the month’s highlights 1

Political Stock market scales new highs The Philippine Stock Exchange index (PSEi) breached the 5,000 PAST DEVELOPMENTS mark for the fi rst time on March 2 and continued to rise, reaching a new all-time high of 5,031 three days later. (see story page on p14) 73% of Filipinos want CJ convicted Seven in 10 Filipinos want Chief Justice Renato Corona convicted PH prepays $1.5B debt even as the same number wants him to testify in his impeachment trial, results of the latest Social Weather Stations (SWS) survey The Philippines pre-paid $1.5 billion worth of foreign debt in revealed. (see story page on p7) 2011, lower than the $4.1 billion advanced retirement of debt the previous year. (see story page on p15) Graft, electoral sabotage cases against Gloria Arroyo advance, as plunder charge is dropped BSP further liberalizes forex rules Detained ex-President and now Pampanga Rep. Gloria Arroyo The Bangko Sentral ng Pilipinas (BSP) continued the foreign has been ordered arrested by the Sandiganbayan yesterday exchange liberalization program it started after the 2009 global in connection with the aborted $329-million national recession, raising the ceiling on dollars that can be purchased broadband network (NBN) deal with Chinese fi rm Zhong Xing without documentation and expanding the activities where Telecommunications Inc in 2007. (see story page on p8) dollars can be freely purchased without prior BSP approval in mid-March. (see story page on p15) Coup plot for real — Biazon, Trillanes FUTURE DEVELOPMENTS Muntinlupa City Rep. Rodolfo Biazon added to the swirling reports of a coup plot against President Aquino by saying “the recruitment (of soldiers) started 3 months ago”. Filipinos generally optimistic of prospects this year (see story page on p9) A survey conducted by the Social Weather Stations (SWS) on Dec. 3-7, 2011 showed that 37% of respondents expected their lives PAGCOR chief tagged in casino bribe row to improve (“optimists”) during the year while 8% expected no Casino operator Wynn Resorts has accused Japanese billionaire improvement (“pessimists”), for what SWS considered as “high” and gambling tycoon Kazuo Okada of putting up a Philippine a net optimism score of +29.This was almost unchanged from Amusement and Gaming Corp. (PAGCOR) offi cial in a $6,000-a-day +30 (39% optimists, 9% pessimists) in SWS’s September survey. suite in Macau as part of a series of payments that the company (see story page on p13) said appears to have violated US anti-bribery law. (see story page on p10) Another global bond fl oat planned The government is considering another global bond issuance, Military justifi es keeping troops in Hacienda Luisita either a dollar-denominated global bond fl oat or global peso The military has no plans to pull out troops from Hacienda notes (GPN), to complete is foreign commercial borrowing Luisita in Tarlac, which is owned by the family of President program for 2012. (see story page on p14) Aquino and is subject of a Supreme Court decision ordering the distribution of the large sugar estate to its farm workers, despite calls from various groups to recall soldiers from the Business area. (see story page on p11) PAST DEVELOPMENTS FUTURE DEVELOPMENTS BSP lowers credit risk for Agri-Agra lending Election body in a spot over poll machines The Bangko Sentral ng Pilipinas (BSP) issued a new circular on March 1 that compromises with banks on the provisions of Republic Act (RA) 10000 or “The Agri-Agra Reform Credit Act of The Senate committee on electoral reforms said it will require 2009”. The Agri-Agra law strictly prescribes the grant of loans the Commission on Elections to explain and justify its planned to activities which directly benefi ts the agriculture sector. The purchase of vote-counting machines for the midterm elections new circular lowers the credit risk carried by the lenders for in 2013. (see story page on p10) agricultural loans through the Agriculture Guarantee Fund Pool (AGFP). (see story page on p29) Economy WB: PH higher education “disconnected” PAST DEVELOPMENTS Higher education (HE) propels a country’s growth and development but a recent study by the World Bank showed Budget defi cit only 2/3 of ceiling in 2011 “disconnects” between what HE produces and what employers Despite the surge in spending in December that saw expenditures need in Southeast Asian countries. Employers in the Philippines, reach a record P101.5 billion or 43.2% higher than year-ago in particular, complain of 3-week long headhunting and level, the whole year budget defi cit of P197.75 billion in 2011 inadequate behavioral and technical skills of graduates. was well below the pre-set limit of P300 billion for the year. (see story page on p30) (see story page on p12)

Philippine Alert March 2012 2 the month’s highlights

FUTURE DEVELOPMENTS of technology entrepreneurship in the country, making available P500 million and more in seed funds to Filipino tech start-ups over the next 5 years. (see story page on p36) Lady luck grins on Asia as PH develops Entertainment City Manila Infrastructure Casino gaming is expected to boom in Asia. Presently, Asia’s casino gaming market is underserved so 4 frontier markets- FUTURE DEVELOPMENTS Cambodia, Vietnam, Sri Lanka and the Philippines are taking advantage of the situation. (see story page on p27) Davao – the main hub of Asean Port Connectivity Philippine Business Registry System being fi netuned The Association of Southeast Asian Nations (ASEAN) has grand The government expects to streamline business registration plans to connect all 11-member nations via a seamless logistics processes with the Philippine Business Registry System (PBRS). of hubs of seaports and airports by 2015. The connectivity The PBRS allows new and existing businesses to apply and validate master plan has the goal of facilitating trade of goods and business permits online from relevant government agencies travel within the region. (see story page on p49) all at once in as fast as 30 minutes. However, system updates and security modifi cations of the PBRS are still needed to fully Clark Airport Dev’t Finally Underway address the country’s lethargic performance in doing business. After years of discussing plans to expand Clark Airport, real (see story page on p31) progress can fi nally be reported. The expansion project of the existing terminal has been offi cially rolled-out with 5 interested Mining, Oil and Gas bidders vying for the P360-million contract. Award of the project is expected by April 2012 and completion slated by December Minerals now 2nd top PH export 2012 (we highly doubt this). (see story page on p50) Precious and industrial metals emerged as the second biggest Sec. Roxas mulls over co-existing NLEX-SLEX Link roads export products of the Philippines in 2011 behind electronic products. Minerals surpassed garments, now at 3rd spot. The Transportation Secretary Manuel Roxas II hinted at the possibility mining industry has been lamenting that if the uncertainties in of having 2 roads that would link the North Luzon Expressway the sector will be resolved, the country can surely benefi t aside (NLEX) with the South Luzon Expressway (SLEX) in the midst of from generating higher revenues from exports. a verbal sparring between toll road developers Metro Pacifi c (see story page on p33) Tollways Development Corporation (MPTDC) and Citra Metro Manila Tollways Corporation (Citra) over the tollway project. Higher taxes feared by mining fi rms Metro Pacifi c and Citra are insisting on the superiority of their respective proposals, while also arguing over project ownership. The mining industry expressed concerns that the new mining (see story page on p51) policy may have provisions that will further hurt the sector. The government has yet to release its mining policy after missing Gov’t taps private sector to address classroom backlog its original schedule of release last February. One of the major concerns of mining fi rms is the imposition of higher taxes. The Aquino administration is turning to the private sector (see story page on p33) to assist in efforts to address the long-standing problem of classroom shortage in the country. The government recently Gov’t welcomes more investments for new bioethanol unveiled to the business community the 1st phase of the distilleries Public-Private Partnership for School Infrastructure Program (PSIP), which is a 3-phased social infrastructure program for The Department of Energy (DOE) is encouraging more investors the construction of public school classrooms nationwide. to build bioethanol facilities in the country amid shortage of (see story page on p52) locally produced ethanol. Last year, the government has started implementing the mandated 10% ethanol blend by volume in all gasoline fuel distributed and sold by every oil company in CongressWatch the country. (see story page on p34)

rd IT Update Senate approves Data Privacy Bill on 3 reading The Senate has approved on 3rd and fi nal reading the Data Privacy DOST’s vision of Filipinnovation gaining traction… Act. The measure seeks to protect consumers’ personal data, promote trust and user confi dence in electronic commerce, The Department of Science and Technology’s (DOST) national and enhance the competitiveness of the local business process innovation strategy, dubbed Filipinnovation, is gaining traction, outsourcing (BPO) industry. (see story page on p55) especially its thrust of supporting business incubation and acceleration efforts. In recent years, the Philippines has President Aquino signs Universal Kindergarten Act developed a track record of venture capital (VC) activities. The year 2012 will see more high-impact VC-related events spread President Aquino has signed into law the Universal Kindergarten over the archipelago. (see story page on p35) Act (Republic Act 10157) which will institutionalize kindergarten education into the Basic Education System. The enactment of the …as PLDT, Globe commit their own venture capital programs law is seen to strengthen the country’s basic education program and help the government with its Millennium Development Goal Early in 2012, telco giants PLDT and Globe Telecom formally of achieving universal primary education by 2015. committed to their own local venture capital programs. This (see story page on p56) development is expected to provide a major boost to the growth Philippine Alert March 2012 CORPORATE BRIEFS 3

WORD FOR WORD

“If they start making abusive statements against the Chief Justice, I will immediately resign as presiding judge.”

Senate President Juan Ponce Enrile saying he would put at stake his position as presiding judge of the impeachment court should any of the senator judges or the members of the House prosecution panel make acerbic remarks that would disrespect Chief Justice Renato Corona if the defense panel decides to present him as a witness.

“Clearly, PDAF are funds for lawmakers, not for the Offi ce of the President. It cannot be abused and used to punish those critical of the Aquino government because of its lapses, miscues and lack of direction and performance.”

House Minority Leader and Zambales Rep. Milagros Magsaysay on the Aquino administration’s control over the Priority Development Assistance Funds or “pork barrel funds”.

“Our nation is now in grave peril of teetering towards a one-man rule where executive action aims to shackle judicial independence, undermine the rule of law, and erode the system of governance particularly the principle of the mechanism of checks and balances.”

Chief Justice Renato Corona on the acts of the Executive and the Legislative branches in colluding to undermine the Judiciary.

“He might well be hallucinating.”

Mr. Satur Ocampo, co-founder of the National Democratic Front, the umbrella group of communist organizations, on President Aquino, who said that Communist Party of the Philippines founder Jose Maria Sison, who is in self- imposed exile in The Netherlands, could run in the 2013 elections.

Philippine Alert March 2012 4 COMMENTARYCOMMENTARYCOMMENTARYCOMMENTARY

hen one looks at the opulence and extravagance of spending of casinos to lure gamblers, one has to wonder what goes on in the mind of a gambler. Where does he think the $15-billion investment in a Wmassive gambling complex on the Bay will come from (see related story in the Business section)? From him, of course. Whatever the odds in a game of chance, the house beats those odds. Losers far outnumber winners. If your business had so many losers (customers who are dissatisfi ed), you’d be out of business in no time.

Be that as it may, the numbers that gambling brings to the Philippines are quite impressive. Annual revenues of $11.5 billion represent 5% of the country’s GDP. Best of all, the bulk of it will be in dollars, with more spent on services outside the gaming halls as the gamblers eat and party elsewhere. The tourism industry certainly benefi ts.

Philippine Alert March 2012 SPECIAL REPORT 5

Look into a mirror

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

I’m going to do something I don’t usually do in my column. I’m going to defend an individual. That individual is 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.

Mindanaons 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 fi ll 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 suffi cient water level something Almendras certainly has no control over.

So hydro power, which supplies 56 percent 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 March 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 fl ock to Mindanao to build factories, to develop plantations, to open offi ces 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 March 2012 POLITICAL 7

73% of Filipinos want CJ convicted Seven in 10 Filipinos want Chief Justice Renato Corona convicted even as the same number wants him to testify in his impeachment trial, results of the latest Social Weather Stations (SWS) survey revealed.

he SWS poll, conducted from March 10 to 13, found that 73% of Filipinos prefer a conviction at this stage of the trial, while T25% said they wanted a “not guilty” verdict. A similar 73% of respondents want Mr. Corona to personally testify in his own impeachment trial to disprove the charges fi led against him, while 26% said otherwise. The survey also showed that a majority or 67% of the respondents would accept any verdict that the Senate, sitting as an impeachment court, will hand down on the complaint fi led against the chief magistrate, while only 9% said “no”. Half of the Filipinos (51%) were satisfi ed with the way the impeachment trial has proceeded, while 20% were dissatisfi ed, for a “good” net rating of +31. The survey research firm noted that satisfaction was “moderate” in balance Luzon, the Visayas, and among non-high school graduates. The nationwide poll found respondents “neither trusting nor distrusting the Senate to make a fair decision,” urged and presented evidence to the court showing that Mr. which it said indicated public anxiety about the outcome. Corona owned only a total of 5 properties (6 titles) out of the 45 In related developments, a defense witness on March 15 alleged properties. Initially, the prosecution accused Mr. Corona attested to Mr. Corona’s declaration of entries on real estate of owning 45 properties, but only established ownership for 21 properties in his statement of assets, liabilities and net worth of these (see table). The defense argued that many properties in (SALn). Engineer Roberto Villaluz, who is the offi cer-in-charge the prosecution’s list are not owned by Mr. Corona as these are of the Taguig City assessor’s offi ce, brought documentary either now owned by his children or were sold to other parties. evidence to show that 2 properties—The Bellagio and Bonifacio Another witness for the defense belied Bureau of Internal Ridge condominium units—in the name of Mr. Corona, were Revenue (BIR) Commissioner Kim Henares’ earlier testimony. accurately included in his SALn, while the McKinley Hills Ms. Henares was the 1st witness presented by the prosecution property was in the name of his daughter, Charina Corona. The on the 6th day of the trial proceedings. Ms. Henares testifi ed defense said the 3rd property was not included in the SALn before the court that Mr. Corona did not fi le his income tax because it did not belong to the Chief Justice. The defense later returns (ITRs) from 2002 to 2005. Later on, however, Supreme

The poll indicated public anxiety about the outcome of the impeachment trial.

