink new ASA The Philippines and the Kingdom of Saudi Arabia (KSA) has signed a new bilateral air service agreement (ASA) that will increase flights to the Middle East. Under the new ASA, flights between Jeddah and Manila will be more than doubled from 10 to 21 per week. The latest ASA will also eliminate the restrictions on the number of flights between Clark Freeport, Pampanga to any point of Saudi Arabia and between Damman and any point in the country. The signing of the new ASA was requested by local airlines, which seek to expand flights outside the Asia-Pacific region. At present, however, local airlines have no flights to the Middle East.

SMC and Tan group in talks for new airport San Miguel Corp. and Lucio Tan’s LT Group Inc. is undergoing negotiations for a new airport venture, which is expected to become the country’s prime airport. The new airport will feature 4-runways, a mall, and a skyway. It will serve the flights of the Philip- pine Airlines, Inc. (PAL) and the Air Philippines Corp. alone. In August 2012, Mr. Ramon Ang, president of the PAL, announced the new airport project but declined to state its proposed location.

Philippine Alert September 2012 45 INFRASTRUCTURE

Metro Manila flood control master plan gets funding The newly-crafted flood control master plan for Metro Manila gets traction after receiving P5 billion from the national budget. This is the initial funding for the 2-decade master plan that aims to permanently address the problem of flooding in the metropolis. The amount will finance structural flood mitigation measures in Metro Manila and nearby provinces.

n September 18, the Department of Budget and Management (DBM) announced that the Aquino Oadministration had set aside P5 billion for the immediate implementation of flood control interventions in Metro Manila and nearby provinces. This amount represents the initial funding allocation for the Flood Management Master Plan (FMMP) for Metro Manila and surrounding areas. The FMMP is a long-term, comprehensive program offered by the Aquino administration to solve the problem of flooding in the National Capital Region (NCR), Central Luzon (Region III), and CALABARZON (Region IV-A), which are considered high-risk areas. The master plan takes the river basin approach to flood management that targets the causes of flooding, instead of resolving pocket problems individually. The Metro Manila FMMP identifies 3 main causes of flooding in the covered areas: for low-lying areas. These projects add up to an estimated cost of P352 billion. Funding sources being eyed for the 1) Excessive spillover from the Marikina Watershed; FMMP include government financing and foreign assistance. 2) Overflowing of riverbanks due to intense rainfall; and The amount of P5 billion that the government has so far allotted 3) Abundance of low-lying areas. for the FMMP will fund 15 projects, including the construction and rehabilitation of flood control structures, and river improvement The FMMP seeks to address these sources of flooding by and dredging in NCR, Central Luzon, and CALABARZON (see offering structural measures. At present, there are 11 major table). These measures support the 11 major FMMP projects, and projects included in the FMMP (see table). These include river were prioritized based on degree of flood risk in the concerned and drainage improvements, as well as “land-raising” projects

The master plan takes the river basin approach to flood management that targets the causes of flooding, instead of resolving pocket problems individually.

Philippine Alert September 2012 46 INFRASTRUCTURE

This map provides a partial illustration of the Flood Management Master Plan (FMMP) for Metro Manila and surrounding areas. The FMMP calls for the construction of a large flood control dam located at the Upper Marikina River. This will be complemented by retarding basins for water spillover along the path of the Marikina River leading into the Pasig River. Other flood control structures will also be strengthened and constructed along the way. (Source: Official Gazette)

areas and the viability of implementing the projects’ technical, the administration’s flood management initiatives are aimed social, and environmental aspects. The projects are expected to towards developing a society that is resilient to floods, be completed between 2012 and 2013. The Department of Public and ensuring that the country is able to sustain economic Works and Highways (DPWH) will lead the implementation, growth even in the midst of natural disasters. The Metro with support from the Metro Manila Development Authority and Manila flood control master plan forms just one “aspect” of concerned local governments, and in close coordination with the country’s overall FMMP, which has yet to be unveiled. the National Disaster Risk Reduction and Management Council. The Metro Manila FMMP is based on a flood risk assessment study Meanwhile, the implementation of the full Metro Manila conducted by the DPWH from February 2011 to February 2012. The FMMP will span 23 years, from 2012 until 2035. The 11 major study was funded through a $1.5-million technical grant from the projects in the master plan are expected to benefit some 4.6 million World Bank and the Australian Aid for International Development. people, and to result in the displacement of about 930,000. The Public Works department has given an assurance, however, that the affected population would also receive priority consideration, with resettlement strategies incorporated in project development. According to the Public Works and the Budget departments,

Philippine Alert September 2012 INFRASTRUCTURE 47

Flood Management Master Plan (FMMP) for Metro Manila and surrounding areas

Implementing Agency: Department of Public Works and Highways

Coverage: National Capital Region (NCR); Central Luzon (Region III); and CALABARZON (Cavite-Laguna-Batangas-Rizal-Quezon or Region IV-A)

15 Projects 11 Major Projects -Items under the P5-Bn allocation- (Implementation: 2012-2035) (Implementation 2012-2013) Project Name Cost Project Name Allocation 1. Valenzuela-Obando- 1. Marikina large dam and Pasig-Marikina River P198.43 Meycauayan flood P830 million Improvement billion management and drainage system projects VERY HIGH PRIORITY 2. Caloocan-Malabon- Navotas-Valenzuela flood 2. West Laguna Lakeshore Land Raising P25.2 billion P800 million control and drainage system projects 3. Manila Bay seawall 3. Malabon-Tullahan River Improvement P21.6 billion strengthening and P765 million floodgates construction 4. Improvement of inflow 4. Meycauayan River Improvement P14.04 billion P750 million rivers to Laguna de Bay 5. East Manggahan Floodway and Cainta-Taytay 5. Upper Marikina River P26 billion P370 million River Improvement Improvement Project 6. Land raising for small town around Laguna 6. Central Luzon flood P7.15 billion P272.19 million de Bay control projects 7. Western Manggahan 7. Improvement of inflow rivers to Laguna Lake P637 million P262.40 million Floodway Project HIGH PRIORITY 8. CALABARZON flood 8. Manila Core Drainage Improvement P27.2 billion P205 million control projects 9. Mandaluyong and San 9. Valenzuela-Obando-Meycauayan River P8.63 billion Juan River Improvement P62.50 million Improvement Project 10. Pampanga flood control 10. West Manggahan Area Drainage Improvement P5.52 billion P64 million projects MARGINAL PRIORITY 11. South Paranaque-Las Pinas River 11. Tarlac flood control P17.3 billion P71 million Improvement projects 12. Drainage cleaning and de- P43.33 million clogging 13. Zambales flood control P36 million projects 14. Dredging equipment P274.61 million P351.7 TOTAL billion 15. Undisclosed --

TOTAL P4.81 billion

Sources: DPWH, NEDA, DBM, gov.ph, press statements

NEDA approves LRT-2 East Extension will entail the construction of 2 additional stations in Cainta and Antipolo City, both in Rizal. The existing LRT-2 is a 13.8-km, The NEDA (National Economic and Development Author- 11-station railway stretching from Recto in Sta. Cruz, Manila to ity) Board recently approved the Light Rail Transit Line 2 Santolan. The Department of Transportation and Communications (LRT-2) East Extension Project. This is a P9.8-billion project (DOTC) is the implementing agency for the project. that would extend the LRT-2 from its existing terminus at The East extension project has a cost of P9.76 billion, and Santolan, Pasig City to Masinag Junction in Antipolo. The does not require any right-of-way acquisitions. DOTC Assistant NEDA Board approval was earlier deferred to make way Secretary for Planning Atty. Jaime Raphael Feliciano revealed for a population study to determine the project’s viability. that the financing for the project has yet to be finalized. He said, however, that the PPP (public-private partnership) scheme had The project financing has yet to be finalized, but railway already been ruled out, despite the project being previously completion is eyed by 2016. included in the PPP pipeline. Among the financing options presently being considered are government appropriations or loans. In its 7th meeting for the year held on September 4, the Prior to securing the NEDA Board’s approval, the LRT-2 East NEDA Board approved the LRT-2 East Extension project. Extension project was subjected to a population study to determine This project would extend the existing LRT-2 eastward by 4.19 its viability, upon the order of President Aquino who serves as kilometers (km), from the Santolan station in Pasig City to chairperson of the Board. In June 2012, reports surfaced that the Masinag Junction in Antipolo City, Rizal (please see box). It

Philippine Alert September 2012 48 INFRASTRUCTURE

The LRT-2 East Extension will primarily benefit residents in the east of Metro Manila, particularly in Marikina, Cainta, and Antipolo.

LRT-2 East Extension Project Sequence of Events Year Event 2002 NEDA Technical Board gives its initial approval to the LRT-2 East Extension project, initial feasibility study (FS) is prepared 2006 Existing FS is updated by the Light Rail Transit Authority (LRTA) 2009 Existing FS is further updated 2nd quarter of 2009- Through a grant from the Ministry of Economy Trade and Industry of Japan, the Marubeni Corporation, together with Katahira and Engineers 2010 International, Tonichi Engineering Consultants, Inc. and Oriental Consultants Co., Ltd. prepare a new feasibility study 2011 Japanese International Cooperation Agency conducts a new feasibility study on a grant basis May 2012 NEDA-Investment Coordinating Committee (NEDA-ICC) approves LRT-2 East Extension project Sept. 4, 2012 NEDA Board approves the project

Light Rail Transit Line 2 (LRT-2) East Extension Project

Implementing Agency: Department of Transportation and Communications (DOTC) - Light Rail Transit Authority (LRTA)

Project Details: The project involves the design and construction of a 4.19-kilometer (km) extension to LRT-2, from the railway’s existing terminus at Santolan station to Masinag Junction at the intersection of the Marcos and Sumulong Highways in Antipolo City, Rizal. There will be 2 stations for the East extension, to be located at:

1. Emerald Drive, Cainta, Rizal 2. Masinag Junction, Antipolo City, Rizal

Project Cost: P9.76 billion Project Financing: To be determined

Project Implementation: 2012-2016

Status: Approved by the NEDA Board on September 4, 2012

Sources: Department of Transportation and Communications-Light Rail Transit Authority, NEDA, and press statements