Philippine Alert March 2012 8 POLITICAL

CHIEF JUSTICE RENATO CORONA’S PROPERTIES PROSECUTION VS. DEFENSE

PROPERTIES ALLEGED BY THE PROSECUTION NUMBER OF TITLES ARGUMENT BY THE DEFENSE The Bellagio condominium unit 1 Disclosed in 2010 SALn The Bellagio parking lots 3 Excluded in the count Bonifacio Ridge condominium unit 1 Disclosed in 2010 SALn McKinley Hills lot 1 Belongs to daughter, Charina Corona Marikina lot 7 Belongs to Mr. Corona’s cousin Demetrio Vicente The Columns condominium unit 1 Disclosed in 2010 SALn Xavierville subdivision property 2 Disclosed in 2010 SALn Cubao property 1 Belongs to daughter Carla Castillo and her husband Constantino Castillo Kalayaan Ave., Quezon City property 1 Belongs to daughter Carla Castillo and her husband Constantino Castillo La Vista property 1 Belongs to daughter Carla Castillo and her husband Constantino Castillo One Burgundy Plaza condominium unit 1 Disclosed in 2010 SALn Ayala Heights property 1 Sold to Rivera couple Source: Various news articles Court judicial staff offi cer for cash collection and fi scal division Graft, electoral sabotage cases against Gloria Araceli Bayuga told the court that she herself brought before the Arroyo advance, as plunder charge is dropped BIR the so-called “alpha list” of the judiciary for submission, adding that the chief magistrate received over P21.6 million in Detained former President and now Pampanga Rep. Gloria salaries and benefi ts since the time he was appointed associate Arroyo has been ordered arrested by the Sandiganbayan justice in 2002. The matter is in relation to the prosecution’s anti-graft court on March 13 in connection with the aborted charges in the Articles of Impeachment under Article 2, stating $329-million national broadband network (NBN) deal with that Mr. Corona allegedly “failed to disclose to the public his statement of assets, liabilities and net worth (SALn) as as Chinese fi rm ZTE Corp. Meanwhile, the embattled offi cial required under Sec. 17, Article XI of the 1987 Constitution.” pleads not guilty to electoral sabotage before a Pasay City Unless they are deliberately obfuscating information, public court, as the Ombudsman clears her of plunder over the offi cials who are required to declare their assets should want to sale on an Iloilo airport. know the proper way of preparing their statements of assets, liabilities and net worth. “SALn” has become a household Included in the arrest order issued by the anti-graft court acronym amid the ongoing impeachment trial of Mr. Corona. He is were her husband Jose Miguel, former Commission on Elections accused, among other things, of failure to declare his SALn during chairman Benjamin Abalos and former Transportation and certain years, and then undervaluing assets or omitting certain Communications Secretary Leandro Mendoza. The arrest crucial information from the statements that he fi led. A chief justice order stems from graft charges fi led against them by the Offi ce is expected to know the rules in fi ling the SALn. Other government of the Ombudsman in December last year, for allegedly using offi cials may not be as knowledgeable. They could benefi t from their positions in government to push through the $329-million an information campaign on the SALn, which the Civil Service NBN project in 2007 as proposed by China’s ZTE. Informed Commission is reportedly planning to conduct nationwide. about the arrest warrant, Mr. Ferdinand Topacio, the Arroyo Offi cials should be informed, for example, about the proper couple’s counsel, hurriedly went to the Sandiganbayan offi ce way of assessing market value, and where to obtain accurate and posted bail for the former First Gentleman. In an Urgent information for reliable valuation. This should go hand in hand Omnibus Motion fi led by one of his lawyers in March 9, Mr. with a congressional fi ne-tuning of the laws governing the public Arroyo said there was no basis to indict him and his co-accused disclosure of SALns. One area of focus could be the system of as the NBN-ZTE contract was rescinded and the project never monitoring compliance with the requirement to fi le the SALn, took off. He and Mr. Mendoza then argued that the case fi led and verifying the accuracy of the declaration. Requiring the against them was based on a non-existent contract. The deal with disclosure of assets is useless if the disclosure cannot be verifi ed. ZTE Corp. was cancelled in 2008 by then Pres. Arroyo after a This entails the assignment of personnel dedicated to the task, Senate probe revealed that the deal was overpriced and offi cials with the expertise to detect fraudulent asset declaration. Along were given kickbacks. The former President is currently under this line, linkages could be set up between the BIR and the hospital arrest for charges of electoral sabotage at the Veterans bodies that are tasked to receive SALns to facilitate verifi cation. Memorial Hospital, while Mr. Abalos is detained at the Southern There are crooks in government who deliberately lie in their Police District (SPD) for separate election sabotage charges. SALns, but there are also honest public servants who fi le inaccurate Several years after a congressional inquiry on the broadband declarations simply because they don’t know what information is deal with ZTE Corp. was stalled by the invocation of executive expected of them. Ignorance of the law, however, excuses no one. privilege, the prosecution of graft cases in connection with this fi nally appears to be moving along with the arrest order

The Aquino administration should make sure that its avowed push for transparency does not make exceptions.

Philippine Alert March 2012 POLITICAL 9 for Ms. Arroyo and her alleged accomplices. Apart from Coup plot for real — Biazon, Trillanes presenting a strong case and ensuring that those who might have personally benefi ted from the deal are held accountable, Muntinlupa City Rep. Rodolfo Biazon added to the swirling the government must put in place measures to prevent a repeat reports of a coup plot against President Aquino by saying of similar questionable transactions. Laws have since been “the recruitment (of soldiers) started 3 months ago”. passed to promote transparency in government procurement. The administration of “daang matuwid” (straight path) should Rep. Biazon, a retired 4-star general and former Chief coordinate with the Commission on Audit in preventing a way of Staff, former head of the Marines, and former senator, of going around procurement laws. The administration should supported Senator Antonio Trillanes IV’s statement on March also take another look at the rules governing projects fi nanced 5 that the plotters were using the “red scare” to recruit troops. with foreign assistance. China, whose huge soft loan facility A former naval offi cer, Sen. Trillanes led an aborted coup for the Philippines has remained largely untapped as a result attempt against the Arroyo administration over corruption of the ZTE scandal, said that the incident has been a learning in the military. He was incarcerated for several years, won experience. It added that it is ready to play by fair Philippine a Senate seat from his jail cell, and was freed by the Aquino rules. The Aquino administration should draw up those rules, administration, after the charges against him were dropped. making sure that its avowed push for transparency does not Rep. Biazon identifi ed the plotters as the “allies of former make exceptions when it comes to foreign-funded projects. President Gloria Macapagal-Arroyo in the Armed Forces who Meanwhile, citing lack of merit, the Offi ce of the Ombudsman had been charged with various graft cases.” But the critics of cleared Ms. Arroyo and 5 others of plunder over the sale and the Aquino Administration said there was “something fi shy” disposition of the Iloilo airport in 2007. In her resolution, about the coup plot, which they claim was intended to divert Ombudsman Conchita Carpio-Morales approved the resolution people’s attention from Pres. Aquino’s alleged ineptness in of the Offi ce of the Prosecutor General dated Jan. 20, 2011 addressing the rising prices and worsening poverty. On March dismissing the complaint for plunder fi led by Mr. Danilo 2, President Aquino said that unnamed parties were seeking Lihaylihay against Ms. Arroyo, and Messrs. Albert Romulo, to oust him as a result of his anti-corruption campaign. But Eduardo Ermita, Margarito Teves, John Philip Sevilla, and Malacañang later changed its position and tried to downplay Andrew Tan. The Ombudsman said Mr. Lihaylihay failed to allege the coup plot, which Presidential spokesman Edwin Lacierda or even present proof of the 2nd element of plunder, which is the described as mere “noise.” Mr. Lacierda further claimed acquisition of ill-gotten wealth. The law stipulates 3 elements of that the Palace is “not bothered by these coup rumors.” plunder: the offender is a public offi cer; that offender amassed, Since the 1986 People Power revolt, several presidents accumulated or acquired ill-gotten wealth through a combination have had to contend with rumors of brewing coups d’etat or series of overt or criminal acts; and the aggregate amount and, in some cases, actual coup attempts. Although or total value of the ill-gotten wealth is at least P50 million. unsuccessful, each coup attempt or mutiny created an image of Ms. Arroyo also later pleaded not guilty to the charges of instability that set back efforts to promote economic growth. electoral sabotage at her arraignment before a Pasay City court Today, coup rumors have resurfaced, as reported by retired on Feb. 23. Accompanied by her husband and 2 sons, Ms. Arroyo generals and military offi cers, like Messrs. Biazon and Trillanes. entered her plea before Judge Jesus Mupas of the Pasay City Agitators are purportedly exploiting resentment in the ranks Regional Trial Court Branch 112, signaling the start of a landmark over perceptions of strong communist infl uence in the Aquino trial. Ms. Arroyo waived the reading of the criminal information administration. The rumors have surfaced alongside persistent with her lawyers explaining that she perfectly understood the reports, repeatedly denied by the concerned parties, that charges against her. Judge Mupas set the pre-trial on April 19. Communist Party of the Philippines founding chairman Jose Ma. Ms. Arroyo is accused of ordering then Maguindanao Gov. Andal Sison, who has lived for many years in exile in the Netherlands, Ampatuan and former elections supervisor Lintang Bedol to ensure was returning to the Philippine to join the Aquino administration. the “12-0” win of her party’s senatorial candidates in the province By all indications, however, the Armed Forces of the in the 2007 national elections. Messrs. Ampatuan and Bedol are Philippines (AFP) has outgrown its coup plotting days and is also charged in the case. If convicted, all 3 face life imprisonment. on the road to becoming a professional military. If the reported resentment within the ranks against perceived left-leaning policies of the administration is real, there are peaceful ways of bringing grievances to the attention of the commander-in- chief. The President cannot allow himself to be blackmailed by the military into veering away from his chosen path, but

Facing trial is the best way for Mr. Palparan to prove his professed innocence.

Philippine Alert March 2012 10 POLITICAL

Military adventurism is not the solution to the nation’s problems.

he also must not ignore voices of discontent. The nation has initiated a congressional investigation. PAGCOR, after all, seen the ruinous consequences of coup attempts during the is not just a gaming operator but also a regulator of those 1st Aquino and Arroyo administrations. By now AFP offi cers running or wanting to run casinos in this country. This is should realize that military adventurism is not the solution why the freebies provided by Mr. Okada and his associates to the nation’s problems, and we believe this is the case. The to Mr. Naguiat, his family and several other senior PAGCOR disgruntlement is there, but the possibility of a coup is not. offi cials should warrant more attention from Malacañang than the comment that these were standard industry practice It was bad enough that Wynn refused to go along with Pagcor chief tagged in casino bribe row Mr. Okada’s plan to go into Philippine gaming because the company believed, based on a commissioned independent Casino operator Wynn Resorts has accused Japanese probe and risk assessment, that corruption in the Philippine billionaire and gambling tycoon Kazuo Okada of putting gaming industry is “deeply ingrained.” Wynn also doubted that up a Philippine Amusement and Gaming Corp. (PAGCOR) President Aquino’s avowed reform agenda would eliminate offi cial in a $6,000-a-day suite in Macau as part of a series corruption in the Philippine gaming industry, with the country’s legal and regulatory framework not closely aligned with of payments that the company said appears to have violated U.S. compliance and transparency standards. Unfortunately, U.S. anti-bribery law. Malacañang’s reaction to the charges against Mr. Naguiat, a college buddy of Pres. Aquino, reinforce such perceptions. Mr. Okada is the subject of a civil suit fi led by Wynn in the United States for pursuing a gaming contract in the Philippines and allegedly misrepresenting the company despite opposition from Wynn management. The Japanese gaming executive Election body in a spot over poll machines is also accused of improprieties in winning that deal in the Philippines, in violation – according to the lawsuit – of the US The Senate committee on electoral reforms said it will require Foreign Corrupt Practices Act and Wynn Resorts’ corporate the Commission on Elections (Comelec) to explain and Code of Ethics. Wynn retained a law fi rm headed by Mr. Louis justify its planned purchase of the Smartmatic vote-counting Freeh, former director of the Federal Bureau of Investigation. machines for the midterm elections in 2013. The report prepared by Freeh Sporkin & Sullivan LP for Wynn Resorts showed 36 separate instances, from May 2008 to June Committee chair Senator Aquilino Pimentel III said he 2011, in which Mr. Okada and his associates or affi liates allegedly was surprised to learn of the planned purchase of Smartmatic made payments that “directly benefi ted” senior PAGCOR offi cials, International’s Precinct Count Optical Scan (PCOS) machines including Mr. Naguiat and his predecessor, Mr. Efraim Genuino. because his panel was still hearing the complaints against those Mr. Okada’s Universal Entertainment Corp. is said to have machines during the 2010 elections, the 1st automated polls. He improperly given more than $110,000 in payments and gifts to the said those problems included wrong times or dates. The Comelec 2 chief gambling regulators in the Philippines and their families. earlier voted in favor of buying 80,000 vote-counting machines from The allegedly improper payments include a 4-day stay by Pagcor service provider Smartmatic for P1.8 billion. The poll body merely chairman Cristino Naguiat Jr. in the most expensive room at Wynn rented those machines from Smartmatic in the 2010 elections. Resorts Macau, known as Villa 81, covering 7,000 square feet. With just a year left before the start of the official Commenting on the controversy, Malacañang offi cials campaign period, the Comelec must ramp up preparations for said accepting expensive freebies is “industry practice” in the the elections. Purchasing the 80,000 Smartmatic machines, gaming business. But if it had been revealed that during the stored in the company’s warehouse in Laguna, will cost Arroyo administration the chairman of the PAGCOR and his P1.8 billion. Leasing other machines, on the other hand, family had been lavished with $6,000-a-night accommodations will cost P6.12 billion for 125,000 units that are needed for and limousine service by a casino operator in Macau, plus 2013, Comelec offi cials said. The cost will eat up the P7 $5,000 in “cash advance” for each member of the party, billion approved by Congress for the midterm elections. the current proponents of “daang matuwid” (straight path) would have issued a deafening condemnation and might have

PAGCOR is not just a gaming operator but also a regulator.