Philippine Alert September 2012 INFRASTRUCTURE 49

Board deferred its approval of the project pending the results of on the other hand, broke ground in 2008, but has yet to start the study. DOTC Secretary Mar Roxas explained that the study civil works. Construction of the new Bohol airport is expected only sought to determine if the extension to Masinag Junction to commence following the recent NEDA Board approval. is necessary, particularly if the Antipolo station would serve a The Bicol Airport Project will replace the existing Legazpi “sufficient population base,” and that plans for the extension Airport. Airport modernization was deemed necessary in light of the to Cainta were already definite. Industry observers, however, continued rise in passenger traffic at the airport. Passenger arrivals questioned the need for a new population study. They pointed at the Legazpi Airport have been increasing at an annual average out that previous feasibility studies on the project, conducted growth rate of 22.3%. The initial plan was to expand the Legazpi between 2002 and 2011, already included thorough ridership Airport, but this was abandoned due to the physical constraints studies (please see sequence of events). All reportedly found posed by the area’s terrain. The Legazpi Airport is flanked by the extension to Masinag Junction viable. Despite this, the hills at one end and a mountain range at the other. Because the DOTC still undertook the population study commissioned leveling of the terrain turned out to be too costly at a price of by Pres. Aquino. As expected, the study again proved the P3 billion, excluding other upgrade expenses, the government necessity of the extension to Masinag Junction in Antipolo opted to develop a new airport in Daraga, Albay instead. City, thus leading to the NEDA Board approval of the project. This is also the case for the Bohol airport. The New Bohol The LRT-2 East Extension project is expected to commence Airport Project will be constructed on Panglao Island in the construction later this year, and to be completed in 2016. It southwest of Bohol province. It will replace the existing Tagbilaran is expected to provide a rapid and reliable mode of transit Airport that is considered physically inadequate for the much- to and from the east of Metro Manila, primarily benefitting needed airport expansion. The Tagbilaran Airport has benefitted residents of Marikina, Cainta, and Antipolo. The extension is from a continued increase in passenger traffic at an annual projected to transport an additional 120,000 passengers per average growth rate of 30.3%. Despite this, the airport continues day, increasing LRT-2’s current daily ridership estimated at to suffer from physical limitations that make it difficult for large 177,000. Of the projected additional ridership, 40% will come aircraft to maneuver and inadequate facilities that contribute from the Masinag station and 60% from the Cainta station. to airport congestion and passenger discomfort. As with the Meanwhile, there are 2 other plans in the pipeline Legazpi Airport, further expansion of the Tagbilaran Airport is that involve the LRT-2. First is the LRT-2 Operations and constrained by the area’s terrain that also features hills and mountain Maintenance contract that covers the existing LRT-2 and ranges. This prompted the transfer of the airport operations to the East extension. The project cost is yet to be determined. Panglao Island, which has a “relatively flat” topography with It is being considered for PPP financing, and is presently expanses of undeveloped land suitable for airport development. undergoing a feasibility study. The other project is the LRT-2 While the details of the 2 projects are not readily available, West Extension, which involves the extension of the LRT-2 by it was disclosed that the planned airports are designed to meet 1.62-km from the Recto station to the market district of Divisoria international standards in order to improve safety and efficiency in Manila. There have been no updates on this project recently. of aircraft operations. The Bicol Airport Project has a cost of P4.79 billion, while the New Bohol Airport Project is estimated …and 2 big ticket airport projects in key to cost P7.44 billion. These 2 projects had earlier been considered for PPP (public-private partnership) financing. In fact, both were tourist destinations included in the priority list of 10 PPP projects that was unveiled in November 2010. In mid-2012, though, it was reported that the The NEDA Board also gave its approval to 2 big ticket projects were no longer in the PPP pipeline. Eventually, the NEDA airport projects in key tourist destinations in the Luzon Board approved government funding for the Bicol Airport Project, and Visayas regions. These are: the Bicol Airport Project and official development assistance to partly finance the New and the New Bohol Airport Project. Both these projects Bohol Airport Project (the other funding source was not disclosed). involve the development of new domestic airports to replace The Bicol and Bohol airport projects are in line with the the existing airports in their respective provinces that are Aquino administration’s goal of attracting 10 million tourists hounded by issues of limited capacity for expansion and to the Philippines by 2016. As Tourism Undersecretary Daniel operational safety concerns. Corpuz said, “connectivity to key tourist destinations is critical” to meeting this target. The provinces of Albay, Bicol and Bohol On September 4, the NEDA Board gave a green light to the offer a variety of tourist attractions, from beaches, cultural Bicol Airport Project and the New Bohol Airport Project, both heritage sites, natural scenery, etc. By 2020, passenger volume of which involve the construction of new domestic airports in at the New Bicol Airport is projected to reach about 540,000 the provinces of Albay, Bicol and Bohol (see table). On one arrivals per year, while passenger traffic in the New Bohol hand, the Bicol Airport Project involves the completion of a Airport is expected to surge to over 1 million arrivals (see table). new airport that is currently under construction in Daraga, The civil works for both airports are scheduled to take place in Albay in Bicol. Pre-construction activities for the Daraga airport 2013. The New Bicol Airport is expected to be completed first, in began in 2007, and by early 2012, the runway component 2015; while the New Bohol Airport is eyed for completion by 2017. had already been completed. The New Bohol Airport Project,

Philippine Alert September 2012 50 INFRASTRUCTURE

The Bicol and Bohol airport projects are in line with the goal of attracting 10 million tourists to the Philippines by 2016.

Bicol Airport Project New Bohol Airport Project Implementing Agency Department of Transportation and Communications (DOTC) Project Location Daraga, Albay Panglao Island, Bohol This project involves the development of a new domestic (Principal Class 1) airport of This project involves the development of a new domestic airport of international standards in Daraga, Albay to international standards in Panglao Island in Bohol, to replace the Project Description replace the existing Legazpi Airport that has a existing Tagbilaran Airport that has a limited capacity for expansion limited capacity for expansion and is hounded and is hounded by operational safety concerns. by operational safety concerns. Project Cost P4.79 billion P7.44 billion Government appropriation (DOTC budget) Partly through ODA c/o Japan International Cooperation Agency Financing (JICA)

2012-2017 Implementation 2013-2015 Timeframe (Civil works to start in 2013) Current (2010): 435,151 Current (2010): 573,299 Airport passenger traffic Projected (2020): 537,820 Projected (2020): 1,141,332 2007- DOTC releases initial allocations for the pre-construction activities (feasibility study, site development plan, right-of-way Significant Events acquisition) for the new Bicol airport 2008- Groundbreaking in Panglao Island for the New Bohol Airport

End-2012- 2-kilometer runway completed • Approved by NEDA Board on September 4 • Approved by NEDA Board on September 4

• The invitation to bid for the airside • Transportation Sec. Roxas has reportedly signed a Department Status development component of the new order for the creation of project implementation committees Bicol Airport was published on Sept. and a project management office for the New Bohol Airport 21. Other components will be bid out Project. separately. Sources: DOTC, NEDA, SONA 2012 Technical Report, PPP Center, Press statements

Philippine Alert September 2012 INFRASTRUCTURE 51

status of big ticket infrastructure projects AS OF SEPTEMBER2012

Implementing Funding Civil Works Project Title Project Cost Status / Issues Agency Source Timeframe On Sept. 13, the Budget department announced that the NAIA-1 Rehabilitation DOTC NG -- P1.64 billion administration has earmarked P1.64 billion for the rehabilitation. Approved by NEDA Board on Sept. 4. Invitation to bid for the Bicol (Daraga) Airport DOTC NG 2013-2015 P4.79 billion airside development published on Sept. 21. Other components to Development be auctioned separately. Approved by NEDA Board on Sept. 4. DOTC Sec. Roxas has issued New Bohol (Panglao) DOTC ODA/PPP 2013-2017 P7.44 billion a department order creating project implementation committees Airport Project for this. Feasibility study for the O&M contract is ongoing. Dept. of Finance Puerto Princesa Airport recently signed an agreement with the Export-Import Bank of DOTC ODA/PPP 2013-2015 P4.5 billion (const.) Development Korea for a $71.6-million loan to fund the airport construction. Civil works expected to start in 2013. Mactan International NEDA deliberation on the project is eyed by October. Project Airport Development DOTC-MCIAA PPP 2013-2015 P10.28 billion rollout expected within the year, as awarding is seen by 3Q/4Q (Passenger Terminal) 2013. Target completion for the pre-feasibility study is in mid-October, Clark Airport (Budget DOTC-CIAC -- 2013-2016 P12 billion with the full-blown feasibility study expected to begin 6 months Terminal) after. Currently conducting the right-of-way survey for the Daang Hari-SLEX Link Road DPWH PPP 2014-2015 P1.96 billion implementation of the project. Pre-construction activities are Project expected to finish by 4Q2013. Pre-qualification bids were submitted on Oct. 1 instead of Sept. 25. Schedule for the submission of bids will remain in January NAIA Expressway Phase II DPWH PPP 2013-2015 P15.9 billion 2013 despite the delay. Full operation of the project is expected in 2016. In the process of securing NEDA Board approval. It was considered by the NEDA Board on Sept. 4, but approval was deferred because CALA Expressway DPWH PPP/ODA 2014-2017 P43.3 billion the Board still needed to clarify how the project would fit in with the national road integration program. Awaiting NEDA approval. Project recently gained “no objection” NLEX-SLEX Connector Road notice from DOTC and the Toll Regulatory Board for use of PNR DPWH PPP 2013-2015 P23.6 billion Project alignment. Once approved by NEDA, a Swiss challenge will take place in October. Deadline for submission of prequalification documents was moved from Sept. 28 to Oct. 22. Bidding for the extension project LRT-1 South Extension DOTC-LRTA PPP/ODA 2013-2015 P59.2 billion to Bacoor, Cavite is expected to finish by April 2013. The new segment from Bacoor to Dasmariñas is still under study and is eyed for bidding in 3Q2013. To be Market study commissioned by Pres. Aquino concluded, and the LRT-2 East Extension DOTC/LRTA 2012-2016 P9.76 billion determined project was subsequently approved by the NEDA Board on Sept. 4. Metro Pacific submitted to the DOTC a revised proposal to operate and expand MRT-3. The revised proposal calls for the granting of a MRT-3 Privatization DOTC-LRTA PPP -- P6.3 billion new concession, instead of assuming the existing concession. The proposal is being reviewed by the DOTC. The contract stipulates that the project be re-submitted to NEDA-ICC for approval if financial closure is not secured by the MRT-7 DOTC PPP 2013-2016 $3.4 billion given deadline. The deadline was not met, thus the contract was re-submitted to the NEDA-ICC. Strengthening of Angat Approved by NEDA Board on Sept. 4. The Budget department had Dam and Dike Project MWSS NG 2013-2016 P5.72 billion earlier earmarked P5.7 billion for the project. (Angat Dam Rehabilitation) Angat Water Transmission ADB recently approved the offer of a technical assistance worth MWSS ------Improvement Project $800,000 for the project. Balara Water Hub MWSS PPP -- P20 billion Project development ongoing. Expected to be rolled out this year. This is a “very high priority” component of the Metro Manila flood control master plan. Though the master plan will soon commence Marikina Dam DPWH/DENR -- -- P198.43 billion implementation, details of the dam project have yet to be disclosed. Agus VI Hydroelectric The NEDA Board has recently approved the change of financing Power Plant (Units 1 & 2) DOE-NAPOCOR NG 2012-2014 P2.6 billion scheme “of internally-generated funds of PSALM and on-lending by Uprating the national government.’ South Harbor Expanded For procurement of a consultant to conduct a study on the PPA PPP -- -- Port Zone development of the project.

Philippine Alert September 2012 52 CONGRESSWATCH

2013 budget approval by yearend Both the House of Representatives and the Senate remain on-track in deliberating the proposed P2.006- trillion national budget for 2013. The Lower chamber has approved the budget on 2nd reading and is expected to transmit its version to the Senate before end-October. President Aquino is seen to sign the General Appropriations Act (GAA) 2013 into law before yearend.

he proposed P2.006-trillion budget for 2013 is 10.5% higher than the current budget of P1.816 trillion. TThe Social Services sector will corner some 34.8% of the proposed budget or P698.8 billion. The funds will be used to bridge “goods-and-service delivery gaps” in public education, health, and social protection for the poor. President Aquino announced in his last State of the Nation Address (SONA) that his administration aims to achieve a 1:1 textbook-to-student ratio, and address the 2.57 million backlog in chairs. To bring down the average classroom-to-students ratio of 1:39 for Elementary and 1:55 for High School, the Aquino administration is looking at completing the construction of some 66,800 classrooms by end-2013. The government will also allot P13.4 billion for the creation of 61,510 teaching positions. A portion of the Health department’s budget will be used to enroll the 5.2 million indigent families, as identified by the households in 2013 from 3.1 million families this year. The CCT government’s National Household Targeting System, in PhilHealth. budget is expected to face rough sailing in Congress. Lawmakers With the launch of the No Balance Billing Policy, treatment for have branded it as a mere “band-aid” solution to poverty. dengue, pneumonia, asthma, cataracts—as well as treatments for The Economic services sector’s budget for next year catastrophic or “Z” illnesses like breast cancer, prostate cancer, will increase by 16.4% to P511.1 billion. The funds and acute leukemia—can be availed of for free by the poor. will be used to support the expansion of the country’s Included in the Social Welfare Department’s allocation for this infrastructure base, as well as to strengthen the key year is the P44 billion budget for the Conditional Cash Transfer sectors for job generation and economic development. (CCT) program, the flagship poverty alleviation project of the administration. It aims to expand its coverage to 3.8 million poor

The 2013 budget was crafted using the zero-based budgeting scheme that enables the government to prioritize key initiatives and effective programs while terminating inefficient ones.

Philippine Alert September 2012 CONGRESSWATCH 53

ALLOCATION BY SECTOR Levels (Php Billion) % Share Inc/(Dec) PARTICULARS 2012 2013 2012 2013 % Program Proposed Program Proposed Economic Services 439.0 511.1 24.2 25.5 16.4 Social Services 613.4 698.8 33.8 34.8 13.9 Defense 87.2 89.7 4.8 4.5 2.9 General Public Services 320.3 346.1 17.6 17.3 8.0 Net Lending 23.0 26.5 1.3 1.3 15.2 Debt Service 333.1 333.9 18.3 16.6 0.2 Total 1,816.0 2,006.0 100.0 100.0 10.5

The sector’s budget will cover the following: The 2013 budget was crafted using the zero-based budgeting  Continuation of full paving of arterial/secondary roads and scheme that enables the government to prioritize key initiatives bridges; and effective programs while terminating inefficient ones. President Aquino is optimistic that Congress will approve the  Preservation of the existing road network; national budget as scheduled. The December 15 signing of the Construction, improvement and rehabilitation of access budget last year marked the earliest signing of the GAA since roads to 164 strategic tourism destinations; 1986. During the Arroyo administration all annual budgets were  Construction, rehabilitation, and/or full paving of 15 late and had to be partially reenacted, or even fully reenacted. airports and 9 sea ports and wharves; While frontloading the P2 trillion budget for 2013,  Financial assistance for micro-, small-, and medium-scale the government must also make sure that safeguards are enterprises (MSMEs); and in place to ensure the efficient spending of public funds.  Promotion of the Agriculture department’s Banner Rice program to help the country produce 20 million metric tons (MT) of rice – the amount needed to achieve rice self- President Aquino signs People’s Survival sufficiency. Fund bill The Department of Education (DepEd) will receive the highest allocation among agencies. The proposed budget for DepEd next President Aquino has signed into law the People’s Survival year is P292.7 billion, higher by nearly a quarter from its 2012 Fund (PSF) bill. Republic Act 10174 amends the Climate budget. Next to DepEd in terms of funding are the following: Change Act of 2009 by establishing the People’s Survival  Department of Public Works and Highways Fund to provide long-term finance streams for the – P152.9 billion government’s climate change adaptation programs.  Department of National Defense – P121.6 billion  Department of the Interior and Local Government The PSF is a special fund (P1 billion) that will be allocated – P120.8 billion every year under the General Appropriations Act for the financing of adaptation programs and projects based on the National Strategic  Department of Agriculture – P74.1 billion Framework on Climate Change. The fund may also be augmented  Department of Health – P56.8 billion by donations, endowments, grants and contributions, which will  Department of Social Welfare and Development be exempt from donor’s tax and be considered as allowable – P56.2 billion deductions from the gross income of the donor, in accordance with  Department of Transportation and Communications the provisions of the National Internal Revenue Code of 1997. – P37.1 billion The fund will be used to support adaptation activities of  Department of Finance – P33.2 billion local governments and communities, such as the following:  Department of Environment and Natural Resources (a) Adaptation activities in the areas of water resources – P23.7 billion management, land management, agriculture and fisheries, The Aquino administration expanded its consultations with health, infrastructure development, natural ecosystems civil society groups (CSOs) in drafting the national budget. including mountainous and coastal ecosystems; Engagement with CSOs in the preparation of the national (b) Improvement of the monitoring and prevention of budget was initiated by the administration last year. Twelve vector-borne diseases (e.g. dengue, malaria, leptospirosis) departments participated in the consultations, including the triggered by climate change; Departments of Public Works and Highways, Education, Transportation and Communications, Heath, and Tourism.

The destruction of our environment puts the Philippines on an unsafe position and endangers the lives of Filipinos.

Philippine Alert September 2012 54 CONGRESSWATCH

(c) Forecasting and early warning systems; (d) Supporting institutional development for local governments for preventive measures, planning, ADB: Southeast Asian countries that are highly vulnerable to the preparedness and management of impacts relating to impacts of climate change: climate change; - Philippines (e) Strengthening existing; and where needed, establish - Thailand regional centers and information networks to support - Indonesia climate change adaptation initiatives; and (f) Serving as a guarantee for risk insurance needs of farmers, agricultural workers and other stakeholders. The PSF bill was approved by Congress in June. It Countries that are most vulnerable to climate change, according was then immediately submitted to President Aquino. to UN (Most Vulnerable): The measure was signed into law in August 17. 1. Vanuatu Senator Loren Legarda, principal author of the bill, 2. Tonga explained that the destruction of our environment, coupled 3. Philippines with the effects of climate change, such as heavy monsoon 4. Solomon Islands rains and prolonged droughts place the Philippines on an 5. Guatemala unsafe position and endangers the lives of millions of Filipinos. 6. Bangladesh Studies conducted by the Asian Development Bank and 7. Timor-Leste the United Nations University Institute for Environment 8. Costa Rica and Human Security reveal that the Philippines is 9. Cambodia highly vulnerable to the impacts of climate change. 10. El Salvador RA 10174 will take effect after 15 days following its complete publication in at least 2 major newspapers of general circulation.

People’s Survival Fund Board and its Functions

Republic Act 10174 provides for the creation of a PSF Board. It will be composed of the following:

Chairperson: Secretary of the Department of Finance Members:  DBM Secretary  NEDA Director-General  DILG Secretary  Chairperson of the Philippine Commission on Women  A representative from the academe and scientific community  A representative from the business sector  A representative from the NGOs

Powers and Functions of the PSF Board:

 Provide overall strategic guidance in the management and use of the fund;  Develop social, financial and environmental safeguards to be used in project implementation;  Identify additional sources for the fund;  Issue final approval of projects for the use of the fund;  Adopt a conflict of interest policy to ensure that board members will not vote on projects if they have a direct stake therein; and  Ensure an independent third party evaluation and auditing of activities supported by the fund, taking into consideration the principles of transparency and accountability, and government accounting and auditing rules and regulations.

Philippine Alert September 2012 CONGRESSWATCH 55

Climate Change Adaptation and Mitigation Projects stipulated in the 2013 National Budget:

 P1.5 B to the National Mapping and Resource Information Authority (NAMRIA) to start the implementation of the Unified Mapping project targeting 18 major river basins. This allocation will support the production of topographic maps covering 5.4 million hectares as input for simulations of hazards, such as landslides and floods  Mines and Geosciences Bureau to continue to assess and map 548 municipalities to identify those susceptible to climate change hazards  P7.5 B for the Calamity Fund  P405 M for the automation program of PAGASA to enable the agency to provide timely and accurate weather forecasts which are critical to disaster preparedness  P18.2 B under the DPWH budget for flood control projects  P983 M for the proper closure and rehabilitation of 637 open dump sites and 257 controlled dump sites nationwide. This amount will also go towards providing disposal services to 17 LGUs in Metro Manila.  P5.9 B to plant 150 million seedlings in 30,000 hectares

Source: 2013 Budget Message of President Aquino; Official Gazette (www.gov.ph)

Philippine Alert September 2012 56 CONGRESSWATCH

Priority Bills for the 15th Congress: An Update As of 25 SEPTEMBER 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 definition 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 filing and implementing Environmental Impact Assessment Environment and Natural SB 1362" Assessment Amendment Ecology and issuance of Environmental Compliance Certificate Resources Pending in Committee Pending in Committee on HB 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 finance 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 offices 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 financial 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), HB 2263 set caps on national debt and personnel services, ensure Pending in Committee on Fiscal Responsibility Act Pending in Committee on Finance SB 2177 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 fiscal Pending in Committee on Ways Transmitted to the Senate SB 2142 Incentives and non-fiscal incentives and Means Seeks to provide an uniform and equitable taxation by limiting the allowable deductions for self-employed Simplified 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 Pending in the Committee on Sin Tax Reform Bill amends pertinent sections of the National Internal Transmitted to the Senate SB 2998 Ways and Means 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 Alert September 2012 CONGRESSWATCH 57

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 define 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 confidence 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 specifications Technology (DICT) for telecommunications, automated data processing and management information systems Seeks to achieve a more self-sufficient energy mix, SB 2027 Energy Efficiency 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 certifiying 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 fine 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 Bicameral Committee Report approved SB 3164 Program Seeks to define 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, financiers, 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 field 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 Approved on 3rd reading SB 3215" Act progression in the bureaucracy Professional Regulation Seeks to ensure public access to official 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 offices to comply with Public Information (POGI) Act of 2012 requests for information on matters of public concern

Philippine Alert September 2012 58 CONGRESSWATCH

Pending in Committee Government Classification 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, efficient and Transmitted to the Senate Pending 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 Office 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 financial 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 financial viability and fiscal 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 2nd reading for FY 20123 December 31, 2013 and for other purposes

Philippine Alert September 2012

Asia Pacific Executive Brief

September 2012 © IMA Asia

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 China Hong Kong Taiwan South Korea Southeast Asia Indonesia Malaysia

Philippines Singapore Thailand Vietnam South Asia India Australasia Australia

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59

Regional Update September 2012

Global outlook

A patchwork The main themes for the next 18 months are a patchwork global economy, strong world downward pressure on prices for manufactured goods that may lead into mild deflation in some markets, and a gradual easing in global-level risks. The overall growth impetus has … shaped by fallen in Q3’12 and we expect it to remain weak for several more quarters before a mild excess supply upturn by mid-2013, driven by a stronger US recovery, firmer growth in China, and a lift in through 2013 other emerging markets. This should be sufficient to offset a continued contraction in the Euro area that will lead into five or more years of weak growth as structural adjustments … pushing take place. The dominant macro feature over the final months of 2012 and most of 2013 prices down will be excess capacity to global demand of some US$1-2 trillion, mostly due to a collapse in demand in the Euro area. Big swings in the stock of manufactured goods and also of commodities are already underway to adjust to the global demand imbalance.

The US is into a A prominent feature of the patchwork global economy is the striking difference between the good recovery US and the Euro area in terms of position in the economic cycle. By Q2’12, the US economy was three quarters into a strong and broad-based rise in fixed investment led by … with a broad plant and equipment (including IT) spending, which has been running close to 10%yoy & sustained lift in growth in real terms since Q2’10. This is one reason that unemployment has been slow to capex fall as firms have responded to rising demand with more equipment rather than more hiring. The sustained lift in capex lays the foundation for productivity growth over the next five … that will boost years that will help lift trend GDP growth towards 3% despite headwinds from large public productivity & debt and another year of consumer deleveraging. Finally, bank lending to US firms has GDP for 5 years been growing at double-digit pace since last December and was up 14.2%yoy in July. Overall, the US is performing very well given the scale of the asset bust in the GFC, with a better balanced, lower risk economy emerging. The lift in productivity-driven growth that emerges in early 2013 will set the stage for a decade-long pay-down in public debt.

The Euro area is By contrast, the Euro area is dropping into a recession that may run through most of 2013. heading down GDP fell 0.5%yoy in Q2’12 with fixed investment flat or contracting over the last seven quarters and bank lending down 0.2%yoy in June. We expect falls across all of these … with no indicators for several more quarters before a weak recovery sometime in 2013. The Euro upturn until well area is 2-3 years behind the US economy in the deleveraging process and moving much into 2013 slower due to the absence of a central authority. The structural reforms that must be introduced over the next few years include public spending cuts, tax hikes, privatisations, … and slow but and deregulation of markets (including labour markets). Few if any of these steps are essential progress growth positive in the short term yet all are essential to a revival of productivity-based on key reforms growth and a lowering of macro-risk. All this is politically contentious and thereby uncertain, but if carried out will see the creation of a stronger and more unified Euro area.