Philippine Alert March 2012 POLITICAL 111

The automation project plus other supply contracts for the Relatives of Pres. Aquino have promised to abide by the SC 2013 polls will have to be awarded by public bidding. Before decision, which ordered the distribution of the family’s sugar distribution to polling centers, the machines must be tested several estate in Tarlac to its tenant-farmers. The unanimous decision times to prevent glitches, foil hackers, and prevent any attempt amended the SC’s ruling last July, which allowed Hacienda Luisita to manipulate the results. The Comelec has said it doesn’t want a Inc. (HLI) to give its workers the option of choosing between repeat of the long lines of people waiting for up to several hours land and shares of stock in the company. Pres. Aquino has tried to cast their votes in 2010 – a consequence of precinct clustering. to distance himself from the dispute, pointing out that his shares All these preparations must be done alongside other measures in the country’s largest sugar plantation were negligible and he to ensure that the midterm elections will be orderly and credible, had no role in the management of HLI. Nevertheless, he has to with the results known as quickly as possible. The Comelec still live with the reality that regardless of the amount of his shares has to undertake the regular cleanup of voters’ lists and distribute in Luisita, Filipinos will always link him to the controversy. voters’ identifi cation cards. Comelec offi cials have also vowed to This was also the case with his late mother, former President streamline the party-list system. In the 1st nationwide elections Corazon Aquino, under whose watch the stock distribution option in the administration of “daang matuwid” (straight path), the was included in the Comprehensive Agrarian Reform Law that Comelec should also exert effort to improving its enforcement was passed by the landlord-dominated post-EDSA Congress. of limits on election spending. Malacañang can also prod its The introduction of the stock distribution option, which congressional allies to consider campaign fi nance reforms, which allowed owners of large agricultural estates to avoid having are vital in curbing corruption and patronage politics in this country. their lands parcelled out to tenants, was aggravated by the The worst cases of election-related violence usually involve inadequacy of support for making the redistributed land viable. local politics. The most atrocious – the 2009 massacre of 57 Many small farms under the Comprehensive Agrarian Reform people in Maguindanao – stemmed from a clan feud over Program (CARP) suffered from the lack of farm-to-market which members of the same extended family would control roads, marketing support, post-harvest facilities and fertilizer the province. Additional effort is needed to bring the level of assistance. A number of frustrated CARP benefi ciaries sold their violence to a minimum during the forthcoming election period. farms, with their plight bolstering the argument (including that made by The Wallace Business Forum) that large agricultural estates are more productive and effi cient. Farmers, it is argued, Military justifi es keeping troops in Hacienda can be assisted in setting up cooperatives and putting together their limited resources to make CARP lands viable, but there has Luisita been little success so far in doing so. And, anyway, it may be too late for this in areas where many of the farmer-benefi ciaries The military has no plans to pull out troops from the Hacienda have sold their land. Although, there are ways of increasing this Luisita sugar estate in Tarlac despite calls from various program’s chances of success. Pres. Aquino must show that he groups to recall soldiers from the area. The sugar estate is is exerting effort to make agrarian reform work, with the case owned by the family of President Aquino and is subject of of Hacienda Luisita particularly seen as a test of his political a Supreme Court (SC) decision ordering the distribution of will. The case may not yet be over; HLI may appeal the SC the land to the farm workers. ruling. With the court having opened the doors, through recent decisions, to endless litigation, the farmers of Hacienda Luisita Armed Forces of the Philippines (AFP) spokesman Col. may still have a long wait ahead to own land. What can be done Arnulfo Marcelo Burgos Jr. expressed fears that only “bad and immediately is to intensify efforts to make agrarian reform work criminal elements,” including communist New People’s Army for farmers who have already received land under the program. (NPA) would benefi t if military troops are pulled out from the area. Other military offi cials also said the presence of troops in Hacienda Luisita was intended to thwart the resurgence of the insurgency problem in the area after the province of Tarlac was declared free from this in 2010. At present, the Army has 120 soldiers deployed within the huge sugar estate owned by the Cojuangco clan. Earlier, several groups called for an investigation of the supposed militarization at Hacienda Luisita, following supposed harassment by government troops and private security personnel against the farm workers.

Only “bad and criminal elements” would benefi t if military troops are pulled out.

Philippine Alert March 2012 ECONOMYEECONOMY 12 ECONOMY

Budget defi cit only 2/3 of ceiling in 2011 Despite the surge in spending in December that saw expenditures reach a record P101.5 billion or 43.2% higher than year-ago level, the whole year budget defi cit of P197.75 billion in 2011 was well below the pre-set limit of P300 billion for the year.

here was a sharp increase in spending in 4Q11 as a result of the government’s Disbursement Acceleration Plan, but it Twasn’t enough to catch up on the backlog of expenditures from the previous quarters. Whole year spending was registered at P1.558 trillion in 2011, up by just 2.3% from P1.552 trillion in 2010, and below the budget of P1.711 trillion last year. Lower-than-projected interest payments, at P279 billion vs. the programmed level of P357 billion, was part of the reason for the under-spending, although underutilization of funds allotted to infrastructure could have also been a key factor. Revenues were actually slightly off target, reaching P1.36 trillion in 2011, or 3.6% short of the goal of collecting P1.411 trillion. Nonetheless, this refl ected an increase of 12.6% from the previous year’s yield of P1.208 trillion. The tax ratio also improved slightly to 12.4% of GDP from 12.2%. The Bureau of Internal Revenue (BIR) collected P924 billion posted almost P96 billion, 33.3% better than the previous year in 2011, below the agency’s target of P940 billion, but 12.3% and but below the target of about P100 billion for the year. above the P823 billion generated in 2010. The underperformance The government promised to step up its spending this year to of the Bureau of Customs (BOC) was more noticeable, with counteract the adverse impact on economic growth of the debt actual yield at P265 billion vs. a commitment of P321 billion. crisis in Europe, with the cash budget set to increase by 18% Increase over last year was a minimal 2.2%. This was partly to P1.84 billion and the defi cit given leeway to expand to P279 attributed to sluggish growth in imports and the peso appreciation, billion or 2.6% of GDP. Last year’s fi scal gap of P198 billion which eroded the peso value of international trade taxes. was 2% of GDP. Finance secretary Cesar Purisima, however, The Bureau of Treasury (BTr) chipped in P75 billion, a said this expansionary thrust will require the passage of at 38.5% jump from P54 billion a year ago, and well exceeded least 2 priority tax measures in Congress, the rationalization of the expectations of P51 billion for 2011. Fees and other fi scal incentives and the amendment to the excise tax regime charges, privatization and other revenues from other agencies for cigarettes and alcoholic beverages, to raise more revenues.

A sharp increase in 4Q11spending wasn’t enough to catch up on the backlog of expenditures from previous quarters.

Philippine Alert March 2012 ECONOMY 131

Revenues increased by 12.6%.

NATIONAL GOVERNMENT CASH POSITION (BILLION PESOS,UNLESS OTHERWISE SPECIFIED)

2011 2010 2011 ACTUAL AS % OF ANNUAL % CHANGE ITEM ACTUAL ACTUAL TARGET TARGET

REVENUES 1,360 1,208 1,411 12.6 -3.6 Bureau of Internal Revenue 924 823 940 12.3 -1.7 Bureau of Customs 265 259 320 2.3 -19.1 Bureau of the Treasury 75 54 51 38.5 5.9 Other offi ces 96 72 100 33.3 -4.0 EXPENDITURES 1,558 1,522 1,711 2.3 -17.5 (Defi cit) (198) (414) (300) +59.0 +34.0 Source: Bureau of the Treasury (BTr)

The expansionary thrust will require the passage of priority tax measures - the rationalization of fi scal incentives and the amendment to the excise tax on “sin” products.

Filipinos generally optimistic of prospects this year

A survey conducted by the Social Weather Stations (SWS) on Dec. 3-7, 2011 showed that 37% of respondents expected their lives to improve (“optimists”) during the year while 8% expected no improvement (“pessimists”), for what SWS considered as “high” a net optimism score of +29.This was almost unchanged from +30 (39% optimists, 9% pessimists) in SWS’s September survey.

SWS, however, rated the score in September as “very high.” Nonetheless, the mood had been upbeat during the past 2 years, with “high” to “very high” ratings noted during the period. With respect to the outlook on the economy, the expectations were more modest, with 30% hopeful it would improve over the next 12 months and 16% not hopeful, for a +14 net optimism score. Still and all, SWS rated this as “very high,” despite the indicator’s 8-point drop from +22 in September. The “high” to “very high” ratings have been maintained in 6 out of 7 quarterly surveys since June 2010. The December 2011 SWS survey also revealed that 22% of the respondents felt their lives improve (“gainers”) during the past 12 months, less than the 32% who said their lives worsened (“losers”) during the same period, for a “mediocre” net gain of -10. This was slightly lower than the “fair” net gain of -9 in September. The scores had been “mediocre” to “fair” since March 2010, although this was an improvement from “low” to “very low” from March 2007 to December 2009. In short, more Filipinos continued to perceive no improvement in their lives compared to those who thought their lives were better during the past year. Net personal optimism was highest in Metro Manila at “very

Philippine Alert March 2012 14 ECONOMY

high” +35 in December, and refl ected a slight one-point uptick from September. It was also +35 in Balance (Rest of) Luzon, Finance offi cials are clamoring for although this was unchanged from the survey conducted 3 months earlier. In the Visayas it was “fair” +17, down from “high” +24; higher credit ratings. while in Mindanao it was “high” +25, lower than the previous +24. In terms of socio-economic classes, the highest score as among bond issues] investment grade.” In January of this year, the the ABC (upper to middle class) households at “very high” +47 $1.5 billion, 25-year sovereign bond fl oat fetched an interest net personal optimism score in December, although this was down rate of only 5%, the lowest given to any Asian issuer of bonds 3 points from September’s +50 in September. The D class posted with maturity of longer than 10 years. Undersecretary de Leon “very high” +31, up 2 points. The E group or the poor managed added that the ratings of the Philippines can’t be 2 notches only a “fair” score of +19, and this was a worsening from +28. lower than Indonesia’s, given that the Philippines enjoys lower Mindanao and Balance Luzon registered the more interest rates, and that it has stronger reliance on its local bond favorable scores among the net gainers, at “fair” -7 and -8, market that makes it less vulnerable to external fi nancial shocks. respectively. However, this signified a 2-points increase The three credit rating agencies recently upgraded Indonesia’s from September for Mindanao, while this meant a 6-points credit ratings to investment grade - Baa3 from Moody’s, BBB- from decrease for Balance Luzon. In Metro Manila, the net gain Fitch, and one notch below investment-grade but with positive score worsened to “mediocre” -14 from “fair” -8. In The outlook for S&P. In contrast, the Philippines has 2 notches below Visayas, it dropped to “low” -21 from “mediocre” -15. investment-grade ratings from Moody’s (Ba2) and S&P (BB), and Among socio-economic groups, the ABC households a similar one-notch below investment-grade rating from Fitch. amazingly held up at a positive +21 net gain, although a slight The Philippine government plans to borrow P529.5 billion weakening from +24 in September. It was just a “fair” -8 for from the domestic market and $4.02 billion from the foreign the D class, and a dismal “low” score of -24 for the E group. market. Of the programmed foreign borrowings, commercial debt The survey involved face-to-face interviews with 1,200 (global bond issue) was set at $2.25 billion, of which $1.5 billion adult respondents nationwide. The sampling error margins as previously mentioned has already been secured in January. are +3% for national results and +6% for the area results. Hence, only $750 million needs to be raised from commercial sources, which fi nance offi cials are now planning to pursue. Another global bond fl oat planned

The government is considering another global bond issuance, Stock market scales new highs either a dollar-denominated global bond fl oat or global peso The Philippine Stock Exchange index (PSEi) breached the notes (GPN), to complete is foreign commercial borrowing 5,000 mark for the fi rst time on March 2 and continued to program for 2012. rise, reaching a new all-time high of 5,031 three days later. The choice between a dollar-denominated global bond sale and The Philippine stock market run was fueled by foreign funds, GPN issuance depends on which option would be more cost-effective with new foreign buying recorded at P22.7 billion during the fi rst 2 for the government, according to the Department of Finance. months of the year. It was the reverse in the same period last year, Also, no amount and date had been set for the global when the market experienced net foreign selling of P7.7 billion. bond fl oat. But it’s likely to be at least $500 million, and The index has gained 15% from the start of the year to could be raised further on favorable market response. March 5, making the Philippine stock exchange among the It is unlikely, though, to happen anytime soon because the best performers so far this year in the Asian region. This government just raised the equivalent of $4.2 billion from a also meant that the market ignored the debt crises in the domestic retail Treasury bond offer in February. But indications peripheral areas of Europe and the political turbulence in the are that the government won’t wait anymore for any credit rating Middle East, an indication that portfolio investors believe upgrade from Moody’s Investor Services, Fitch Ratings, and the Philippines would be hardly affected by these adversities. Standard and Poor’s before issuing the debt papers. Anyway, Analysts attributed the recent resurgence to new highs the country already enjoys investment-grade interest rates even – the index initially broke the record highs 4 times in the without the upgrade, a fact that prompted Finance offi cials to fi rst half of February – to the Bangko Sentral ng Pilipinas clamor for higher credit ratings from these credit watchdogs. (BSP) initiatives to further loosen up on liquidity by way Finance undersecretary Rosalia de Leon noted that “the of lowering the reserve requirement by 3%-points and the market already rates us [long-term foreign currency sovereign elimination of interest earnings on reserves deposited with

Indonesia’s credit ratings were recently upgraded to investment grade, while those of the Philippines were 2 notches below investment grade despite enjoying lower interest rates and having stronger reliance on local borrowings.

Philippine Alert March 2012 ECONOMY 151

lengthen its debt profi le, lower interest costs, and avoid building up Among the best performers so far this of maturities under its so-called Liability Management Program. For its part, the private sector pre-terminated dollar debts worth year in the Asian region. $1.3 billion last year, lower than the preceding year’s $1.8 billion. Philippine government and private fi rms initiated massive foreign debt pre-payment starting 2006, made possible by PSE INDEX 2011 - MAR 2012 the sustained build-up of dollar surpluses. This has helped 5000 sharply reduce the country’s foreign debt reliance from 68% of GDP in 2000 to 28% in 2011, well within the average for 4600 ASEAN and better than Vietnam, Singapore and Thailand.

4200 BSP further liberalizes forex rules

The Bangko Sentral ng Pilipinas (BSP) continued the for- 3800 eign exchange liberalization program it started after the 2009 global recession, raising the ceiling on dollars that 3400 can be purchased without documentation and expanding the activities where dollars can be freely purchased without 3000 prior BSP approval in mid-March. J F M A M J J A S O N D J F M the central bank. The BSP measures lower interest rates, Ceiling on foreign exchange transactions that do not require creating a shift of funds from debt papers to shares of stocks. documents has now been raised ten times to $500,000 from $50,000. Some positive news on the U.S. labor market, perceived as The BSP also expanded the list of non-trade current account a sign that the U.S. economy is picking up, was an added boost transactions where dollars can be freely purchased without prior to the market sentiment. If the U.S. economy recovers, the BSP approval. The list now includes the following: lease of foreign- Philippines is seen to benefi t substantially, given that the U.S. is owned equipment; refund of unused foreign grant/aid funds and its largest export market and is a major investor in the country. foreign loan proceeds; payment of underwriting expenses/fees/ Analysts are also closely watching developments in the commissions including brokers’ fees payable/due to non-residents country’s credit rating. If the rating is upgraded, it would give more for initial public offerings (IPOs) in the local stock exchange; mileage in the current Philippine stock market bull run. Not only settlement by the Philippine Deposit Insurance Company (PDIC) will this further lower bond yields, increasing the attractiveness of FCDU deposit claim against banks that ceased operations. of investment in equities, but this would also send the signal to Also allowed now without central bank approval is the portfolio investors of reduced fi nancial risk in the Philippines. purchase of foreign exchange for advance payment of imports (no pre-set limit), but still subject to the accomplishment of import documents. Whilst requirements to remit to the country dividends, earnings and divestment proceeds from PH prepays $1.5Bn debt investments abroad using funds from local banks have been lifted. These funds, though, have to be reinvested in the country, The Philippines pre-paid $1.5 billion worth of foreign debt in local stocks or bonds, within 30 banking days from receipt. in 2011, lower than the $4.1 billion advanced retirement of Banks and foreign exchange companies are also no longer debt the previous year. required to submit to the BSP consolidated daily reports on foreign portfolio investment registration and remittance, but The government and corporate debtors in the country still have to submit supporting documents on these transactions. continued to settle their foreign obligations ahead of maturities last The previous wave of foreign exchange liberalization year, taking a cue from the Bangko Sentral ng Pilipinas (BSP, or measures occurred in October 2011, when the BSP allowed central bank) encouragement to take advantage of the continued corporate dollar loans not registered with the BSP to be paid strengthening of the peso. The central bank prodded borrowers to using dollars purchased from banks and foreign exchange pre-pay their foreign debts to stem the build-up in liquidity due to corporations within a 3-month period, i.e., Dec. 2011 to Feb. 2012. the infl ow of capital that was partly causing the peso to appreciate. According to the BSP, the relaxation of the foreign exchange The exchange rate, though, was almost unchanged from 12 rules is in line with the monetary authorities’ thrust “to streamline months ago at P43.93:$1 at end-2011 from P43.89:$1 at end-2010. reportorial requirements to ease reporting burden, reduce The pre-payment of $1.5 billion in 2011 was a sharp drop paper requirements and … help facilitate trade transactions.” from $4.1 billion in 2010 as the government had comparatively The other aim is to help stabilize the exchange rate, as these less early debt retirement worth $200 million last year. rules would tend to boost the demand for dollars, offsetting In contrast, in October 2010, the public sector pre-paid $2.3 the sustained increase in the supply of dollars from portfolio billion of debt maturing from 2011 onwards by issuing new 10- investment, workers’ remittances and other current account year bonds and re-opening 2034 bonds with lower yields to fi nance items. The BSP explained, though, that these recent actions this pre-payment. The government said this was part of the effort to would not have immediate impact on the spot peso-dollar rate.

Philippine Alert March 2012 16 ECONOMIC INDICATORS

INFLATION RATE (%), 2006 = 100 MARCH INFLATION DECELERATES TO 2.6%

The annual uptick in prices continued to move slower as annual headline infl ation Food and Non- Alcoholic Beverages Clothing registers at 2.7% in March from 2.6% in February 2012. This slight improvement is Alcoholic Beverages and Tobacco and Footwear attributed to the annual uptick in alcoholic beverages and tobacco index (from 4.7% to 2012 2011 2012 2011 2012 2011 4.3%) and in clothing and footwear index (from 3.7% to 3.6%). Furthermore, housing, water, electricity, gas, and other fuels index slightly slowed down to 4.5% from 4.6% Jan. 3.3 4.9 5.6 2.9 3.9 3.0 and transport index improved to 3.3% from 3.9%. Meanwhile, annual infl ation rate in Feb. 1.4 6.0 4.7 4.0 3.7 3.2 the National Capital Region (NCR) accelerated to 2.7% from 2.3%. As for the Areas Outside the National Capital Region (AONCR), annual increase in prices continued to March 1.4 6.2 4.3 4.6 3.6 3.5 move slower at 2.6% in March from 2.8% last month. April - 6.2 - 4.9 - 3.4 May - 6.2 - 5.3 - 3.6 PRICE INDICES June - 6.0 - 5.9 - 3.9 by commodity July - 5.7 - 6.0 - 4.2 CPI WHOLESALE RETAIL Aug. - 5.1 - 6.3 - 3.8 (2000 = 100) (1998 = 100) (1978 = 100) Sept. - 5.1 - 6.1 - 3.9 2012 2011 2012 2011 2012 2011 Oct. - 5.7 - 6.2 - 3.9 Jan. 128.2 123.3 230.8 220.7 154.0 151.4 Nov. - 4.8 - 6.3 - 4.0 Feb. 128.1 124.7 - 225.4 - 152.2 Dec. - 4.1 - 6.0 - 3.7 March 128.3 125.0 - 228.2 - 152.1 April - 125.6 - 232.1 - 153.7 May - 125.9 - 229.0 - 152.4 INFLATION RATE June - 126.5 - 227.9 - 152.4 Furnishing, July - 126.6 - 226.5 - 152.6 Housing, Water, Household Aug. - 126.7 - 224.1 - 152.5 Electricity, Gas and Equipment and Health Other Fuels Routine Maintenance Sept. - 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 - 3.9 - 2.4 - 3.2 Philippines Metro Manila Outside MM May - 5.1 - 2.5 - 3.7 2012 2011 2012 2011 2012 2011 June - 5.9 - 2.5 - 3.5 Jan. 4.0 4.1 3.5 3.9 4.0 4.0 July - 5.4 - 2.5 - 3.3 Feb. 2.7 4.8 2.3 4.6 2.8 4.7 Aug. - 5.1 - 2.6 - 3.3 March 2.6 4.8 2.7 3.9 2.6 5.1 Sept. - 5.7 - 2.6 - 3.5 April - 4.7 - 3.3 - 5.1 Oct. - 6.5 - 2.5 - 3.4 May - 5.1 - 4.4 - 5.2 Nov. - 5.7 - 2.3 - 3.1 June - 5.2 - 4.7 - 5.4 Dec. - 5.1 - 2.5 - 3.0 July - 5.1 - 4.0 - 5.3 Aug. - 4.7 - 3.3 - 5.1 Sept. - 4.8 - 4.2 - 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 0.1 -0.2 2.2 1.1 and Services April - 6.3 - -0.2 - 1.0 2012 2011 2012 2011 May - 6.6 - -0.2 - 1.1 Jan. 5.0 4.1 3.5 2.1 June - 6.8 - -0.3 - 1.6 Feb. 4.8 4.2 3.0 2.4 July - 6.8 - -0.3 - 1.6 March 4.7 4.3 2.9 2.8 Aug. - 6.9 - -0.4 - 1.5 April - 4.2 - 2.4 Sept. - 7.1 - -0.4 - 1.6 May - 4.3 - 2.8 Oct. - 6.7 - -0.4 - 1.7 June - 5.1 - 3.0 Nov. - 6.6 - -0.3 - 1.8 July - 5.2 - 2.9 Dec. - 6.0 - -0.4 - 1.8 Aug. - 5.1 - 3.2 Sept. - 5.1 - 3.2 Oct. - 5.1 - 3.1 Nov. - 4.7 - 3.3 Dec. - 4.7 - 3.2 Philippine Alert March 2012 ECONOMIC INDICATORS 17

Gross Peso-Dollar Treasury Bill Rate International Exchange rate 91-day, WAIR in Reserve Period Ave. percent (US$B) PESO AVERAGES AT P42.86:$1 IN MARCH (US$B) 2011 2010 2012 2011 2012 2011 Peso weakens against dollar as it depreciated by P0.20 with an average of P42.86:$1 in March from P43.66:$1 last month. The peso market was moving along the P43:$1 mark, Jan. 77.36 63.54 43.62 44.17 1.55 0.70 where the highest close for the month reached P43.06:$1. In the earlier statement of Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo, he said that Feb. 77.77 63.89 42.66 43.70 1.86 1.66 the peso is expected to remain stable along the P42-P45:$1 mark in 2012 despite the March - 65.98 42.86 43.52 2.26 1.08 slowing global economy.

April - 68.49 - 43.24 - 0.79

May - 68.85 - 43.13 - 1.10

June - 69.00 - 43.37 - 2.68

July - 71.88 - 42.82 - 2.40 Php: US$ EXCHANGE RATE GROSS INT'L RESERVES Aug. - 75.94 - 42.42 - 1.53 -40 80

-42 Sept. - 75.17 - 43.03 - 0.56 70 Oct. - 75.83 - 43.45 - - -44 60 Nov. - 76.21 - 43.27 - 0.94 -46 50 Dec. - 75.30 - 43.65 - 1.56 -48

-50 40 '10 M M J S N '11 M M J S J '12 M J'10 M M J S N J'11 M M J S NJ '12

91-DAY T-BILL AVERAGE ROSE TO 2.26% IN MARCH

The 91-day Treasury bill (T-bill) reached an average of 2.26% in March from 1.86% last month. On the other hand, the 182-day rate increased to an average of 2.45% BSP REFERENCE RATES from 2.32% while 1-year tenor posted an increased average of 2.78% from 2.56%. The Peso equivalent per unit of foreign currency committee held 2 auctions for the month (March 5 and 19). However, no bids were as of March 01, 2012 accepted for the 182-day bill on the 2nd auction. Due to the higher bids submitted by Month % Ave. investors, the government ended up doing partial awards selling only P14.04 billion ago Change worth of T-bills (P7.61 billion in the 1st auction and P6.43 billion in the 2nd auction) in March. National Treasurer Roberto Tan said that higher bids from investors were the Australian dollar 45.85 45.55 0.7 result of the excitement in the equities market as it becomes more liquid and high- Bahrain dinar 113.33 113.85 (0.5) yielding. Brunei dollar 34.02 33.98 0.1 Canadian dollar 43.19 42.80 0.9 E.M.U. euro 56.13 56.13 - Hong Kong dollar 5.51 5.53 (0.5) Indonesian rupiah 0.0047 0.0048 (2.1) 91-DAY T-BILL RATE Japanese yen 0.53 0.56 (6.5) 4.0 Kuwaiti dinar unquoted unquoted unquoted 3.5

3.0 Saudi Arabian rial 11.39 11.44 (0.5) 2.5 Singaporean dollar 34.15 34.12 0.1 2.0 Swiss franc 47.25 46.62 1.3 1.5 Thai baht 1.41 1.39 1.7 1.0

0.5 UAE dirham 11.63 11.69 (0.5) '10 M M J S N '11 M M J S N DJ '12 M UK pound 68.01 67.62 0.6 US dollar 42.72 42.92 (0.5) Others ( not convertible with BSP ) Argentinian austral 9.81 9.91 (1.0) Brazilian real 24.86 24.52 1.4 Indian rupee 0.87 0.87 0.5 Korean won 0.04 0.04 0.3 Malaysian ringgit 14.27 14.12 1.1 Mexican new peso 3.33 3.29 1.1 New Zealand dollar 35.83 35.45 1.1 Norwegian kroner 7.65 7.32 4.6 Pakistani rupee 0.47 0.47 (1.0) South African rand 5.73 5.49 4.4 Swedish kroner 6.46 6.31 2.3 Syrian pound 0.75 0.75 (0.5) Taiwanese nt dollar 1.45 1.45 0.1 Venezuelan bolivar * 9.96 10.01 (0.5)

* Effective 01 Jan. 2008 Venezuela’s offi cial exchanre rate was changed to 2.15 bolivars per dollar tyo 2,150 per dollar Philippine Alert March 2012 18 ECONOMIC INDICATORS

BALANCE OF PAYMENTS SELECTED INTEREST RATES Average 2 Weeks Ago JJanuaryanuary - December 2011 (in US$ million) Peso Deposit Rates (March 26-30, 2012 ) Growth Saving Deposits 0.10 0.10 2011 2010 rate (%) Time Deposits Current Account 7,078 8,922 -20.7 below 1 year 2.37 2.85 Goods and Services (11,857) (8,231) 44.1 1 - 2 years 3.62 3.63 Export 62,681 64,843 -3.3 Over 2 years 1.4 1.51 Import 74,538 73,074 2.0 Dollar Deposit Rates ( March 26-30, 2012 ) Goods (15,450) (10,966) 40.9 Saving Deposits 0.31 0.32 Credit: Exports 47,231 50,748 -6.9 Time Deposits Debit : Imports 62,681 61,714 1.6 60 days and below 0.83 0.81 Services 3,593 2,735 31.4 61-90 Days 0.94 0.92 Credit: Exports 15,450 14,095 9.6 91-180 Days 0.99 0.99 Debit : Imports 11,857 11,360 4.4 181 days and above 1.19 1.22 Income 1,293 508 154.5 Bank Lending Rates ( March 26-30, 2012 ) Credit: Receipts 6,987 6,093 14.7 All Maturities 6.41 6.51 Debit : Disbursments 5,694 5,585 2.0 High 8.07 8.03 Current Transfers 17,642 16,648 6.0 Low 5.81 5.81 Credit: Receipts 18,503 17,478 5.9 Treasury Bill Primary Rates ( March 21, 2012 ) Debit : Disbursments 861 830 3.7 91 days 2.383 2.148 CAPITAL AND FINANCIAL ACCOUNT 5,228 7,388 -29.2 182 days N.I. 2.450 Capital Account 171 98 74.5 364 days 2.808 2.751 Credit: Receipts 270 170 58.8 Money Market Rates ( March 26-30, 2012 ) Debit : Disbursments 99 72 37.5 Promissory Note 3.12 3.5 Financial Account 5,057 7,290 -30.6 Commercial Papers w/o recourse 7.58 4.57 Direct Investment 1,253 682 83.7 Manila Reference Rates ( March 26-30, 2012 ) Debit: Assets, Residents Investment 9 616 -98.5 MRR 60 3.75 3.81 abroad MRR 90 6.63 6.56 Credit : Liabilities, Non-residents 1,262 1,298 -2.8 Investment in the Phil MRR 180 6.75 6.75 GOVERNMENT FISCAL PERFORMANCE Portfolio Investment 5,524 4,365 26.6 JAN. TO DEC. 2011 Data Year-Ago Growth rate Debit: Assets, Residents Investment (395) 2,872 -113.8 (in PM) (in PM) (%) abroad I. Revenues 1,359,942 1,207,926 12.6% Credit : Liabilities, Non-residents 5,129 7,237 -29.1 Tax Revenues 1,202,066 1,093,643 9.9% Investment in the Phil Non-Tax Revenues 157,621 113,877 38.4% Other Investment (2,722) 2,434 -211.8 Debit: Assets, Residents Investment Grants 255 406 -37.2% 3,252 2,773 17.3 abroad II. Expenditures 1,557,696 1,522,384 2.3% Credit : Liabilities, Non-residents 530 5,207 -89.8 III. Surplus/Defi cit -197,754 -314,458 37.1% Investment in the Phil IV. Financing 115,263 351,646 -67.2% NET UNCLASSIFIED ITEMS (2,127) (2,002) 6.2 Domestic Financing 64,103 218,598 70.7% OVERALL BOP POSITION 10,179 14,308 -28.9 Foreign Financing 51,160 133,048 -61.5% V. Change-in-Cash -79,665 37,166 314.3%