A hard landing in China has overshot its soft landing this year, which has removed a major source of global China demand (the US$1 trillion it has recently added to global demand each year is double the contribution of the US economy). The recent and modest lift in stimulus in China should … which should pull the economy back onto a soft landing path by the end of 2012. This won’t be a repeat ease by end-2012 of the massive 2009 stimulus, which helped lift many other countries, but it does provide a as stimulus lifts base for better global growth in 2013. Other emerging markets have slowed since mid- 2012 as demand from advanced economies and China has weakened, but most of the better managed ones should lift in 2013. ASEAN is outperforming.

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) 0.9 7.2 4.3 4.2 4.3 - NICs (4) -0.7 8.2 4.0 1.8 2.2 - Developing Asia (7) 7.2 9.8 8.2 6.7 6.9 - ASEAN (5) 1.5 7.0 4.5 5.3 5.0 World goods & services trade volume, % growth -10.5 12.9 5.8 2.7 3.8 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] 60

Regional Update September 2012

Regional outlook

Summary of forecasts in this month’s Asia Brief

GDP (Expenditure), real growth, % 2009 2010 2011 2012 2013 Japan -5.5 4.4 -0.7 1.3 1.2 China 9.2 10.4 9.2 7.8 7.8 Hong Kong -2.6 7.1 5.0 1.0 2.2 Taiwan -1.8 10.7 4.0 0.8 1.5 South Korea 0.3 6.3 3.6 2.4 2.3 Indonesia 4.6 6.2 6.5 6.8 5.5 Malaysia -1.5 7.2 5.1 4.0 3.2 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 1.6 2.0

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 2.3 0.8 Hong Kong (composite CPI) 0.6 2.3 5.3 2.6 0.0 Taiwan -0.9 1.0 1.4 2.1 1.3 South Korea 2.8 2.9 4.0 2.0 0.8 Indonesia 4.8 5.1 5.4 5.0 6.5 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 2.5 3.0 Vietnam 6.7 9.2 18.7 9.5 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 29.8 30.8 South Korea 1,281 1,159 1,108 1,134 1,125 Indonesia 10,356 9,086 8,776 9,439 9,575 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 1.27 1.24 Thailand 34.3 31.7 30.5 31.5 30.5 Vietnam 17,860 19,151 20,511 20,900 21,200 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 1.24 1.25

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

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Regional Update September 2012

Regional outlook

Political & policy issues to watch

Geopolitical risk Geopolitical tensions have ebbed and flowed in the South China Sea since well before World edges up War II (and were a major factor in starting that war). The risk has risen over the last year as China’s interest and capacity in extending is power offshore has grown. Japan’s domestic … mainly for political battles and the rise of Asia’s internet citizens, many with strong nationalist views, Japanese firms have complicated the issue. If it gets out of hand it would do great damage to Asia’s outlook. in China In the last month it has clearly become an issue for corporate Japan and thereby a reminder for all “foreign” firms of one of the nastier operating risks that needs careful management in Asia. At present, we expect the risk to remain contained as no government would benefit from allowing it to get out of control. It remains an issue that needs watching.

China is on track 2012 has been full of political surprises in China, including the recent brief disappearance of for a leadership Xi Jinping, who is expected to become China’s next leader within a few months. At present change the leadership transition appears to remain on track.

Bad politics in The political battle in Japan is undermining growth as the opposition has blocked all Japan cut spending approvals in the upper house in an effort to force PM Noda into calling an early growth election, which he will likely lose. We expect Noda to acquiesce and bring the 2013 election forward into late 2012. Meanwhile, we’ve cut our Japan growth forecast.

India scrambles Bad politics and poor policy mostly account for a dramatic cut in our India growth forecast to to avoid a sub-5%. The threat of India’s paper being downgraded to junk status by S&P has downgrade galvanised PM Singh’s government into promising some long-delayed reforms and better fiscal policy. Behind the reform proposals Singh is attempting to redefine the boundaries of the political contest in India in a way that is fundamentally needed if the country is to return to strong growth.

A political tiff in Divisions have emerged at the top of Vietnam’s Communist Party. We don’t expect them to Vietnam destabilise the economy and they may open the way to better policies and stronger growth.

Outlook for the market

Patchwork Like the global economy, Asia is showing signs of patchwork growth, which is set to continue growth in Asia over the next 18 months as most countries slip into one of two camps. Most of north Asia is suffering from a slump in global demand, with exports and industrial production dropping to … as industrial zero growth in 2H’12 and a mild recovery at best expected in 1H’13. This includes Japan, exporters in China, Taiwan, Hong Kong, and Korea. China is the only one with sufficient domestic scale north Asia slow and resilience to sustain stronger manufacturing growth based on local demand. Japan might have done the same but recent political problems are set to undermine the mild … while domestic rebound of 1H’12. Some local HK forecasters have suggested that a strong ASEAN steams rebound in HK will occur in the next few quarters but we see no reason for that. The slump along on local in export manufacturing means a big cut to factory overtime pay, which filters through to demand weaker consumer demand quite quickly. By contrast, four of ASEAN’s main economies have shrugged off the global downturn thanks to surging local demand. Domestic political factors unique to each market have led to strong cyclical upturns supported by expansionary fiscal and monetary policy (see the pages for Indonesia, the Philippines, Thailand, and Malaysia).

Beware of falling Inflation is falling quickly in most of Asia as excess capacity is putting strong downward prices for most pressure on prices for manufactured goods and some commodities (the exceptions are India manufactured and some overheating ASEAN markets). China’s producer price index has been falling for goods five months and in August was down 3.5%ytd. When this has happened in the last 15 years it has led to deflation on the consumer price index, not only in China but in HK as well. This … this could is as much due to a global demand/supply imbalance as it is to weaker growth in China. be painful until China isn’t necessarily the cause of deflation; it is just easier to pick there as it it’s the world’s late 2013 largest manufacturer as well as the largest exporter of manufactured goods.

Asia faces a rise Asia faces a rise in capital inflows over the next five years as global investors look for in capital inflow stronger returns with an acceptable risk profile. Small signs of this trend have appeared over from 2013 the last year, particularly for markets like Indonesia and the Philippines, which are on the cusp of regaining investment grade status. We expect this to push up currencies and asset prices in Asia’s emerging economies from 2013 onwards.

Richard Martin, IMA Asia  Email: [email protected] 62

Regional Update September 2012

Japan

Political & policy issues to watch

Political battles PM Noda’s government has just stepped off its own fiscal cliff, which will likely bring a will curtail local sharp fall in growth in the final months of 2012 and an early election. Several weeks back public spending Noda won the support of the opposition LDP, which controls the upper house, for lifting Japan’s sales tax from 5% to 10% by the end of 2015 on the understanding that he would … and bring an bring the 2013 election forward. As his government is quite unpopular this would be early election electoral suicide, which would be unusual for any politician, let alone one as wily (and thereby effective) as PM Noda. The opposition LDP is outraged and is now blocking all bills, including those needed to fund local government spending, which will now plunge in the final months of 2012. Noda must relent soon, so an early election is coming, but in the process Japan’s rebuilding process from last year’s tsunami has been hurt. Watch for an extraordinary session of parliament to be called for October with the primary aim of passing the spending bills and, at the same time, calling the election.

Rising domestic We don’t expect the next election to improve Japan’s political gridlock, which may well get political risk worse as the two major parties, the LDP and the DPJ, fragment. City-level politicians and radicals with fringe policies are gaining popular support.

… and rising A territorial dispute with China over islands (called Senkaku in Japanese and Diaoyu in geopolitical risk Chinese) could do more damage to Japan than to China as Japanese firms are reliant on with China China for sales and production and both are threatened by anti-Japanese riots in major Chinese cities. It is hard to see how this will play out given the rising political role of the internet, although China’s government still has the capacity to close down protests if is not distracted and that is what we expect to happen soon. For decades Japanese firms limited their involvement in China because of this risk and this is a reminder of one type of operating risk for all foreign firms in China.

A vague plan to PM Noda has released a vaguely worded energy plan that commits to ending nuclear end nuclear power by 2040, which suggests nothing is imminent. Industry is unhappy with the loss of power reliable electricity and the prospect of higher charges to fund new gas-fired power plants. We expect a few more idled nuclear reactors to be restarted by end-2012.

Outlook for the market

Growth slides in Earlier this year our forecasts were well below consensus and those of the government 2H’12 even though we agreed that an upswing in domestic demand was underway thanks to post-tsunami rebuilding and a lift in consumer spending (mostly associated with a subsidy … as exports for eco-cars). Most forecasts are now being cut and we may trim ours in coming months fall due to two events. First, the slide in exports has been worse than expected, with July down 8.1%yoy and hints of a bigger fall ahead. This challenge cascades through the economy, hurting consumers (see below) and undermining government revenue. Second, Japan’s public spending is set to drop due to a political dispute. Both overpower the rebuilding impetus while the eco-car subsidy is due to end this month.

… local public In early September, the opposition LDP blocked the passage of bond issuance bills that spending drops provide finance for 40% of the national budget. This triggered an immediate cut in the allocation of funds to local governments for September-November. This is the first time this has happened in post-war Japan and we expect it to weaken the rebuilding effort.

… consumer Hit by falling external demand and a strong Yen, Japanese manufacturers have started to spending falls cut pay with growth falling for the first time this year in July and overall compensation now close to the 2009 low point, the lowest on record since 1991. Retail sales fell 0.7%yoy in July, the first drop in nine months, while the surge in vehicle sales to an annual rate of 4.6m units in August, up 38%yoy, will collapse at the end of this month.

… & deflation Japan is stuck in deflation with industrial product prices down 2.7%yoy in August and the increases CPI down 0.4% for July. The Yen is stable at 78.7 with little prospect of moving.

2009 2010 2011 2012 2013 GDP, real growth (2005p), % -5.5 4.4 -0.7 1.3 1.2 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.. 63

Regional Update September 2012

China

Political & policy issues to watch

On track for a China will begin a once-in-a-decade leadership change at the Communist Party’s five- stable leadership yearly congress, which indicators (such as florist orders and hotel room blackout dates) change in October suggest will be held in mid-October. Xi Jinping is set to take over as party head, China’s most powerful post, with Li Keqiang expected to take a top position in the reshuffled … as Xi pops up Politburo Standing Committee and to become premier (in charge of economic policy) next after a brief March at the National Peoples’ Congress. Xi has just reappeared after dropping from view absence for two weeks, most likely due to a health issue. While this is disconcerting, such secrecy about leaders is common. The new leadership is expected to carry on existing policies under the framework of the 12th Five Year Plan, although there are hints that Xi might accelerate some of the recent reforms launched by outgoing premier, Wen Jiabao.

A mild fiscal Growth has slowed faster than expected this year due to a slump in exports and a stimulus is concerted drive to curb excessive growth in fixed investment, which triggered a jump in bad underway loans and soaring raw material costs. Such problems made Beijing slow to roll out a stimulus program this year. However, a mild lift in fiscal stimulus is now underway around projects slated in the 12th Plan. Monetary easing is also expected (see below).

… with VAT for A trial value-added tax (VAT) for the service sector in Shanghai will soon be extended to services lowering most coastal and some interior provinces. The VAT, which replaces a revenue-based tax the tax burden and is similar to VAT for manufacturing, will lower the tax on most services and in doing so will, in effect, be a tax cut for the economy that should help lift growth and boost services from a low 43% share of the economy.

Outlook for the market

Growth slowed We’ve trimmed our GDP forecast to 7.8% in 2012 (previously 8%) and 7.8% in 2013 (from further in Q3 8.2%) as a slew of indicators point to weak, if not falling, external and domestic demand. Profits at industrial firms were down 4%ytd by July, compared to 20% growth in 2011. China’s Business Climate Index fell 8%yoy in June, with particularly weak sentiment in mining, construction, and retail trade. China’s measure for consumer sentiment has also dropped below its recent low point set during the 2009 GFC.

… with little A weak recovery should emerge during Q4. While inflation rose 2%yoy in August after inflation & scope 1.8%yoy in July, we expect little if any inflation over the next year as producer prices fell for stimulus to lift 3.5%yoy. This leaves plenty of room to ease monetary policy by cuts to interest rates and growth in Q4 the commercial bank reserve requirement ratio over the next year. New lending lifted to RMB704bn in August, which suggests a lift in growth should emerge during Q4’12. However, manufacturers will still struggle with downward pressure on prices.