TOTAL EXTERNAL DEBT Data Year-Ago Growth DECEMBER 2011 (in $M) (In $M) rate (%) By Type of Debt 61,711 60,048 2.8%

Medium and Long-term 54,698 53,753 1.8%

Short-Term 7,013 6,295 11.4%

By Borrower 61,711 60,048 2.8% BALANCE OF PAYMENTS CURRENT ACCOUNT

Banking System 9,276 8,186 13.3%

Public Sector 42,800 41,542 3.0%

Private Sector 9,635 10,320 -6.6%

By Institutional Creditor 61,711 60,048 2.8%

Banks & Other Financial Institutions 7,743 7,183 7.8%

Suppliers 3,067 3,236 -5.2%

Multilateral 11,581 10,908 6.2%

IBRD 3,297 2,583 27.6%

IMF 00

ADB 5,839 5,879 -0.7%

Bilateral 15,642 15,888 -1.5%

Bondholders/Noteholders 22,568 21,861 3.2%

Others 1,112 972 14.4% Philippine Alert March 2012 ECONOMIC INDICATORS 19

MERCHANDISE IMPORTS January 2012 in US$ million

JANUARY TOTAL TRADE STAND AT $9Bn 2011 2010 % Change

Total merchandise trade for the January 2012 reached $9.26 billion. When compared CAPITAL GOODS 1,326 1,378 (3.8) to year-ago levels, imports declined by 3.2% while exports went up by 3%. This Telecom eqpmt & elec's eqpmt 693 749 (7.4) registered a trade defi cit of $1.01 billion. Power generating & spec'd eqpmt 276 316 (12.5) Month-on-month exports posted an increase of 21% in January. Electronic products continue to emerge as the country’s top export, which registered a year-on-year Offi ce and EDP machine 156 157 (0.5) growth of 0.4%. Components/Devices (Semiconductors) remain to have the biggest share as the main product category of electronic exports, which posted a 1.8% decline. Transport 97 99 (2.2) On the other hand, Woodcrafts and Furniture placed 2nd with a 79.5% expansion in its exports while Articles of Apparel and Clothing Accessories ranked 3rd with a 5.2% Others 41 41 (0.6) increase in exports. Meanwhile, imports increased by 10.8% from $4.63 billion in RAW MATERIALS & INTER. GOODS 1,915 2,381 (19.6) December 2011. Electronic products still emerged as the leading import but declined by 26.9%. Meanwhile, Mineral Fuels, Lubricants and Related Materials registered as the Semi-processed raw materials 1,671 2,094 (20.2) 2nd top import which increased by 45.3%. On the other hand, 3rd top import, Transport Equipment, increased by 8.6%. Unprocessed raw materials 244 288 (15.1)

MINERALS, FUELS & LUBRICANTS 1,321 909 45.3

Crude petroleum 882 560 57.4 FOREIGN TRADE Others 378 310 21.7 6000 IMPORT EXPORT CONSUMER GOODS 521 560 (7.1)

5000 Non-durable 265 280 (5.3)

Durable 255 280 (8.8) 4000 SPECIAL TRANSACTION 51 74 (31.6)

3000 '10 M M J S N '11 M J A O DJ'12 TOTAL IMPORTS 5,133 5,302 (3.2)

MERCHANDISE EXPORTS January 2012 in US$ million 2012 2011 Growth rate %

Total Agro-Based Products 291 260 12.0 Coconut Products 116 177 (34.5) Sugar and Products 34 17 93.4 MERCHANDISE BALANCE OF TRADE (in US$ million) Fruit and Vegetables 76 66 15.7 Fish, Fresh or Preserved of which: Exports Imports Surplus/(Defi cit) 34 30 12.3 shrimps and prawn 2012 2011 2012 2011 2012 2011 Forest Products 2 3 (4.3) Jan. 4,121 4,000 5,133 5,302 (1,012) (1,302) Mineral Products 168 123 36.6 Feb. 3,865 4,761 (896) Copper Metal 108 29 269.4

March 4,353 5,549 (1,196) Petroleum Products 47 41 14.9

April 4,302 5,497 (1,195) Manufactures 3,482 3,380 3.0 Electronic Products 2,151 2,142 0.4 May 4,108 4,888 (780) Garments 171 162 5.3 June 4,127 4,503 (376) Textile Yarns / Fabrics 14 14 (3.8) July 4,429 4,999 (570) Furniture & Fixtures 113 11 965.4 Aug. 4,123 4,925 (803) Chemicals 306 90 239.8 Sept. 3,897 5,076 (1,179) Machinery & Transport Equipment 14 348 (96.0) Oct. 4,088 5,020 (932) Iron and Steel 14 8 75.7 Nov. 3,342 4,990 (1,648) TOTAL EXPORTS 4,121 4,000 3.0 Dec. 3,407 4,548 (1,141)

Philippine Alert March 2012 20 ECONOMIC INDICATORS

NATIONAL ACCOUNTS PERCENTAGE DISTRIBUTION OF TOTAL FAMILY EXPENDITURE 4rt QUARTER 2011 By major expenditure group Year-ago Year-on- Data level year growth NATIONAL ACCOUNTS In PB In PB 10-11 EXPENDITURE GROUP 2009 2006 GROSS NATIONAL INCOME Percent 100.0 100.0 (at constant prices) 2,064.4 1,994.8 3.5% Food 42.6 41.4 (at current prices) 3,516.4 3,263.3 7.8% Alcoholic Beverages 0.7 0.7 GROSS DOMESTIC PRODUCT (at constant prices) 1,591.2 1,534.9 3.7% Tobacco 0.8 0.9 (at current prices) 2,733.3 2,529.6 8.1% 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 1,198.5 1,122.7 6.7% a. Food and Non-alcoholic beverages 522.0 501.2 4.1% Household Operation 2.3 2.3 b. Alcoholic beverages, Tobacco 18.2 16.8 7.9% Personal Care and Effects 3.8 3.7 c. Clothing and Footwear 20.2 18.9 7.0% Clothing Footwear & Other Wear 2.2 2.4 d. Housing, water, electricity, gas and 111.4 109.3 2.0% other fuels Education 4.3 4.4 e. Furnishing, household equipment and 66.5 60.4 10.1% routine household maintenance Recreation 0.4 0.5 f. Health 23.7 21.4 10.5% Medical Care 2.9 2.9 g. Transport 87.1 84.1 3.5% Non-Durable Furnishing 0.2 0.2 h. Communication 60.5 58.8 2.9% Durable Furniture and Equipment 2.7 2.7 i. Recreation and Culture 30.9 27.4 12.8% j. Education 41 37 11.8% Rent/Rental Value of Dwelling Unit 12.8 12.7 k. Restaurants and Hotels 48 44 7.6% House Maintenance and Minor Repairs 0.6 0.6 l. Miscellaneous goods and services 169 143 18.1% Taxes Paid 2.0 1.6 2. Government Final Consumption 124.3 117.4 5.8% Expenditure Special Family Occasions 2.7 2.8 3. Capital Formation 389.0 406.5 -4.3% Gifts and Contributions to others 1.4 1.4 4. Exports 572.1 605.2 -5.5% 5. Imports 708.4 732.3 -3.3% Other Expenditure 2.9 3.0 GNP (at constant prices) by Industrial Origin Other Expenditures 2.9 2.9 1. Agriculture 195.9 201.0 -2.5% TOTAL FAMILY EXPENDITURES 3,239 2,561 2. Industry Sector 509.3 497.1 2.5% a. Mning & Quarrying 14.0 15.0 -6.5% Source: Family Income & Expenditure Survey (FIES) Final Results 04 February 2009 b. Manufacturing 367.1 359.3 2.2% c. Construction 83.4 75.0 11.2% d. Electricity, Gas and Water 44.9 47.9 -6.2% 3. Service Sector 886.0 836.8 5.9% a. Transport., Comm., Stor 117.1 114.0 2.7% b. Trade, Repair of Motor Vehicles, UNEMPLOYMENT AND 281.8 271.3 3.9% Motorcycle & Household Goods UNDEREMPLOYMENT RATES c. Financial Intermediation 103.8 97.1 6.8% d. Real Estate, Renting & Business 159.4 145.9 9.2% Activities e. Public Administration & Defense: 60.5 57.0 6.2% Compulsory Social Security f. Other Services 163.5 151.5 7.9%

LABOR AND EMPLOYMENT (New Defi nition) 2010 2011 2012

Jul Oct Jan Apr Jul Oct Jan Total labor force 38,933 39,270 39,196 39,661 39,901 41,215 40,309 Labor force participation (%) 63.9 64.2 63.7 64.2 64.3 66.3 64.3 Employment (%) 93.0 92.9 92.6 92.8 92.9 93.6 92.8 Unemployment (%) 7.0 7.1 7.4 7.2 7.1 6.4 7.2 OFW DEPLOYMENT Underemployment (%) 17.9 19.6 19.4 19.4 19.1 19.1 18.8 hires and rehires

Philippine Alert March 2012 philippine regional update 21

NCR – NATIONAL CAPITAL REGION (METRO MANILA)

Framework for integrated development of Metro Manila launched The World Bank launched “Metro Manila Greenprint 2030” on March 6, a framework that will guide the development of the 17 cities and municipalities in Metro Manila, as well as nearby areas in Calabarzon and Central Luzon, in the next 20 years. The framework will integrate such factors as climate change adaptation, disaster risk management and demand for affordable in-city housing in the effort to boost the metropolis’ global competitiveness and quality of life. Supported by a $250,000 trust fund from AusAID and the multi-donor East Asia Eco2 Cities program administered by the World Bank, the framework will be formulated in 2 phases. Phase 1, which will be completed in May 2012, will involve a workshop among stakeholders to increase awareness of global best practices in enhancing urban competitiveness, livability and sustainability, and visioning for Metro Manila. Phase 2, which will be completed by June 2013, will involve spatial strategy preparation. Greenprint will be provided technical assistance and $200 million seed fund by the World Bank and other foreign donor agencies.

$3Bn investments in sewerage projects… The Metropolitan Waterworks and Sewerage System (MWSS) revealed that Metro Manila’s water services concessionaires Manila Water Co. Inc. (MWCI) and Maynilad Water Services Inc. (MWSI) will invest $3 billion in water sewerage projects under their current concession programs. MWSS is also keen on tapping public-private partnership (PPP) projects for new water sources to reinforce Angat Dam, although a recent World Bank study said the existing water source can adequately supply Metro Manila until 2029, not 2015 as previously thought.

… as Angat Dam set for an upgrade The MWSS is implementing a P5-billion retrofi tting and rehabilitation of the 44-year old Angat Dam. The project includes building an additional spillway and widening of the dam and dike embankments. This would increase its water containment capacity to 216 meters above sea level from the 210 presently, and raise its volume capacity to 600 million milliliters per day from 400 million mlpd. Construction will start in February 2013 and is expected to be completed in early 2005.

NAIA-1’s goal: to get off the world’s worst list The P1.16-billion upgrade of the Ninoy Aquino International Airport Terminal 1 (NAIA) has already started and is expected to be completed by year-end. The airport manager said a “world class transport facility” will emerge when the rehabilitation and upgrade is completed, and expressed optimism NAIA-1 would be fi nally dropped from the list of the world’s worst airports. Last year, the baggage inspection and handling facilities, fl ight information display system server software and workstations, and some toilets were improved. This year, the terminal retrofi tting will focus on creating more space for passenger movement, repair of more toilets, architectural design works, and improvement of the structural integrity of the building. Meanwhile, the Manila International Airport Authority (MIAA) reported that the agency’s income almost tripled to P3.21 billion in 2011 on a 9% increase in gross revenues to P8.58 billion and a -10% decrease in expenses to P4.43 billion.

Pres. Aquino orders integration of provincial bus terminals The Presidential Palace recently issued Executive Order 67, limiting the number of provincial bus terminals in Metro Manila in an effort to decongest traffi c within the metropolis. The Department of Transportation and Communications (DOTC) is now looking at the establishment of just 3 terminals that will integrate the operations of 85 presently existing bus stations, most likely to be established near the North and South Luzon expressways, and in the eastern part of Metro Manila.

Maynilad sets expansion of services Private water concessionaire Maynilad Water Services, Inc. (MWSI) is spending P2.64 billion for the expansion and improvement of its water services in Parañaque, Muntinlupa, Las Piñas and Cavite this year. The largest share of the expenditures at P2 billion will go to the installation of primary, secondary and tertiary pipelines to Cavite, while another P400 million has been allocated to reinforce and replace primary lines along Daang Hari Highway from Muntinlupa to Las Piñas.

Region I – ILOCOS REGION

National Grid hits Pangasinan town over taxes The National Grid Corp. of the Philippines (NGCP) said in a statement the Labrador municipality of Pangasinan province has no power to confi scate its P222 million deposit with the Land Bank to pay for its alleged tax liabilities with the municipal government. NGCP added that under the concession agreement with state-owned National Transmission Corp. (Transco), the tax liabilities accrue to Transco as it still owns the transmission assets, and that the dismissal of the case NGCP fi led with the Court of Appeals (CA) restraining the municipal government from confi scating the deposit isn’t a fi nal ruling on the tax issue. The CA decision simply said it had no jurisdiction to rule on the case as it involved factual issues that had to be settled in the lower court.

Philippine Alert March 2012 22 philippine regional update

Region III – CENTRAL LUZON

Clark airport renamed Clark International Airport Corp. (CIAC) said it is dropping the name “Diosdado Macapagal” for the entire airport complex, retaining it only for the terminal building. Clark airport chief said this is because “people in the industry and even the International Air Transportation Association refer to the airport as Clark, assigning it the code CRK,” so it makes sense for international market positioning to promote the airport as Clark. The airport was renamed Diosdado Macapagal International Airport in 2003 in honor of the late President, the father of former Pres. Gloria Macapagal-Arroyo. WBF, however, continued to call it Clark as the new name was a tongue twister for foreigners and had no international recall.

Clark terminal upgrade CIAC reported that it has secured a P1-billion loan mainly for the expansion of Phase II of the Clark airport passenger terminal. The loan will also be used for the improvement of other support facilities, such as the air navigation equipment. Phase II expansion of the passenger terminal will start in 2Q12 as passenger traffi c is expected to rise dramatically with the impending operations of AirAsia Philippines and Airphil Express. AirAsia will commence Clark-Kalibo and Clark-Davao fl ights, while Airphil Express will operate regular fl ights to Davao, Cebu, Kalibo, Cebu and Puerto Princesa from Clark starting April.

Clark gets P23Bn investments in 2011 The Clark Development Corp. (CDC) approved 207 projects worth P22.9 billion in 2011. These projects are expected to generate employment of 8,200. The largest investors included Korea’s Hae O. Rum Development Corp., which has committed P1.5 billion for tourism-related projects; and Haitima Clark Corp., manufacturer of valves, fl anges, pipes and fi ttings, which pledged P1 billion.

BCDA invites bidders for Clark master plan Bases Conversion and Development Authority (BCDA) is inviting private fi rms to submit bids for the development of a master plan for the 36,000-hectare Clark Special Economic Zone to position it as a major investment destination in Southeast Asia. BCDA president and CEO said the concept behind the master plan is to “make Clark a beautiful, highly integrated, high-tech, green community where Bonifacio Global City meets Silicon Valley.” A copy of the terms of reference is found on the BCDA website (www.bcda.gov.ph). Deadline for the submission of eligibility documents was on March 26.

Region VII – CENTRAL VISAYAS

Software development, KPO’s pushed for Cebu International research fi rm Tholons has recommended the improvement of Cebu’s knowledge process outsourcing (KPO) and software writing capabilities to make inroads in information technology outsourcing (ITO). IT-BPO is one of the very few fastest- growing sectors is Cebu, with sales increasing from $200 million in 2005 to $1.5 billion in 2011, based on the estimates of Cebu Investment Promotions Center (CIPC), and employment rising to around 65,000 workers. There are 126 fi rms in the industry, with 72 in Asiatown IT Park and 8 in Cebu Business Park. The bulk of the service providers and employees are in the BPO sub- group, mostly call centers, at 72% of revenues. KPO has a share of 13.5%, while ITO has 14.5%. Tholons also recommended the development of a constant supply of skilled workers, maximizing of customer support and call center services, and improvement of knowledge process and information technology outsourcing capabilities in Cebu.

Region IX – ZAMBOANGA PENINSULA (WESTERN MINDANAO)

Sardines canners face potential power shortages The government has recently lifted the 3-month ban on sardine fi shing in the Sulu Sea, but sardine canners are facing another challenge: power shortage. The concern is power outages could worsen during the summer months in the hydro-power dependent Zamboanga region, as happened during the dry spell in 2010, disrupting production. Eleven canneries in Zamboanga City account for 90% of he domestic sardines market.

Philippine Alert March 2012 philippine regional update 23

TVIRD continues operation despite open pit mining ban TVI Resources Development (Philippines) Inc. is maintaining normal operations of its $60 million copper and zinc mine in Canatuan, Zamboanga del Norte despite a provincial ordinance passed recently banning open-pit mining in Zamboanga del Norte. The Regional Trial Court of Dipolog granted TVIRD’s request for injunction against the local ordinance in January, hence enabling the company to continue its mining operations. Without the injunction, the mine would have been closed by November 2012 as a result of the ordinance.

Region XI – DAVAO REGION (SOUTHERN MINDANAO)

Davao top choice for BPO site The Business Process Outsourcing Association of the Philippines (BPAP) named Davao City as the top outsourcing site among the Next Wave cities in 2011, besting Sta. Rosa, Bacolod, Iloilo, Metro Cavite, Lipa, Cagayan de Oro, Baguio and Dumaguete. This also made Davao City the 4th choice for BPOs overall after Metro Manila, Metro Cebu and Metro Clark. The criteria for ranking include talent penetration (40%), infrastructure (30%), and cost and local business environment (20%).

Cacao production to double San Isidro town in Davao del Norte is doubling the area planted to cacao, from 4,000 to 8,000 hectares, by end-2012, according to its municipal government. This would make San Isidro the largest cacao-producing town in Southern Mindanao. About 5,000 hectares of farms are certifi ed as organic, making it possible for local fi rm Chokolate de San Isidro, Inc. (CSI) to export cacao seeds to the European and North American markets. Last year, shipment to the Netherlands generated P11 million.

Region XIII – CARAGA

Vital road project in full swing The implementation of the road project that will link all national road networks in the Caraga Region has started, the regional offi ce of the Department of Public Works and Highways (DPWH) reported. The P160-million Bayugan City-Calaitan-Tandag City Road will connect the highlands of Calaitan to the 2 cities, reducing travel time between Bayugan City and Tandag City from 3 hours to 2 hours and benefi ting more than 200,000 inhabitants within the project infl uence area.

Philippine Alert March 2012 24 philippine regional update

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

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

REGIONS Mar Apr May June July Aug Sept Oct Nov Dec Ave. Jan Feb Mar Ave. PHILIPPINES 4.8 4.7 5.1 5.2 5.1 4.7 4.8 5.2 4.8 4.2 4.77 4.0 2.7 2.6 3.11 METRO MANILA 3.9 3.3 4.4 4.7 4.0 3.3 4.2 4.9 3.5 3.0 4.16 3.5 2.3 2.7 2.85 AOMM 5.1 5.1 5.2 5.4 5.3 5.1 5.0 5.3 5.1 4.5 4.94 4.0 2.8 2.6 3.13 CAR --3.2 3.3 3.5 2.7 2.9 3.6 3.3 3.0 - 2.7 2.3 2.7 2.57 I Ilocos --4.6 3.9 4.3 3.8 3.8 4.4 3.9 4.1 - 2.5 1.9 1.2 1.87 II Cagayan Valley --4.8 4.7 4.5 4.1 3.9 5.5 3.3 2.4 - 2.0 2.0 1.8 1.93 III Central Luzon --4.8 5.4 5.4 5.3 5.6 6.4 6.1 5.0 - 4.4 2.9 3.0 3.43 IV-A Southern Tagalog --5.1 5.6 5.2 5.0 5.2 5.9 5.5 4.8 - 4.5 2.7 2.5 3.23 IV-B Southern Tagalog --6.0 6.0 5.3 5.0 4.7 4.5 4.0 3.6 - 2.8 1.9 1.8 2.17 V Bicol --4.5 4.9 4.8 4.8 4.9 4.9 5.3 4.2 - 3.2 2.8 2.7 2.90 VI Western Visayas --4.3 4.9 4.4 4.6 4.8 5.0 5.1 4.7 - 4.0 3.1 3.0 3.37 VII Central Visayas --5.6 5.1 5.0 4.7 3.5 3.0 3.0 2.8 - 2.8 1.8 1.9 2.17 VIII Eastern Visayas --5.1 5.2 5.1 5.0 4.8 4.8 4.5 4.0 - 3.6 2.8 2.8 3.07 IX Western Mindanao --6.2 6.3 6.5 6.6 6.1 6.5 6.5 6.3 - 5.4 3.1 2.6 3.70 X Northern Mindanao --5.3 5.2 5.5 5.5 5.1 5.5 5.8 6.0 - 5.5 4.2 3.6 4.43 XI Southern Mindanao --6.8 6.6 6.6 6.6 6.0 5.5 5.0 4.6 - 4.5 3.4 3.1 3.67 XII Central Mindanao --5.8 5.4 5.7 5.1 4.5 4.1 4.2 4.1 - 3.5 2.7 2.6 2.93 ARMM --6.3 6.9 6.4 6.7 6.3 6.0 6.1 5.8 - 5.5 3.7 3.6 4.27 CARAGA --6.9 7.6 8.2 7.6 6.8 6.8 6.7 6.9 - 6.6 5.2 3.8 5.20

Philippine Alert March 2012 philippine regional update 25

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

GROWTH GROWTH 4Q TOTAL 1Q 2Q 3Q 4Q TOTAL RATE RATE Philippines 5,264,579 20,887,071 29.6 5,530,024 5,322,724 4,392,484 4,673,061 19,918,293 288.5 Metro Manila 2,149,026 8,451,567 81.5 2,023,736 1,507,032 1,041,115 1,319,151 5,891,034 216.2 Cordillera CAR 58,642 266,629 1.1 66,467 63,435 59,487 63,726 253,115 293.8 1-Ilocos Region 161,681 761,883 (3.2) 237,635 249,844 186,431 175,520 849,430 278.1 2-Cagayan Valley 54,077 293,133 13.9 73,026 89,888 68,164 56,502 287,580 312.8 3-Central Luzon 408,093 1,787,452 (10.8) 554,686 592,948 566,324 422,901 2,136,859 296.4 4A-Calabarzon 702,527 3,538,432 26.8 926,501 887,364 928,223 800,027 3,542,115 262.0 4B-Mimaropa 78,754 322,014 68.2 95,840 67,564 49,980 38,904 252,288 214.0 5-Bicol Region 86,044 352,842 0.7 96,082 152,681 110,580 99,305 458,648 264.2 6-Western Visayas 194,292 878,054 21.1 183,943 164,366 204,106 210,009 762,424 162.8 7-Central Visayas 465,696 1,463,847 (10.1) 485,016 914,596 430,732 726,770 2,557,114 775.4 8-Eastern Visayas 74,185 298,863 3.9 104,056 73,747 75,310 79,991 333,104 301.0 9-Zamboanga Penisula 43,242 126,137 (14.9) 45,333 51,542 52,426 64,565 213,866 741.9 10-Northern Mindanao 188,782 575,099 27.3 172,037 130,629 132,721 160,023 595,410 389.9 11-DAVAO 330,645 1,068,873 4.6 311,081 210,542 289,950 248,481 1,060,054 335.5 12- SOCCSKSARGEN 194,990 416,794 30.8 93,181 91,060 88,654 117,684 390,579 429.3 CARAGA 55,653 261,249 21.7 59,601 74,567 105,255 87,906 327,329 533.2 ARMM 18,250 22,725 27.8 1,803 919 3,026 1,596 7,344 646.3

VALUE OF PRIVATE BUILDING CONSTRUCTION (IN ‘000) 2010 2011 GROWTH GROWTH 4Q TOTAL 1Q 2Q 3Q 4Q TOTAL RATE RATE Philippines 47,799,354 190,466,918 37.5 52,771,758 55,668,779 41,652,765 43,756,384 193,849,686 309.8 Metro Manila 23,508,923 96,154,464 82.7 25,145,574 25,168,012 13,375,554 16,067,468 79,756,608 241.2 Cordillera CAR 504,367 2,564,348 17.2 572,289 591,104 597,500 610,518 2,371,411 312.6 1-Ilocos Region 1,173,470 5,767,950 (0.2) 1,803,366 1,807,622 1,552,313 1,401,977 6,565,278 284.3 2-Cagayan Valley 401,370 1,829,503 4.8 539,370 714,773 482,937 469,782 2,206,862 347.9 3-Central Luzon 2,835,813 13,470,702 (2.5) 4,257,161 4,548,155 4,059,670 3,355,482 16,220,468 337.4 4A-Calabarzon 5,373,908 27,608,655 30.0 7,226,370 7,704,940 9,398,426 6,085,983 30,415,719 289.6 4B-Mimaropa 453,857 2,077,799 55.4 667,922 1,210,366 307,623 264,522 2,450,433 392.7 5-Bicol Region 528,129 2,270,409 4.7 909,237 976,281 705,738 796,947 3,388,203 335.0 6-Western Visayas 1,810,761 7,139,886 5.6 2,604,344 1,553,300 2,055,263 1,697,326 7,910,233 315.8 7-Central Visayas 3,352,699 10,762,188 (16.0) 3,335,287 6,661,414 3,007,842 5,199,462 18,204,005 696.8 8-Eastern Visayas 580,846 2,162,231 11.4 1,005,071 691,264 699,421 816,005 3,211,761 507.8 9-Zamboanga Penisula 390,383 894,875 (5.2) 224,760 235,247 265,801 463,376 1,189,184 689.6 10-Northern Mindanao 1,185,066 4,039,907 47.1 1,275,285 1,093,487 1,012,840 2,145,466 5,527,078 360.5 11-DAVAO 3,274,545 8,594,891 (2.3) 2,266,339 1,693,821 2,799,017 3,042,629 9,801,806 531.3 12-SOCCSKSARGEN 2,080,635 3,493,479 57.9 621,078 554,880 637,619 887,627 2,701,204 523.4 CARAGA 306,837 1,564,074 22.5 308,242 459,797 659,371 443,481 1,870,891 507.2 ARMM 37,745 60,711 (28.8) 10,063 4,316 35,830 8,333 58,542 811.0

Philippine Alert March 2012 26 philippine regional update

EMPLOYMENT RATE BY REGION (IN%) (New Defi nition) 2010 2011 2012 APR JUL OCT JAN APR JUL OCT JAN PHILIPPINES 92.0 93.1 92.9 92.6 92.8 92.9 93.6 92.8 Metro Manila 88.2 89.1 87.4 88.0 88.4 89.1 89.6 87.8 Cordillera CAR 94.0 95.0 95.6 94.4 95.0 95.3 95.2 94.4 1-Ilocos Region 90.7 91.9 91.4 90.0 90.2 92.1 93.4 91.1 2-Cagayan Valley 94.9 96.1 97.4 96.9 96.7 97.6 97.2 97.6 3-Central Luzon 90.1 92.0 92.0 92.1 91.7 90.4 91.7 90.3 4A-Calabarzon 89.7 90.6 91.0 90.5 90.0 89.6 91.0 91.5 4B-Mimaropa 96.0 95.6 94.9 95.7 96.0 96.2 96.5 96.6 5-Bicol Region 93.4 94.0 94.2 92.9 93.4 94.6 94.7 93.2 6-Western Visayas 90.3 93.4 93.9 93.5 92.4 94.0 93.6 93.7 7-Central Visayas 91.4 94.0 92.3 91.7 93.8 93.7 93.9 92.5 8-Eastern Visayas 95.9 94.7 93.9 93.7 94.3 95.3 96.0 94 9-Zamboanga Penisula 96.9 96.0 97.0 96.9 96.8 96.7 96.6 96.6 10-Northern Mindanao 93.6 96.0 95.8 95.1 96.0 94.8 96.1 95.7 11-DAVAO 93.7 94.1 93.9 94.2 94.6 94.2 95.4 93.8 12-SOCCSKSARGEN 95.6 95.8 96.3 96.8 96.0 95.5 96.3 96 CARAGA 92.4 94.6 95.1 92.4 95.1 94.1 94.5 93.6 ARMM 95.9 96.0 96.8 96.1 96.3 96.3 97.7 97