Manufacturing hit China’s value-added measure for industrial growth dipped to 8.9%yoy in August, its lowest by falling exports point since the GFC hit in late 2008. Our clients report large-scale destocking in many sectors as local demand weakens and exports stall. In Jul-Aug, export growth slowed to … with stocks 2%yoy from 9%yoy in 1H’12, as Western markets slowed. EU exports fell 14%yoy in Jul- being slashed Aug after a 1%yoy decline in 1H’12. US exports, which did well with 14%yoy growth in 1H’12, swung to a 2%yoy fall in the same period.

A mild lift in real Growth in residential real estate investment lifted to 10%yoy in August from 5%yoy in July, estate investment although this is well down on 30% growth for full 2011. The trend to weaker residential investment growth may continue, with a recent study by Australia’s central bank, keen to … but lower understand the commodities outlook, suggesting that growth in residential floor space will long-term growth slow to 2%pa for 2012-2017 from 6%+ for 2004-11. The report is available at is possible http://www.rba.gov.au/publications/rdp/2012/pdf/rdp2012-04.pdf

A steady Yuan for While China’s exporters are clearly hurting, we expect Beijing to keep the Yuan steady on now the US$ into 2013. This gives China a strong hand in geopolitical debates with neighbours and the US. Once the global economy stabilises we expect a return to appreciation in the 2-4% annual range.

2009 2010 2011 2012 2013 GDP, real growth, % 9.2 10.4 9.2 7.8 7.8 CPI, year average, % -0.7 3.3 5.4 2.3 0.8 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. 64

Regional Update September 2012

Hong Kong

Political & policy issues to watch

A bumpy start for Since taking office as Chief Executive on July 1, CY Leung has had a tough time. His HK’s new boss administration’s support for a new program of compulsory “moral and national education” triggered big street protests by HK residents, who are uneasy about the promotion of Communist Party ideology. The plan remains optional while another proposal to ease HK visa restrictions for residents of Shenzhen (the neighbouring city in China) was postponed.

Housing policy It is the issue of housing, however, that may be Leung’s biggest challenge and it is one that will be crucial to could reshape the economy (HK’s first Chief Executive, Tung Chee-hwa, launched a politics scheme for 85,000 public housing units a year, which triggered a collapse in real estate prices and his dismissal by Beijing in 1998). HK lacks a comprehensive plan that … and to the combines population growth (particularly migration) and cross-border investment flows economy from China with housing. As a result, a surge in apartment purchases by mainland Chinese has helped drive prices to record highs and contributed to rising dissatisfaction. Leung’s new housing policy makes some useful changes (such as allowing conversion of industrial property to residential) but at present it seems too little to be effective.

Legco elections Legislative Council (Legco) elections took place on September 9. This was the first poll in point to growing which the majority of seats were directly elected as part of a cautious – and by no means polarisation guaranteed - move towards democracy by the end of this decade. Pro-democracy parties held onto their 27 seats (out of 70), and with more than one third they’ll continue to have … with a more veto power over government policies if they vote together. Of equal note was a fall in radical agenda for support for the more moderate Democratic Party (down 3 seats to 6) while more radical pro-democracy pro-democracy parties picked up 3 seats. Apart from a more aggressive stand against parties Beijing this may see a bigger push for higher minimum wages and standard working hours.

Outlook for the market

A sharp slow- Hong Kong’s economy has a high export dependency (over 200% of GDP), which leaves it down in 2H’12 vulnerable to any global downturn. However, the downturn has not been as severe as during the 2009 GFC. While exports have fallen in recent months (down 4%yoy in Jun- … and a slow Jul’12), this is nowhere near as bad as the 20%yoy fall in Q1’09. We expect weak trade 2013 upturn conditions to continue to mid-2013 with HK gaining a small lift over the next six months from China’s mild stimulus. This should support GDP growth of 1% this year and 2.2% in 2013 as opposed to the 2.6% fall of 2009.

Retail sales Retail sales growth slowed to 8%yoy in May-July from 15%yoy for Jan-Apr, with the main growth slows decline in luxury goods, which are mostly bought by mainland tourists. The slowdown comes not from a lack of mainland tourists (up 24%yoy in May-July), but a decline in … as PRC purchases per consumer, as buyers become more cautious. Tourist spending will stay soft tourists cut their well into 2013, which will slow total consumer spending growth to 3.6% in 2012 and 2.7% spending in 2013, down from 8.5% in 2011. The surge in mainland visitors may also be at capacity, and plans to allow more mainlanders easy travel to HK have been postponed. Mainland tourists jumped from 8.4mn in 2003 to 28.1mn last year.

Construction gets Construction is expected to grow 9.2% in 2012 and 4.8% in 2013, backed by public sector a boost from civil works including the HK-Macau-Zhuhai bridge, high-speed rail, and some public housing works work. The residential property sector had a strong 1H’12, with commencements rising 36%yoy. However, residential building growth is likely to slow from 2H’12. Property transactions (-17%ytd in Aug) are weak, the residential yield is a low 3%pa, and the government is starting to place some restrictions on foreigners purchasing property.

Watch for a fast With China’s producer price index swinging steeply into negative territory in Q2’12, we drop in inflation expect strong deflationary pressure to appear in HK within the next 4-6 months, with CPI inflation likely to drop towards zero for 2013.

2009 2010 2011 2012 2013 GDP, real growth, % -2.6 7.1 5.0 1.0 2.2 Composite CPI (04/05), year average, % 0.6 2.3 5.3 2.6 0.0 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] 65

Regional Update September 2012

Taiwan

Political & policy issues to watch

Political stability President Ma Ying-jeou is 10 months into his second and final 4-year term as Taiwan’s & good policy leader. Support for his party, the KMT, dropped in the January elections (coincidentally making capacity held at the same time) but the government’s “pan-blue” coalition still has a comfortable lead over the opposition “pan-green” coalition of 69 seats to 43. The next key political contest comes in 2014 over mayors for the five main municipalities and local county magistrates, which will set up the 2016 presidential contest. The political outlook is stable for at least the next two years with scope for fast and effective policy-making.

Finding a safe China’s skirmish with neighbours in the South China Sea is tricky for Taiwan as its geo-political economy depends on good ties with both China and Japan. So far Ma has skilfully position is tricky positioned Taiwan as a mediator, calling for shared usage rights in disputed areas. Taiwan also came away from the recent APEC leaders meeting with positive news on several … but is critical trade deals, including plans to wrap up a free trade agreement (FTA) with Singapore by to trade deals year-end, to restart FTA discussions with the US, and hints that Taiwan might be able to join the Trans Pacific Partnership (TPP) trade discussions. Taiwan hopes that China will ease its veto on the island’s membership of international forums and agreements.

No fiscal stimulus There is little scope for fiscal stimulus to sustain domestic demand over the next year. Taiwan’s Budget Law places a cap on government debt to 40% of GNP, leaving little room … plus a hike in for extra spending. Moreover, the government still intends to hike electricity rates by 40% electricity charges on December 10 following a similar rate hike on June 10. The hikes are needed to offset huge losses at Taiwan Power Corp (Taipower). Despite these issues, fiscal risk is low with the 10-year bond yield at 1.19% and a AA- sovereign rating from S&P.

Outlook for the market

Weak growth until In August, Taiwan’s Treasury (known as DGBAS) cut its GDP forecasts to 1.66% growth in mid-2013 2012 and 3.67% growth in 2013. These are stronger than our forecasts as they anticipate a recovery in exports and investment from Q3’12. But with merchandise exports down 4%yoy for July-August, this appears unlikely. We do not expect trade and investment to lift until mid-2013, keeping GDP growth at 0.8% in 2012 and 1.5% in 2013.

… with retail Retail sales growth eased to 3%ytd by July from 6% for full 2011. Car sales are down sales slowing 7%ytd for the first eight months, from 12% growth in 2011. Weak retail growth can be attributed to a fall in consumer sentiment as weak global demand has seen factories slash overtime (-5%ytd by July). These factors will likely reduce private consumption growth to 1.2% in 2012 and 1.5% in 2013, from 3% in 2011.

… & a small fall Manufacturing eased further in August, with the Purchasing Managers Index (PMI) falling for manufacturing to 46.1 from 47.5 in July (under 50 means contraction). The contraction occurred as new exports orders slowed and firms ran down stocks. With exports expected to remain weak through to mid-2013, manufacturing will likely decline 0.6%yoy in 2012 and rise by 1.5% in 2013, which is down from 4.9% growth in 2011.

Residential starts Construction fell 1.8%yoy in 1H’12 on the GDP measure, but is should level off in 2H’12. will drop Residential approvals have increased 4%ytd in July, and despite a traditional buying spike in Sept/Oct, this growth is unlikely to be sustained as sentiment weakens. We expect 80,000 housing approvals in 2012, and 55,000 in 2013, down from the 2011 level (93,000).

Food prices jump Inflation jumped to 3.4%yoy in August from 1.5% in 1H’12. The main culprit was food limiting rate cuts prices, which rose 9%yoy in August after Typhoon Saola destroyed crops in July. Higher inflation will likely persist for the rest of the year, preventing any interest rate cuts. Global weakness will encourage financial outflows, keeping the NT$ weak through 2013.

2009 2010 2011 2012 2013 GDP, real growth, % -1.8 10.7 4.0 0.8 1.5 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 1.75 NT$ to US$1, year average 33.1 31.6 29.5 29.8 30.8 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] 66

Regional Update September 2012

South Korea

Political & policy issues to watch

A geopolitical tilt President Lee Myung-bak, who finishes his single 5-year term in February 2013, is to all towards China intents and purposes a lame duck leader in domestic politics. Foreign policy is a different matter and his recent visit to the disputed Dokdo/Takeshima islands, which both Korea and … with an eye Japan claim, provided an opportunity for some Japan bashing and a shift in focus to better on a trade deal ties with China, which has its own Japan bashing underway over other disputed islands. Korea has a free trade agreement (FTA) in the works with China and access to that vast market is worth a lot along with the possibility of some help in dealing with North Korea.

The December Ms. Park Geun-hye heads into the December 19 presidential election race as the favourite, elections easily winning the ruling Saenuri party’s nomination. Park’s campaign focuses on reducing inequality, lowering corruption, and improving the business environment for SMEs. Her … Ms Park campaign has issues however. Corruption in her party, and the legacy of her father’s remains in the dictatorship (President Park Chung-hee, 1961-1979), has put some Koreans off-side. Her lead opponent is yet to be determined. Software mogul Ahn Cheol-soo looks set to run, and would give her a close race, although his prolonged fence-sitting has hurt his popularity.

A mild stimulus is Korea’s government has a strong fiscal position with moderate debt (33% of GDP) and a underway recent sovereign rating upgrade by both Fitch and Moody’s. Accordingly it has room for a modest stimulus and in early September the government announced a US$5.2bn (0.5% of … with scope GDP) stimulus package. Money was allocated to social welfare spending, car, and home for more if needed purchase subsides, while tax cuts were offered to increase infrastructure and real estate projects. These measures are on top of US$7.4bn (0.7% of GDP) package in June. Ms Park could deliver more next year if the economy has not shown signs of recovery.

Outlook for the market

Low growth for Korea’s export driven economy faces a collapse in external demand, high household debt, the next 18 and a housing oversupply that threatens a market collapse, which would devastate months consumer spending. At present, we think Korea has room to skirt such risks and deliver GDP growth of 2.4% in 2012 and 2.3% in 2013. A lift in high-tech investment, a weak Won, and low wages growth should allow mild manufacturing growth of 2-3% in 2012-13, down from 7% in 2011. At the same time lower interest rates should take pressure off the housing and consumer markets.