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

APR JUL OCT JAN APR JUL OCT JAN

Philippines 8.0 6.9 7.1 7.4 7.2 7.1 6.4 7.2

Metro Manila 11.8 10.9 12.6 12.0 11.6 10.9 10.4 12.2 Cordillera CAR 6.0 5.0 4.4 5.6 5.0 4.7 4.8 5.6 Ilocos Region 9.3 8.1 8.6 10.0 9.8 7.9 6.6 8.9 Cagayan Valley 5.1 3.9 2.6 3.1 3.3 2.4 2.8 2.4

Central Luzon 9.9 8.0 8.0 7.9 8.3 9.6 8.3 9.7

Calabarzon 10.3 9.4 9.0 9.5 10.0 10.4 9.0 8.5

Mimaropa 4.0 4.4 5.1 4.3 4.0 3.8 3.5 3.4

Bicol Region 6.6 6.0 5.8 7.1 6.6 5.4 5.3 6.8

Western Visayas 9.7 6.6 6.1 6.5 7.6 6.0 6.4 6.3

Central Visayas 8.6 6.0 7.7 8.3 6.2 6.3 6.1 7.5

Eastern Visayas 4.1 5.3 6.1 6.3 5.7 4.7 4.0 6

Zamboanga Penisula 3.1 4.0 3.0 3.1 3.2 3.3 3.4 3.4

Northern Mindanao 6.4 4.0 4.2 4.9 4.0 5.2 3.9 4.3

DAVAO 6.3 5.9 6.1 5.8 5.4 5.8 4.6 6.2

SOCCSKSARGEN 4.4 4.2 3.7 3.2 4.0 4.5 3.7 4

CARAGA 7.6 5.4 4.9 7.6 4.9 5.9 5.5 6.4

ARMM 4.1 4.0 3.2 3.9 3.7 3.7 2.3 3

Philippine Alert March 2012 BUSINESS BUSINESS 27

Lady luck grins on Asia as PH develops Entertainment City Manila Casino gaming is expected to boom in Asia. Presently, Asia’s casino gaming market is underserved so 4 frontier markets- Cambodia, Vietnam, Sri Lanka and the Philippines are taking advantage of the situation.

“ sia Pacifi c will be the fastest-growing region for casino gaming spending in 2014,” Pricewaterhouse Coopers Aconcluded in its Global Entertainment and Media Outlook. This growth is foreseen to nearly double Asia Pacifi c’s global casino market share to 40% in 2014 from 22% in 2009 on the back of increased casino revenues primarily in China (Macau) and Singapore. Casino industry analysts clarifi ed, however, that the growth will not be isolated to the region’s powerhouses but be “an Asia-wide phenomenon”. The positive outlook on casino gaming in Asia-Pacifi c, however, will be tempered by the current underserved casino market in the region. Citigroup Global Markets noted that, “South and Central Asia alone are home to 4 billion people, where gaming demand is served by just 200 licensed venues (versus 1,600 and 1,200 in North America and Europe, names in the entertainment and leisure industry – Travellers respectively)”. CitiGroup also pointed out that this problem will International, Tiger Resort Leisure and Entertainment Inc., SM benefi t 4 “frontier markets” - Cambodia, Vietnam, Sri Lanka, Investments Corp. (SMIC), and Bloombury Resort and Hotels and the Philippines, that are “poised to take on the burgeoning Inc. (see table). All projects will offer 5-star to 6-star hotel opportunities presented by the gaming business in the region”. amenities, amusement parks, sports complex, shopping malls, Each of the 4 “frontier markets” are currently developing and casino gaming centers, among others. When completed, ECM large-scale casino gaming projects to take advantage of the with its integrated resorts is seen to generate approximately $15 exceptional opportunity. The Philippines, in particular, has been billion worth of investments over its 10-year development period. building the $5-billion Entertainment City Manila (ECM), the Moreover, ECM is expected to draw 1 million tourists per year country’s most ambitious tourism project that will be developed that would generate an estimated 80,000 direct jobs (plus 400,000 in various phases over the next 10 years. ECM will be a world- indirect jobs) and $11.5 billion worth of gaming revenues, class integrated 4-resorts complex on a 120-hectare reclamation nearly double Singapore’s $6 billion revenues in 2011 but still area along Manila Bay that is being developed by 4 of the biggest minute compared to Macau’s $34 billion gaming revenues.

The ECM is expected to draw 1 Mn tourists per year that would generate an estimated 80,000 direct jobs and $11.5 Bn worth of gaming revenues.

Philippine Alert March 2012 28 BUSINESS

The Freeh report, released in 2011, also claimed that the Philippine casino gaming industry is “deeply ingrained” with offi cial corruption.

The ECM is foreseen to increase the country’s casino Other government offi cials are not convinced, pointing out the gaming market share in Asia, but recent allegations involving problem arising from PAGCOR’s dual role - as an operator and the Philippine Amusement and Gaming Corporation (PAGCOR), at the same time regulator of casinos. The Congress, in order the country’s sole operator and regulatory body for casino to solve the problem, has recently approved on third and fi nal gaming, and its credibility and charter could hinder this goal. reading House Bill (HB) 5682, a bill that abolishes PAGCOR’s An independent report from Louis Freeh, former director of the authority to issue casino franchises and reverts this right to U.S. Federal Bureau of Investigation, claimed that PAGCOR Congress (but is yet to be passed by the Senate). Unlike in other Chairman Cristino Naguiat, Jr. received bribes in the form of situations, the Congress acted swiftly to solve the impasse being $6,000 worth of hotel accommodation per night, a $110,000 faced by PAGCOR offi cials but the passage of HB 5682 alone cash gift, and a Chanel Bag (for Mr. Naguiat’s wife) from Kazuo cannot solve the problem. A clear understanding of social concern Okada, the Japanese investor behind Tiger Resort Leisure, that and the stringent implementation of HB 5682 are necessary reportedly infl uenced Mr. Naguiat to accept Mr. Okada’s Manila to solve the problem (see related article in Political Section). Bay Resorts project for ECM. Steve Wynn, the Chairman of Despite the bribery allegations, PAGCOR continues Wynn Resorts in Las Vegas and the long-time partner of Mr. to hit record-breaking revenues. Gross revenues in Okada, requested the investigation that prompted him to buy February 2012 reached a record P3.56 billion while revenues back Mr. Okada’s 24 million shares (owned by USA Aruze in 2011 recorded an all-time high of P36.7 billion. Gross Resorts, sister company of Tiger Resort Leisure) in Wynn revenues in previous years also posted steady increases on Resorts. The Freeh report also claimed that the Philippine casino the back of a consistent upbeat performance of gaming tables gaming industry is “deeply ingrained” with offi cial corruption. and slot machines operations nationwide (see table). From Mr. Naguiat and other PAGCOR offi cials strongly denied the 2010 to 2014, Pricewaterhouse Coopers expects the country’s fi ndings of the report. They were supported by the government casino gaming revenues to achieve a 17.6%-growth, the second as it categorized accepting lavish freebies as “industry practice”. highest in the region after Macau with 24.7% (see table).

INVESTMENT AS ECM 4 INTEGRATED NO. OF HOTEL CASINO GAMING COMPLETION DEVELOPER MANDATED BY HECTARES STATUS RESORTS ROOMS FEATURES (1ST PHASE) PAGCOR($B)

Bloomberry Hotels and 300 Gaming Tables; Solaire Manila 1 8.3 500 Under Construction 4Q2012/2013 Resorts Inc. 1,200 slot machines

350 Gaming Tables; Belle Grande SM Investments Corp. 1 6.2 880 Under Construction 1Q2013 1,900 slot machines

Tiger Resort Leisure and 500 Gaming Tables; Manila Bay Resort 2 45 1100 Under Construction 3Q2014 Entertainment Inc. 3,000 slot machines

Travellers International 300 Gaming Tables; Resorts World Manila 1 7.8 1574 Going to 2nd Phase 2009 Hotel Group Inc. 1,000 slot machines

Source: Company websites and press releases

PAGCOR Revenues (in Php billions) 2006 2007 2008 2009 2010 2011

Gross 24.3 27.8 29.7 30.3 31.5 36.7

Net 1.6 1.8 1.5 0.8 2.8

Source: PAGCOR website and press releases

CASINO GAMING MARKET 2010-14 FORECAST (IN $ MILLIONS)

Asia Pacifi c 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2010-14 CAGR

Australia 2,052 2,230 2,488 2,640 2,697 2,769 2,847 2,944 3,050 3,159 3.2

Macau 5,769 7,094 10,401 13,627 14,955 22,445 28,379 34,184 39,989 45,149 24.7

Malaysia 722 758 792 835 877 920 962 1,005 1,047 1,089 4.4

New Zealand 295 308 293 300 300 303 312 337 362 391 5.4

Singapore - - - - - 2,750 5,479 6,572 7,562 8,318 -

Philippines 431 470 515 549 541 607 679 790 1,037 1,215 17.6

South Korea 1,610 1,860 2,172 2,325 2,401 2,430 2,512 2,852 3,204 3,360 7.0

Vietnam 47 54 60 67 74 81 89 106 122 139 13.4 Source: Pricewaterhouse Coopers

Philippine Alert March 2012 BUSINESS 29

BSP lowers credit risk for Agri-Agra lending Agricultural loans are less attractive to banks because it is less profi table and less credit-worthy. Under RA 10000, The Bangko Sentral ng Pilipinas (BSP) issued a new circular banks are obliged to grant at least 25% of loanable funds to on March 1 that compromises with banks on the provisions the agriculture sector (10% for agrarian reform credit, and of Republic Act (RA) 10000 or “The Agri-Agra Reform 15% for “other agricultural credit”) under stricter modes of Credit Act of 2009”. The Agri-Agra law strictly prescribes compliance. The Bankers Association of the Philippines (BAP) the grant of loans to activities which directly benefi ts the argues that this makes compliance too risky for banks. Aside agriculture sector. The new circular lowers the credit risk from carrying greater risk in granting agricultural loans, banks carried by the lenders for agricultural loans through the would also have to allot a larger capital cover– under the capital adequacy ratio (CAR) requirement of BSP – to manage Agriculture Guarantee Fund Pool (AGFP). the impact of default from the loans, should they happen. RA 10000 repealed Presidential Decree (PD) 717 in August Circular no. 750 has amended the provisions of the Manual 2011 and strictly limited banks’ modes of compliance to cover of Regulations of Banks (MORB) on risk weighting and has only agricultural development activities (see table). However, set risk weight at 20% for agricultural loans guaranteed by banks preferred to retain development loan incentives – the Agriculture Guarantee Fund Pool (AGFP). The Bangko loans for educational institutions, hospitals, and socialized Sentral ng Pilipinas (BSP) issued the new circular on March housing –as an alternative for compliance due to better 1 in order to lower the credit risk, lower the required capital profi tability and lower risk in these areas. According to the cover, and make agricultural loans more attractive to banks.

DETAILS OF ALTERNATIVE COMPLIANCE PD 717 RA 10000

Development Loan Incentives* Investments in DBP/LBP bonds Low-Cost Housing Investments in other Debt Securities certifi ed by DA Erap Bonds Equity Securities in accredited Rural Financial Institutions (RFIs) LGU Bonds Equity securities in the Philippine Crop Insurance Corporation 10-year LBP Agricultural Bonds Equity securities in the Quedancor Corporation Quedancor equity/Investment Bonds Investment in Special Deposit Accounts Pag-ibig bonds Rediscounting facility granted by Universal and Commercial banks Other government securities Other receivables under Infrastructure/Construction Loans Special purpose TBs for CARP Wholesale Lending facility Home Guarantee Corporation Loans secured by NFA’s PNWRs Loans to BMBEs Others (Pag-IBIG/LGU bonds quedancor) Zero Coupon bond Issued HGC

· Note: All are created for the exclusive purpose of on-lending only to agriculture, fi sheries, and *Loans for educational institutions, hospitals, socialized housing agrarian reform sector. Source: Bangko Sentral ng Pilipinas (BSP)

SHARES ON AGRI-AGRA COMPLIANCE REQUIREMENTS (2006-2010) data provided by BSP, development loan incentives comprised ITEMS AVERAGE the bulk of the credit under alternative modes of compliance Total Compliance (in million pesos) 479,359 at 22.23% of the total loans for compliance (see table). Compliance Ratio (%) 21.69 BSP offi cials have admitted that the rules under RA 10000 are Share of Direct Loans to Total Compliance (%) 63.29 stricter since it limits alternative compliance. They emphasized Share of Alternative Compliance to Total Compliance (%) 36.71 that this would help BSP regulate the implementation of the law (In %) Development Loan Incentives1 23.19 effectively. Nevertheless, after 6 months from the effectivity of Other Government Securities2 3.19 RA 10000, BSP lowered the credit risk of agricultural loans to Special Purpose Treasury Bills for CARP3 2.69 compromise with banks. Under the circular, 80% of the risk in Home Guarantee Corporation 2.45 agricultural loans is backed by the government. This is insured Pag-Ibig Bonds 1.57 by a portion of the AGFP, which will be maintained by investing 10-year LBP Agricultural Bonds 1.33 only in assets that are risk free (such as government securities). Loans Secured by NFA’s PNWRs 1.25 The circular also stated that the AGFP can support credit as much Quedancor Equity/Investment Bonds 0.53 High Value Crops 0.19 as 3 times its fund size. This means that lending banks will incur LGU Bonds 0.16 lower risks and be able to reserve a lower amount of capital cover. Low-Cost Housing 0.11 With the new circular in effect, the BSP is expecting banks to Erap Bonds 0.04 be more confi dent in extending loans to the agriculture sector. 1Loans for educational institutions, hospitals, socialized housing 2Provided in MOR, Sec. X341.3 3Provided in Circular 301 Source: Bangko Sentral ng Pilipinas (BSP)

Philippine Alert March 2012 30 BUSINESS

Under Circular no. 750, AGFP ensures 80% of the risk in agricultural loans granted by banks.