… supported by While exports fell 8%yoy in July-August from 1%yoy growth in 1H’12, the decline was not better car exports chiefly related to the global slowdown. Strikes at major car manufacturers cut their exports by 16%yoy and left US distributors short of stock. Strikes over car production should lift, which should cushion this year’s export fall to a modest 1%. The recovery in 2013 is likely to be weak with export growth to 2.5% expected at present, although there is plenty of scope for that to lift quickly if the global market improves.

… and weak Consumer spending has fallen since June, with August sales down 1.3%yoy at discount consumer growth stores and a bigger 6.1%yoy fall reported by department stores. While consumer sentiment is weak, it remains well above the lows set in the 2009 GFC. Interest rate cuts should provide some support by lowering loan repayments on Korea’s high levels of household debt (135% of GDP). This plus stimulus measures should support real growth in consumer spending of 1.3% in 2012 and 1.7% in 2013, down from 2.4% in 2011.

Little inflation & Weak global demand has pushed inflation down to 1.2%yoy in August from 4.0%yoy in more rate cuts 2011. Low price growth is likely to persist, providing room for a further 50bp of interest rate cuts by end-2013. The Won has stabilised around 1,130 to the US$ since July. We expect the government and central bank to favour a weak Won to support exporters.

2009 2010 2011 2012 2013 GDP growth, % 0.3 6.3 3.6 2.4 2.3 CPI, year average, % 2.8 2.9 4.0 2.0 0.8 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 1,134 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] 67

Regional Update September 2012

Indonesia

Political & policy issues to watch

The contest for Democracy has thrived in Indonesia in the 13 years since the first post-Suharto election in 2014 is underway 1999. The two-term government of President Yudhoyono (often called SBY, 2005-09, 2009-14) has seen many of the benefits of political stability and mild reform pay off in a lift … with some in trend GDP growth to 6%+ while GDP/capita has climbed from US$1,138 in 2004 to early concerns $3,713 by 2012. Whether these gains are sustainable will be tested in the next two years. The contest for the 2014 elections is underway with concerns about the two current declared candidates, Aburizal Bakrie and Prabowo Subianto (neither appear interested in continuing reform), as well as the absence of a candidate from PD, the president’s party.

Watch Jakarta’s The second round of elections for Jakarta’s next governor on September 20 will provide a Sept 20 elections pointer to current political trends. This high-profile contest has seen an ugly religious and sectarian twist emerge since the first round saw upstart Solo mayor Joko Widodo (aka … which should Jokowi) beat heavily favoured incumbent Fauzi Bowo (aka Foke) 43% to 34%. Since then, show the political Foke, who is backed by Prabowo, has courted hard-line Muslim voters with attacks of trend Indonesian Chinese and a swag of gifts to voters ranging from free healthcare and education vouchers as well as pledges for free wi-fi coverage across Jakarta. While the vote will be close, Jokowi’s clean campaign on a platform based on change and integrity has rekindled the kind of voter enthusiasm not seen since SBY’s presidential win in 2004.

Outlook for the market

Growth surges Growth is currently surging but we expect growing volatility and weaker growth in 2013 as into 2H’12 the central bank is forced to lift interest rates to curb a widening current account deficit and a likely rise in inflation. Since a brief drop to 4.1%yoy growth in mid-2009, Indonesia has … but so do grown at a steady 6%+ pace with consumer spending growth around 4.5% and fixed macro risks investment growth at 8.5%. The immediate threat to this stable expansion comes from a surge in the current account deficit to a record 3.1% of GDP in Q2, from 1.5% in Q1, as … a big current export growth slumped (mostly due to a fall in coal shipments and prices). Import growth account deficit & slowed but not to the same extent, as local demand growth is strong thanks to credit rising inflation growth of 26%yoy in 1H’12 and a 13.4% rise in the minimum wage this year. Inflation has

been steady around August’s 4.6%yoy for five months, which is within the central bank’s … watch for rate hikes to cool target band of 4.5-5.5%, but we expect it to climb above this range by year-end, forcing a growth in 2013 lift in the policy rate from the current historic low of 5.75% towards 7% by mid-2013. We’ve lifted this year’s growth forecast to 6.8% (previously 5.5%) as stock building has surged in 1H’12, but next year’s growth has been cut to 5.5% (from 6.5%) as interest rates climb and companies seek to reverse the current stock surge.

Retail sales jump Retail sales growth surged to almost 20%yoy in July from 12.3%yoy for 1H’12 and 9% for full 2011. The strength in emerging middle class demand is apparent in vehicle sales, … led by a which broke through an annual rate of 1m units in June for the first time, and by August strong middle were up 22.8%yoy to 1.03m units. By contrast, motorcycle sales – a useful indicator for class lower-income households – have been falling from March, with the annual rate down 7.2%yoy by August to 7.25m units.

Construction Construction remains strong with real growth on the GDP measure of 7.2%yoy in 1H’12 stays strong into from 6.7% for full 2011. Cement sales grew 15.1%yoy in 1H’12 from 17.7% growth for full 2H’12 2011. Surveys suggest that office and retail occupancy rates have climbed into the high 90s from around 85% in mid-2007.

Watch for a An early sign of increased volatility is apparent in the rupiah’s performance, which recently weaker Rupiah fell through 9,500 to US$1 into a 9,550-9,600 range that is down 5%ytd. A few analysts think a fall to 10,000 is possible over the medium-term.

2009 2010 2011 2012 2013 GDP, real growth, % 4.6 6.2 6.5 6.8 5.5 CPI, year average, (2007=100), % 4.8 5.1 5.4 5.0 6.5 Central bank policy rate at end-Dec., % 6.50 6.50 6.00 6.25 7.00 Rupiah to US$1, year average 10,356 9,086 8,776 9,439 9,575 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]

68

Regional Update September 2012

Malaysia

Political & policy issues to watch

Big cash hand- Malaysia needs to hold an election by April 2013. Expectations of an early poll in Q1’12 outs to voters failed to materialise as the government apparently felt that more time was needed to win back disaffected Chinese and urban Malay voters. November now looks likely following … with an the unveiling of a National Education Blueprint and the FY2013 Budget in late September. election likely by The ruling Barisan National (BN) coalition should win, but PM Najib will need to improve on year-end the 2008 result (when BN lost its two-thirds majority for the first time since independence) if he is to silence opposition to his reforms within UMNO, the Malay party that leads the … watch the coalition. To win over voters the government has doled out huge amounts of cash and budget speech postponed fiscal reforms, such as fuel subsidy cuts and the introduction of a goods & this month services tax. The FY2013 Budget will likely have more handouts for civil servants, public sector pensioners, low income households, and palm oil producers. The IMF expects Malaysia’s public debt–to-GDP ratio to grow to 57% by 2017 from 53% in 2012 and 40% in 2008. We think the rise in the debt ratio could be faster, which would bring a credit rating downgrade within two years.

Plans for lots of Given rising public debt and the absence of a fiscal strategy, companies should carefully big projects evaluate participation in the government’s US$444bn multi-project investment program. There is a lot to like about the Economic Transformation Program (ETP), which aims to … but double double per capita GDP to US$15,000 by 2020. But financial viability is unclear. At least check the 60% of the funding is expected to come from private investors, while national oil company numbers Petronas, the government’s main cash cow, will fund another 9.5%. Much of the private funding will be by bond issuance with repayment guaranteed by the government. Some projects are primarily real estate plays, like the new financial district in Kuala Lumpur, and others, like the KL mass transit system, already face big cost overruns.

Outlook for the market

Strong domestic- The ETP is already having an impact, with fixed investment surging 21.3%yoy in 1H’12. led growth into Hectic investment activity, combined with strong private and government consumption 2013 (8.1%yoy and 8.4%yoy respectively), delivered 5.1%yoy GDP growth in 1H’12. The jump in local demand more than offset a slide in export growth to 3.3%ytd for the first seven months, from 8.7% for full 2011. Meanwhile, import growth remained at 8.2%ytd by July, which is close to the 8.6% set for full 2011. Given the strength of local demand we’ve raised our 2012 GDP growth forecast to 4% (3% previously). 2013 may be upgraded soon.

A construction Construction GDP surged 18.9%yoy in 1H’12 from 5.7%yoy in 2H’11 with full year growth surge of 21% expected before easing to a still strong 11% expansion in 2013. Strong domestic demand, particularly from construction, boosted manufacturing, with total industrial … helps lift production up 5.2%yoy for 1H’12. Overall, 8.7%yoy growth in domestic-focused industries manufacturing offset a weaker 4.1% rise for export-focused industries (led by chemicals and petroleum products while electronics contracted slightly). We expect manufacturing to slow to 3.8% growth in 2012 and 3.1% in 2013, from 4.7% in 2011.

Little inflation & a Bank Negara’s quick lift in its policy rate after the GFC (it was the first Asian central bank to stable M$ do so) and then its decision to leave it at 3% from May 2011 has paid off with a strong domestic demand rebound alongside a fall in inflation to 1.4%yoy in July (from a mid-2011 … with mild peak of 3.5%yoy). While deflationary pressure is rising in Asia, strong local demand appreciation in should keep Malaysian inflation mildly positive. There is scope to cut rates if a global 2013 downturn emerges but a rate hike to curb local demand is just as likely in 2013. The M$ has stayed in a narrow 3.0-3.2 range on the US$ since mid-2011, but will likely come under appreciation pressure on strong capital inflows once global growth stabilises.

2009 2010 2011 2012 2013 GDP, real growth, % -1.5 7.2 5.1 4.0 3.2 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] 69

Regional Update September 2012

Philippines

Political & policy issues to watch

Pres. Aquino’s President Aquino has appointed Maria Lourdes Sereno as the new Chief Justice to replace anti-corruption Renato Corona (an Arroyo appointee), who was impeached for corruption last May. Justice drive pays off Sereno has a reputation for independence that should add momentum to Aquino’s anti- corruption campaign. Some of the cases the Sereno supreme court will address include … with a lift in the corruption trial of ex-President Arroyo, foreign ownership in local industries, and perceptions enforcement of contracts and mining regulations. She is also expected to reform and streamline court proceedings in an effort to reduce a huge backlog of cases. Aquino’s … and overdue sustained anti-corruption drive has kept his popularity high (approval ratings of over 70% in judicial reforms the last two years) and improved foreign perceptions of the market with the Philippines rising from 141st place in 2008 to 129th in the ranking by Transparency International.

Infrastructure Reviving long-delayed infrastructure work is another key objective. The government plans work is set to lift to spend some US$14.3bn on roads, bridges, ports, power plants, water systems and medical facilities over 2011-16. 21 projects, worth US$4.5bn, have been offered to private investors. So far only one project, a US$46m toll road, has been awarded and another three projects, worth US$2bn, are being tendered. A US$625m infrastructure fund run by Australia’s Macquarie Bank plans to invest US$50-125m at a time in five to ten projects.

A surging real The lift in sentiment has spread to the real estate market, with residential loans up estate market 36.3%yoy in Q1’12, accompanied by surging home prices (up 28%yoy in March at Fort Bonifacio) and a jump in condominium construction. Concerned about the emergence of a … that may need real estate bubble, the central bank ordered banks to report more details on their property curbing exposure, which is capped at 20% of total lending. After reviewing the information, the central bank will decide whether to implement curbs on property lending.

Outlook for the market

Broad-based GDP GDP growth eased to 5.9%yoy in Q2’12 from 6.3%yoy in Q1’12, as a strong pick up in growth led by fixed investment (to 8.5%yoy from 3.9%yoy) lifted import growth to 4.4%yoy from -3.2%yoy investment in Q1 on the GDP measure of real or volume growth. Private consumption, accounting for a large 70% of GDP, accelerated to 5.7%yoy growth in Q2 from 5.1%yoy in Q1, while government consumption slowed to 5.9%yoy from an unsustainably fast 20.9%yoy surge in Q1. Real growth in exports eased to 8.3%yoy from 10.9%yoy but this is still remarkably good given weak global demand. The pace of imports is expected to accelerate in line with expanding fixed investment, resulting in slower GDP growth in 2H’12. We maintain our GDP growth forecast of 4.8% in 2012 and 5.8% in 2013.

The prospect of Remittances from 9.5m Filipinos working overseas account for 10% of GDP and play a better jobs at crucial role in private consumption, housing activity, the balance of payments, and the home strength of the Peso. Remittances growth peaked at 25% in 2005 before dropping to 7.2% in 2011 and 5.2%ytd by July 2012. It may slow further if President Aquino succeeds in creating a more business-friendly environment with more, and better paying, jobs. There is anecdotal evidence that skilled Filipinos are opting for local employment in the fast- expanding business process outsourcing industry, construction, and tourism.

Inflation edges up Inflation has been edging up in the last few months, reaching 3.8%yoy in August from a recent low of 2.6%yoy in March, prompting the central bank to lift its CPI forecast to 3.4% … + steps to for 2012 and 4.1% in 2013. The central bank has also halted its monetary easing after slow the Peso’s cutting its policy interest rate to 5.75% in July from a December 2011 peak of 6.5%. The rise next rate move may well be up. Positive investor sentiment lifted the Peso to a 4-year high in mid-September (41.3 on the US$). Worried about the Peso’s strength, the central bank has been intervening in the currency market to slow down its ascent.

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] 70

Regional Update September 2012

Singapore

Political & policy issues to watch

Singapore’s The latest IMF (Article IV Consultation) report on Singapore notes that its economy is straining macro experiencing slow growth (driven by weak exports and investment), historically low story unemployment (2.8% in Q2’12), and relatively high inflation (4.9%ytd in July 2012). The IMF argues that Singapore should temporarily tolerate elevated inflation stemming from a … the IMF says tight labour market, but directly intervene to tackle other sources of overheating such as build a bit slower real estate prices, transport costs, and credit growth (20%yoy in July). The labour market may get tighter, partly on the government’s attempt to reduce its controversially high intake of foreign workers, a move that the IMF expects to help raise productivity over the longer term. The economy relies heavily on foreign workers (30% of the total labour force or 40% if permanent resident visa holders are included). High inward migration has put pressure on social services and contributed to increased income inequality by intensifying competition for low-skilled jobs among locals and foreign workers.

Rock solid Reviewing Singapore’s macro-economic risks, the IMF finds that household and corporate balance sheets for balance sheets are robust. Household debt ratios to assets and GDP have risen in recent everyone years, but remain low at 15.3% and 70% respectively, underpinned by elevated housing wealth and large mandatory contributions to the country’s pension scheme. The leverage ratio of publicly-listed corporate balance sheets is also low at 30%. Moreover, the IMF finds that Singapore’s financial sector remains resilient against frequent episodes of high global volatility, thanks to its high capital adequacy and earnings ratios. The financial sector contributes a large 12% to annual GDP and its assets are 7 times the size of GDP.

The need to be A recent survey named Singapore the preferred place to work for British investment more than a life- bankers, ahead of New York, London, Hong Kong, and Dubai. This is partly due to the city- boat for global state’s low taxes. However, PM Lee Hsien Loong warns that that tax rates may have to be bankers lifted over the next two decades to support increased social spending on a fast-aging population and on measures to boost the country’s declining birth rate (1.2 children per woman). To ease widespread concern about fast inward migration, the PM announced the establishment of two new universities, more public housing, and a S$60bn (US$48.2bn) extension of the subway system over the next 10 years.

Outlook for the market

Letting growth Even without the IMF’s mild commentary Singapore’s government is aware that parts of its slow to address economy have been overheating, and it is has allowed the global slowdown to cool areas overheating such as residential real estate and the labour market. GDP growth eased to 1.7%yoy in 1H’12 from 4.9% for full 2011, as government consumption fell 3%yoy, government construction spending was flat, and monetary policy remained tight. We expect GDP of 2% in 2012 and 3.5% in 2013. If the current growth slowdown threatens to turn into a recession, we expect the government to deploy its considerable fiscal resources through accelerated construction and incentives to firms to retain staff, as it did during the GFC.

Broad based Singapore’s low unemployment rate masks widespread weakness in many areas. weakness has Excluding cars, retail sales growth slowed to 1.9%yoy in Q2’12 from 9.6%yoy in Q2’11, as emerged tourist arrivals dipped to 8.8%yoy for April-May, after posting double-digit growth from January 2010. Forward-looking construction indicators such as contracts awarded (12- month rolling sum, both private and public) fell 8.7%yoy in July. Forward-looking manufacturing indicators such as the new orders component of the Purchasing Managers Index fell to 48.1 in August from 49.6 in July, after staying in the over-50 expansion territory for five months. Financial conditions are also worsening, despite record low interest rates. Led by the retail sector, a Dun & Bradstreet measure of prompt payment by companies fell to a record low of 37.3% in Q2’12, as only seven out of every 20 bills were paid on time.

Falling inflation & CPI inflation eased to 4%yoy in July after staying above 5%yoy for most of the previous 18 a weaker S$ months and we expect it to slide over the next year given regional deflationary trends. The MAS may allow a mildly weaker S$ under these circumstances to sustain local demand.

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 1.27 1.24 Sources: 2008-2011 government data and CEIC; forecasts for 2012-2013 by IMA Asia. 71

Regional Update September 2012

Thailand

Political & policy issues to watch

A slight drop in Political risk has eased after PM Yingluck’s government dropped plans to redraft the 2008 political risk Constitution and introduce national reconciliation legislation that may have allowed ex-PM Thaksin to return to Thailand and reclaim some US$1.5 bn of his court-confiscated assets. … but no It seems that Thaksin and his opponents in the army and the elite have yet to reach a resolution of compromise. This leaves Thaksin running the government from abroad, providing input in underlying all key policy decisions, including the current highly contentious round of top military tensions appointments. However, PM Yingluck, his younger sister, has cultivated an image of relative impartiality, which has helped her navigate Thailand’s difficult political terrain. Her growing independence was hinted at by a recent rift between her chief adviser, Pansak Vinyarat (who is close to Thaksin), and finance minister and deputy PM, Kittiratt Na- Ranong, in which she backed Kittiratt.

Thailand’s big Thailand aims to build a major port and industrial zone at Dawei, on Myanmar’s southern plans for coast, despite the sudden withdrawal of a key Myanmar partner. The deep sea port would Myanmar allow ships to bypass the congested Straits of Malacca, greatly shortening Asian shipping routes. The hugely ambitious project will cover 204 sq km at an estimated cost of US$50bn, of which US$1.1bn has been committed by Thailand on infrastructure links. However, funding the project from private sources could be a challenge and cause delays, despite the prospect of Japanese participation.

Thai companies With a strong local economy behind them, Thai companies are moving abroad and have are moving spent US$21bn on overseas assets since early-2008, compared to only US$1.5bn in 2003- offshore 07, according to Bloomberg. The latest example is the high profile bid by Thai Beverage for a 22% stake in Singapore-based Fraser & Neave (producer of Tiger Beer) for US$2.2bn, while PTT Exploration is in the process of acquiring a US$1.9bn controlling stake in UK-listed Cove Energy Plc.

Outlook for the market

Strong growth Strong local demand should lift GDP growth to 3.7% in 2012 and 4.4% in 2013, from 0.1% based on local in 2011, despite the weak external position. Exports fell 0.4%ytd over the first seven demand months while imports rose 10.5%ytd on the back of robust consumer and investment spending. A fast rising trade deficit (US$20.4bn for the 12 months to July from a surplus of US$9.7bn for the 12 months to July 2011) is set to get bigger, which will lift country risk and may force the Bank of Thailand to hike interest rates to cool growth in 2013 or face a credit rating downgrade.

A surge in fixed Investment spending, most of it construction-related, will be the main driver of growth in investment 2012-13. There is a large pipeline of infrastructure and housing projects, as well as foreign direct investment (FDI). In July, the value of FDI approvals was up 87%yoy and FDI … with strong applications soared 502%yoy. We expect real investment spending to grow 11% in 2012 foreign support and 8.8% in 2013. A tight labour market and a raft of populist government measures, such as a costly rice price support scheme, are boosting household budgets and consumption. We expect real private consumption growth of 4.3% in 2013 and 4.0% in 2013.

A battle over The Bank of Thailand (BOT) is resisting intense government pressure to ease monetary monetary policy policy, even though inflation slowed to 2.7%yoy in August from 4.3%yoy a year earlier. The BOT trimmed its GDP forecast for 2012 to 5.7%, but is concerned about the inflationary … with rates to potential of some government policies and the tight labour market. The policy interest rate rise in 2013 is likely to stay at 3% to end 2012 but rise by as much as 100 basis points through 2013. The Baht is in the middle of a 12-month long range of 29.6-31.8 against the US$, waiting for clear direction from a resumption of global growth.

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 2.5 3.0 Central bank, policy rate, year end, % 1.25 2.00 3.25 3.00 4.00 Baht to US$1, year average 34.3 31.7 30.5 31.5 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] 72

Regional Update September 2012

Vietnam

Political & policy issues to watch

A battle in the The arrest of millionaire Nguyen Duc Kien, founder of Asia Commercial Bank and Communist Party shareholder in some of Vietnam's largest financial firms, exposes a growing rift at the top of over economic the Communist Party. Kien, who is close to PM Nguyen Tan Dung, has been accused of policy economic crimes and PM Dung has come under thinly disguised criticism from his political rival, Vietnam’s President Truong Tan Sang, in a newspaper article. Sang criticised the … as SOEs damage done to the economy by corrupt and inefficient state-owned enterprises (SOEs), flounder which had been championed by Dung. Moreover, the Communist Party recently took control of the anti-corruption steering committee away from the PM. The intra-party rivalry reflects a painful downward adjustment in the economy. We don’t expect this rivalry to pose near-term risks and it may even speed up market-oriented reforms as the rival factions compete over solutions to structural problems.

A policy swing to The central bank has slashed its policy rate to 10% from a February peak of 15%, while expansion fiscal policy has turned expansionary, with public spending rising much faster than revenue (19%ytd versus 1.7%ytd) by August. Despite the policy easing, credit growth has been … is hobbled by stagnant, far below the official target of 8%. Burdened by rising bad loans, Vietnam’s bad loans at fragile banking sector stands in the way of a recovery in domestic demand. Official figures banks put non-performing loans (NPLs) at 4.5% of total loans in May, but private estimates are as high as 20%. Government efforts to consolidate the banking sector have yet to show … is it time for results, prompting a parliamentary committee to suggest that Vietnam should seek IMF aid IMF help? to restructure its banks. The committee estimates that the financial system needs a capital injection of Dong 250-300tr (US$12bn). The central bank disputes the need for IMF funding. It also wants to halt rate cuts so that rising inflation and a bigger trade deficit don’t quickly return.

Outlook for the market

Exports kept the A fall in GDP growth to 4.4%yoy in 2H’12 from 6.1%yoy in 2H’11 masks a much steeper economy growing drop in local demand, driven by a property bust (real estate price fell as much as 50% in in 1H’12 some areas) and a construction-led decline in fixed investment. GDP growth stayed positive thanks to a strong export expansion that outpaced imports and delivered a … but will slow massive reduction of the 12-month rolling trade deficit to US$2.5bn in August from a from 2H’12 March 2010 peak of US$17.3bn. However, the growth gap between exports and imports has been closing in recent months, with export growth easing to 6%yoy in August from 34%yoy in May. If weaker exports are not offset by a local demand lift, we may trim our current GDP growth forecasts of 4.8% in 2012 and 6% in 2013.

A fast-growing Vietnam’s exports are a good mix of low cost manufactured goods and commodities, such electronics sector as crude oil, rice, and coffee. As a result, its exports have outperformed those of most other Asian countries this year. A weak exchange rate and the start-up of new foreign- … with a brief owned electronics factories have helped (electronics exports surged 99.3%ytd, helping to pause in FDI lift total exports 20.2%ytd in August). The inflow of foreign direct investment (FDI) has inflows paused as recent investors grapple with a poor operating environment and the wild boom and bust ride in local demand. FDI inflows should recover once policy directions are clarified and local demand stabilises, as the country’s fundamental market and export manufacturing attractions remain strong.

Inflation returns to Signs of political strife and ongoing banking woes drove the Ho Chi Minh stock market acceptable levels index down 20.5% from its early-May high. The Dong, however, has stayed firm (up 1% from end-December) and remarkably close to the official reference rate of 20,828 on the … supporting a US$. The Dong continues to benefit from a major rebalancing of the economy, with steady Dong inflation dropping to 5%yoy in August from 23%yoy in August 2011. If exports enter a major downturn, we expect the government would quickly move to weaken the Dong. However, at present a mild appreciation is more likely once FDI inflows pick up next year.

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 9.5 6.0 Central bank refinancing rate, year end, % 8.00 9.00 15.00 8.00 6.50 Dong to US$1, year average 17,860 19,151 20,511 20,900 21,200 Source: 2008-2011 data from the IMF and CEIC; 2012-2013 forecasts by IMA Asia.

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Regional Update September 2012

India

Political & policy issues to watch

India promises to Faced with a downgrade to junk status for its paper, India’s government, led by PM Singh, reform has scrambled to introduce reforms that may, if implemented, stave off a loss in investment grade status. The reforms include relaxing the foreign direct investment (FDI) caps in … as its bonds retail, aviation, and power trading, and reducing the subsidy on diesel and LPG. Petroleum are threatened subsidies have reached threatening proportions and the recent cuts do just enough to buy with junk status the government more time. The fiscal deficit is still too high for the Reserve Bank of India (RBI) to start monetary easing, so the following 25 basis point (bp) cut in the cash reserve … & the reforms ratio (CRR) was simply a bit of encouragement for further fiscal reform. Plans have also look promising been announced for a National Investment Board, which would be chaired by the PM and would provide single window clearance for projects over Rs10bn (US$180m). Such projects would no longer be subject to departmental and ministerial bottlenecks. In the coming weeks, the government may relax its stringent policy on external commercial borrowings, which would make financing easier for firms.

PM Singh aims to In the latest IMA India paper Adit Jain notes a shift in political strategy behind the reforms. shift the policy Recent policy battles have centred on issues that concern the states – the GST, the new battle with the land acquisition and mining laws, education reforms, and FDI in retail. The states have states often stalled the decisions while blaming Delhi for being high handed. September’s reforms are indeed high handed, and they put the onus on the state governments for … & particularly implementation. States can, for populist or ideological reasons, block enactment but they Ms Banerjee must then forego the benefits. If they oppose a cut in the fuel subsidy, they have the option of reducing their fuel sales tax and absorbing the loss on their own books. Whether this strategy works – and the reforms stick – will be tested over the next few weeks as the recalcitrant Mamata Banerjee, the West Bengal chief minister who heads the second largest party in PM Singh coalition government, launches a wave of anti-reform strikes.

Outlook for the market

Without reforms In our Q3 Asia Forecast Book we slashed India’s growth rate for calendar year 2012 to India faces sub- 4.5% (previously 5.3%) and to 5.9% for 2013 (from 6.3% last month) as the latest data 5% growth shows that investment growth has stopped, consumers are weakening, manufacturing is contracting, agriculture is slowing, and business sentiment has collapsed. We had not … our awfully expected to forecast such low growth rates for India this decade and our forecasts remain low forecast may well below the consensus and government. But it must also be noted that most of the be raised problems could ease within a 24 month economic cycle if appropriate steps are taken on fiscal and structural reforms. The underlying strength in India, which comes from consumers and the battle by firms to grow their businesses, remains undiminished. If the latest reform package sticks, we look forward to raising our forecast.

A weak monsoon Agriculture remains crucial to the economy and the 12% deficiency in rainfall for the current doesn’t help monsoon threatens rural growth. Against an average of 85.4m hectares usually sowed by early August, only 80.2m has been planted this year. A drop in farm output would not only cut rural spending but also stoke food inflation.

Stubborn inflation India’s benchmark wholesale-price index (WPI) has been above the RBI’s 5% comfort level halts rates cuts since December 2009, leading to high interest rates and reduced growth. With August inflation edging up to 7.55% and a 14% lift in diesel prices planned, there’s little scope for … the rupee is significant rate cuts that would bring a lift in private sector demand. The reforms should helped by auto- help improve market sentiment towards the rupee by slowing capital outflows. Weak stabilisers demand growth has also halted growth in the trade deficit, which is the sort of automatic correction needed to prevent a further slide in the rupee after its recent 20%yoy fall.

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] 74

Regional Update September 2012

Australia

Political & policy issues to watch

Labor lifts in the PM Julia Gillard’s fortunes have improved since July, with Labor’s two-party preferred vote opinion polls climbing to 47% in August from 42%. Labor says that voters are adjusting to the carbon tax, which was introduced on July 1, and enjoying the compensation measures. Better poll … giving it a numbers will cool a leadership challenge from ex-PM Kevin Rudd and give Labor a slight slim chance of chance of winning the next election, which must be called within 15 months. Labor’s rising winning in 2013 poll numbers also take off the table a possible early election, which Labor would lose but in doing so would have kept control of the senate by dodging a half-senate election. This would condemn an incoming Coalition government to battling with an obstructionist upper house in 2013, which might well force a second election within a year.

Watch for more The prospect of a return to a conservative Coalition government with more restrictions on strikes unions has triggered a rash of strikes as unions seek to win concessions that might not be possible after the next election. Little fiscal stimulus is likely over the next year despite the … but no fiscal approaching election, as Labor wants to avoid being labelled as fiscally irresponsible. If stimulus the global downturn gets worse the government, which is one of the few AAA sovereigns left, has scope to cushion the downturn.

Outlook for the market

A mild slowdown A mild slowdown from 3.7%yoy growth in Q2’12 is expected over the next four quarters due in most sectors to weak growth in exports and consumer sentiment. Export growth slowed to 0.4%yoy for into 2013 the three months to July from 13% for full 2011, primarily due to falling commodity prices. For 2012 as a whole we expect 1% growth rising to 2% on a weak global recovery in 2013. … except for The main impetus to growth at present comes from a surge in investment in mining and soaring capex in related infrastructure, with engineering construction work rising 31%yoy to A$30bn in Q2. resources The sheer scale of the investment in mining that is underway will keep GDP growth around 3% or better through 2013.

Still stuck with a There’s little sign of the gap in Australia’s 2-speed economy closing over the next 18 2-speed economy months. Mining investment and exports will keep the resource rich states of Western Australia, Queensland, and the Northern Territory growing at 10%+ while the more populous states on the east coast are stuck with real growth of 2%yoy. The trend for retail sales is about the same, with growth on the east coast at 2%yoy while the mining states see retail sales growth of 6-8% on rising income and some internal migration.

China’s slowdown China’s slowdown has seen a host of proposed mining projects shelved and at least one of cuts future capex the big iron ore miners may be overleveraged in a falling market and in trouble. Despite this, most of the A$400bn in projects currently underway are expected to continue.

Housing stays in After a steady fall for five quarters, housing investment briefly perked up in May and June neutral as interest rate cuts improved affordability. The recovery is soft at best, with July seeing a 9%yoy fall in approvals. This year will likely see some 140,000 residential approvals in 2012, down from 147,700 in 2011, with a weak recovery to 145,000 units in 2013.

Little inflation with Inflation fell to 1.2%yoy in Q2’12 from 1.6%yoy in Q1 and is now below the central bank’s scope for a small 2-3% target range. With a strong $A and weak global demand keeping inflation down, rate cut there is scope for a 50 basis point reduction in the central bank’s policy rate by mid-2013. The A$ has moved within a band of 97 to 110 US cents over the last two years as global … a volatile A$ speculators have shifted their bets on China, commodity prices, interest rate differentials, in a broad band and even quantitative easing (Australia’s RBA has not done any, so some speculators see the A$ as inherently stronger). The only sensible forecast is for continued volatility within the existing, rather broad, 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]

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Regional Update September 2012

New Zealand

Political & policy issues to watch

Political stability PM John Key of the National Party is in the first year of his second 3-year term. He leads a under PM Key minority government with a 4-seat margin based on support from the Maori Party (3 seats), and the United Future and ACT parties (1 each). Key’s big policy goal for term two is a … but moving NZ$10bn partial privatisation of four energy/coal companies and Air New Zealand. slowly on policy However, a Maori-rights claim (and general Maori Party concern) will delay the privatisation like privatisation process until mid-2013, which means only a couple of sales may be completed before the 2014 elections. Key has had better success in navigating some tricky social policies that might have lost him support, such as gay marriage and the drinking age.

A drive for export The government has released its long-term trade agenda with the goal of lifting exports to competitiveness 40% of GDP by 2025 from 33% in 2012, which implies real growth of 6% or better for 15 years. As under prior Labour governments, Key will give priority to improving export market access through new free trade agreements. It also implies a strong focus on boosting the efficiency and competitiveness of local industries, particularly those that draw on NZ’s advantages in agriculture and forestry.

Credit market As a small, open economy, New Zealand is exposed if financial markets freeze. Its net risks overseas debt of 124% of GDP would attract higher borrowing costs. Net government debt, at 12% of GDP, is low, allowing NZ to retain an AA rating with stable outlook with S&P and a moderate 10-year bond yield of 3.36%.

Outlook for the market

Low growth NZ is set for mild, uneven growth over the next 18 months. The consumer sector is soft, supported by with credit card spending rising 3.1%ytd for the seven months to July, down from 5.4% construction & growth in full 2011. Non-agricultural trade has been dragged down by the Euro crisis, and agriculture is expected to remain weak through 2013. However, strong growth in the construction and agricultural export sectors should provide a floor for GDP growth of 1.6% in 2012 and 2% in 2013, which is slightly down from the 2.2% rate set over the decade to 2011.

A construction lift Real growth in construction should lift to 2% in 2012 and 8% in 2013. Earthquake in Canterbury & reconstruction is expected to pick up in the coming months as insurance payouts and Auckland building approvals have accelerated. Between May and July 2012, $196m of construction projects in Canterbury were approved, 66% above the 10-year average, with non- residential building leading the surge. Auckland building consents also rose 24%yoy for the three months to July thanks to steady population growth and rising prices.

A boost for some Total exports grew 3%yoy for the three months to July, down from 12% growth in 2011. rural exports However, the slowdown has not affected all sectors. The US drought has lifted demand for NZ dairy by 11%yoy and fruit products have risen 9%yoy. Other exports, hampered by the high NZ$, are flat. Agricultural trade is expected to keep merchandise exports from declining in 2012 and underpin a weak lift to 4% export growth in 2013.

Little inflation and Despite the weak external environment, the NZ$ has remained strong, trading above 80 US record low cents. While public calls to depreciate the currency have increased, they have been interest rates ignored. It is doubtful whether the Reserve Bank of NZ (RBNZ) could sustain an effective depreciation in what is a widely traded currency. While our main forecast is for the NZ$ to … with a mostly remain at around 80 US cents through to the end of 2013, volatility is possible if a Euro stable NZ$ crisis escalates. Given the weak growth outlook, both domestic and overseas, the RBNZ is not expected to lift its policy interest rate from its current record low of 2.50% through 2013, which will keep the 90-day bank bill close to 2.70%. Inflation for the June quarter was 1%yoy and is expected to rise into the middle of the RBNZ’s target band of 1-3% as local growth firms into 2013.

Calendar years 2009 2010 2011 2012 2013 GDP(Expenditure), real growth, % -0.2 0.9 0.3 1.6 2.0 GDP(Production), real growth, % -2.4 1.8 1.3 1.7 2.0 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 1.24 1.25 NZ$1 = A$. year average 1.28 1.28 1.32 1.28 1.29 Source: 2009-2011 data from Statistics NZ; 2012-2013 forecasts by IMA Asia. 76

Regional Update September 2012

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]

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