The AGFP was created under Administrative Order (AO) Job vacancies in the Philippines, in particular, take about 225-A (dated May 26, 2008) to support programs intended more than 3 weeks before they are fi lled up. Local employers for enhancing the Philippines’ productivity particular to pointed out gaps in thinking and behavioral skills and the agriculture sector. The money gathered in this pool was technical skills. Time management, initiative, negotiation, contributed by government-owned and controlled corporations leadership, and problem solving are the 5 major gaps in and government fi nancial institutions from the 5% of their surplus thinking and behavioral skills. Meanwhile, foreign degree, in 2007. Further growth of the fund will come from penalty fees technical qualifi cation, voc/tech qualifi cation, experience in for the non-compliance of banks to RA 10000 among others. a different fi eld, and experience in the same fi eld are the 5 major gaps in technical skills. In the research fi eld, only 2% of companies in Asia use research done by higher education institutions (HEIs), which has been attributed to their lack of WB: PH higher education “disconnected” knowledge on employment trends and outdated curriculums. These constraints resulted from the “disconnected” reality of Higher education (HE) propels a country’s growth and HE from its education and employment partners (see table). To development but a recent study by the World Bank showed address the disconnects, the Philippines has been implementing “disconnects” between what HE produces and what em- the K+12 program. The K+12 program is perceived to bridge the ployers need in Southeast Asian countries. Employers in gap between basic education and HE as well as the employability the Philippines, in particular, complain of 3-week long constraints of graduates. The K+12 program includes 1 year headhunting and inadequate behavioral and technical in kindergarten (5 year-olds), 6 years in elementary, 4 years in skills of graduates. regular or junior high school, and now, an additional 2 years in senior high school. Senior high school students are expected to The World Bank in its regional report, “Putting Higher acquire skills and competencies needed in the job market, and Education to Work”, concluded that HE failed to translate skills and learn in-depth specialization in one of these areas: Science and research to employment in Southeast Asian countries. Extensive Technology, Music and Arts, Agriculture and Fisheries, Sports, time in fi lling up professional and skill vacancies, which stretches Business and Entrepreneurship. Graduates of the program from about 3 to a maximum of 6 weeks, as well as gaps in behavioral are likely to acquire mastery of basic competencies, be more and technical skills, indicated this failure. The 5 “disconnects” emotionally mature and socially-aware, and adequately prepared identifi ed by wide range of education and employment providers before they enter HEIs. An estimated 1.7 million kindergarten are considered major reasons why HE is not meeting its promises. students were enrolled in 2011 while the enhanced curriculum for

Time management, initiative, negotiation, leadership, and problem solving are the 5 major gaps in thinking and behavioral skills.

5 DISCONNECTS IN HIGHER EDUCATION REASONS FOR DISCONNECT

Instruments to provide institutions (and students) with labor market information are virtually absent as well as mechanism to channel inputs of fi rms in curriculum design and implementation.

Between Higher Education and Employers (skill users) Lower and middle-income countries in Asia are suffering from 2 main faculty-related constraints: higher and growing student-to-faculty ratios, and a low share of faculty with graduate degrees. Few incentives for public institutions to produce graduates with the skills needed. The capacity of universities to undertake meaningful research and capacity of fi rms not only to identify but also to use the knowledge available at universities are limited. Between higher education and companies (research users) Universities may not be fully aware of industry’s R&D and technology needs while fi rms lack knowledge of university offerings. Inadequate incentives worsen universities and faculty’s interest and relationship to enterprises. Most countries have been adopting a model of separation between teaching and research that has not been Between higher education and research institutions conducive to enhancing research in universities. Useful synergies between research at HEIs and research (research providers) institutes are not exploited. Among higher education institutions themselves and Lack of a well-developed and unifying framework for different skill providers. Most countries have no between these institutions and training providers (horizontal competence-based training systems that focus on the skills needed for performance in a job and put pressure disconnect across skill providers) on instructors and institutions to deliver these skills. Between higher education and earlier education (schools) Evidence suggests that policy makers in low and middle-income countries in Asia may not be putting enough (vertical disconnect across skill providers) emphasis on the connections between education levels, or fully understanding these interrelationships.

Source: Putting Higher Education to Work: Skills and Research for Growth in East Asia by World Bank Philippine Alert March 2012 BUSINESS 31

Although, the implementation of the K+12 program can address the weaknesses in HE, major reforms are still needed for its successful delivery of graduates.

RESEARCH AND DEVELOPMENT EXPENDITURE, 1996-2007 AS PERCENTAGE TO GDP

Economy 1996 2000 2002 2004 2005 2006 2007

Vietnam - 0.1 0.2 - 0.3 - -

Philippines - - 0.2 - 0.1 - -

Indonesia - 0.1 - 0.1 0.1 - -

China 0.6 0.9 1.1 1.2 1.3 1.4 1.5

Thailand 0.1 0.3 0.2 0.3 - 0.2 -

Malaysia 0.2 0.5 0.7 0.6 - 0.6 -

Korea, Rep. 2.4 2.4 2.5 2.9 3 3.2 3.5

Singapore 1.4 1.9 2.2 2.2 2.4 2.3 2.6

Japan 2.8 3 3.2 3.2 3.3 3.4 3.4

Source: World Development Indicators database (latest) grade 7 will be launched this school year. The implementation Philippine Business Registry System being of the program is foreseen to be completed by 2016. fi netuned Although the implementation of the K+12 program can address the weaknesses in HE, major reforms are still needed The government expects to streamline business registration for its successful delivery of graduates. The WB called for processes with the Philippine Business Registry System more effi cient spending and fi nancing of higher education, (PBRS). The PBRS allows new and existing businesses to better management of public institutions, and exercising apply and validate business permits online from relevant stewardship of the higher education system to assemble the “disconnected” parts of HE. Budget allocation to public HEIs government agencies all at once in as fast as 30 minutes. should be based on the performance of teaching personnel and However, system updates and security modifi cations of the curriculum, among others. HEIs should be given the freedom PBRS are still needed to fully address the country’s lethargic to decide on their academic and training programs. And most performance in doing business. importantly, HEIs should closely coordinate with government agencies (CHED, Department of Labor and Employment The PBRS is the Department of Trade and Industry’s (DTI) (DOLE), and Department of Education (DepEd) etc.), technical fl agship program that links computerized registration systems training institutions (TESDA etc.), and other public and private of all government agencies necessary in business registration – HEIs to properly steer HE for growth and development. Bureau of Internal Revenue (BIR), Social Security System (SSS), Priority of research is also an important reform in HE. Home Development Mutual Fund (Pag-IBIG), and Philippine The conception of research studies leads to innovation and Health Insurance Corporation (PhilHealth), among others. In technological development and paves the way for “improved this way, businessmen can apply and register business names processes that can be integrated more readily into the operations and employer registration numbers (ERNs) without visiting any of a fi rm while returns accrue quickly.” Unfortunately, budget of these government agencies. Single proprietorship applicants allocation for research and development in South East Asia can access the PBRS online (www.business.gov.ph), fi ll-up remains low, amounting to less than 1% of gross domestic electronic forms, pay online through Globe’s GCash facility, and product. The Philippines, specifi cally, holds one of the lowest obtain their tax identifi cation numbers (TINs) from the BIR and allocations for research and development in 12 years (see table). ERNs from SSS, PhilHealth, and Pag-IBIG all at once. Applicants HE is the foundation for developing skills and research; applying for permits etc. from local government units with two critical factors that a middle-income country like the unlinked registration systems, however, will still need to visit the Philippines need to further ascend the technological ladder. concerned LGU to physically process and get business licenses. It is a source of scientifi c, technical, and analytical skills that The implementation of the PBRS is a response to the country’s employers look for in its workforce. It is also an avenue where lethargic performance in the International Finance Corporation research is conceptualized that can create a level playing fi eld (IFC) – World Bank’s (WB) Doing Business report. Findings with its innovative ideas, transformed into new products and from the report indicated that the ease of doing business in the technology. This foundation, however, is the main problem of the Philippines remained sluggish. The number of procedures needed country’s educational system, which if not solved in the soonest to start a business increased from 10 in 2008 to 15 in 2012. The possible time, will cause the Philippines’ further drawback. number of days needed to process business permits, however,

Philippine Alert March 2012

32 BUSINESS

Over the long-term, PBRS is seen as a part of a bigger data-sharing platform among gov’t agencies that can provide data that will help defi ne the needs of the business sector.

did decrease from 72 in 2008 to 35 in 2012, which was still too While waiting for the completion of system updates, the lengthy (see table). With the implementation of the PBRS, the DTI recently linked the PBRS to the Securities and Exchange government expects to cut the long process in getting business Commission (SEC) on March 12, 2012. The linking of the SEC permits from 14 days to 30 minutes, and eliminate red tape and database paves the way for business registration applications for create a level playing fi eld for investors by providing a 1-stop- partnerships and corporations. Applicants for such need only to shop for entrepreneurs seeking to register their businesses. Over visit the SEC with their original certifi cates and transmit ERN the long-term, the PBRS is seen as a part of a bigger data-sharing applications to SSS, PhilHealth, and Pag-IBIG through its PBRS platform among government agencies that can provide statistics to kiosks. After linking with the SEC database, the PBRS was describe the structure and defi ne the needs of the business sector. launched in 3 major business hubs in the country – Quezon city, The PBRS, however, is not delivering its promise at present. Cebu, and Pampanga. The development of the PBRS started The program is experiencing system glitches and modifi cation. with Executive Order 587, issued on December 8, 2006, which Its GCash facility from Globe cannot be accessed, which directed DTI to set up and supervise the project in coordination meant payments had to be given directly to any DTI offi ce. with all other concerned government agencies. The Business Increased protection of vital information transmitted to the Registry and the business application infrastructure was created PBRS is also being addressed through security modifi cations. in the December 2007. In 2008, the Business Registration system Due to these upgrades, the DTI announced on March 6, 2012 (BNRS), a web-based program that automates the application, that the PBRS is temporarily unavailable to the public, which renewal, and searching of business names, was established. Acuity means the program cannot be accessed online outside the trade Technologies, Inc. was contracted to develop the BNRS and is agency. With this, applicants for single proprietorship are doing continuous enhancements. In December 2010, Acuity advised to go to the nearest DTI offi ce to apply and register was also tapped to create the PBRS, where it also provided the business permits through the PBRS, thus reverting back to Enterprise Business System Architecture solution that created a the old style in seeking business permits, although with less uniform policy and procedure in getting business permits across paperwork. Another drawback of the PBRS is that applicants different government databases. The DTI, with the attendance of still need to visit concerned government agencies to get their President Aquino, offi cially launched the PBRS last January 27, business permit certifi cates. Despite some lapses in the PBRS, 2012. In June 2012, the DTI is expected to deploy more than 100 the DTI is optimistic it can resume public access by mid-2012. PBRS workstations in the local offi ces of DTI, SEC, and LGUs.

IFC DOING BUSINESS 2008 2009 2010 2011 2012 81% Ease of Doing Business Rank 75% (133/178) 77% (140/181) 79% (144/183) 74% (136/183) (148/183) Starting a Business Rank 81% (144) 86% (155) 88% (162) 85% (156) 86% (158)

Procedures (number) 15 15 15 15 15

Time (days) 58 52 52 38 35

Cost (% of income per capital) 26.8 29.8 28.2 29.7 19.1

Minimum capital (% of income per capita) 6.9 6 5.5 6 5.2

Source: IFC-World Bank Doing Business Report 2008-2012

Philippine Alert March 2012 BUSINESS 33

MINING , OIL, & GAS Board (NSCB), reported in his latest column in the NSCB website that the Philippines’ gold reserves alone are worth P7.36 trillion (using the 2011 world market prices), or 76% Minerals now 2nd top PH export of the P9.73-trillion gross domestic product (GDP) in 2011. The biggest reserves of gold could be found in Region 12, Precious and industrial metals emerged as the second biggest with 2,189 billion metric tons (MT), accounting for 44.4% export products of the Philippines in 2011 behind electronic of the country’s total gold reserves of 4.914 billion MT. products. Minerals surpassed garments, now at 3rd spot. The Mr. Virola mentioned in the report that the potential in mining mining industry has been lamenting that if the uncertainties can aid in reducing poverty and closing the income gap in the in the sector will be resolved, the country can surely benefi t country. He said that the value of gold reserves is also equal to aside from generating higher revenues from exports. more than 65.1 times the income gap of P113.1 billion for 2011, the amount needed to completely eradicate poverty in the country. Mineral exports last year registered $2.65 billion or higher Meanwhile, the mining sector continues to be hounded by by 37.7% than $1.93 billion in export sales in 2010. However, strong opposition due to several issues. One is the unregulated this fi gure will pale in comparison if compared to industry-wide small-scale mining that has resulted in fatal accidents and the revenues. The mining industry will only account for a mere 5% of poisoning of waterways in mining areas with the use of mercury the total exports. In the 1970’s, mineral exports used to account in the extraction of gold. Another is the strong advocacy by for bulk of exports. During its peak, mineral exports contributed church leaders and environmental groups to totally ban mining. 24% to total exports. If it had continued at least at 20%, the According to Ms. Nelia Halcon, Executive Director of the earnings from mineral exports would have been about $9 billion. Chamber of Mines in the Philippines, the present administration The industry is expected to grow even faster in the coming must, once and for all, decide its mining policy. She pointed out that years, reported Engr. Manuel Banaag, Division Chief of the the declaration of mining moratorium by some local governments Mines and Geosciences Bureau (MGB) during a briefi ng with has undermined mining development in several provinces. Bangko Sentral ng Pilipinas offi cials and leaders of the export industry. The MGB has granted a total of 778 exploration permits and has purged its list of idle projects as part of ongoing reforms Higher taxes feared by mining fi rms to make mining a major industry in the country. Mr. Banaag revealed that 8 new mining projects that have reached advance The mining industry expressed concerns that the new mining stages of development will fuel further growth of mineral exports. policy may have provisions that will further hurt the sector. In addition to copper concentrate, copper metals, gold The government has yet to release its mining policy after and chromite, the Philippines mines and exports nickel and missing its original schedule of release last February. One iron products, which are mostly industrial minerals used in of the major concerns of mining fi rms is the imposition of the manufacture of special steel. The mined copper alone higher taxes. was valued at $1.34 billion while gold was at $214 million. The mining industry still has to hurdle obstacles to be able In a statement published in local newspapers, the Employers to take advantage of its big potentials. Mr. Romulo Virola, Confederation of the Philippines (ECoP) expressed concerns Director-General of the National Statistical Coordination over some proposals for the planned new mining policy. According to reports, there were as many as 5 drafts but a fi nal version has already been submitted to President Aquino for his PERCENT SHARE OF MINING TO TOTAL EXPORTS FROM 1975-2001 25 approval. All stakeholders remain anxious while waiting for the release of the fi nal policy. According to the statement, ECOP is deeply concerned over controversial proposals to convert 20 mining areas into mineral reservations in order to increase taxes on large-scale mining. The mining sector laments that

15 they already spend much in paying taxes and contributing to the public sector through social development programs. The amount of taxes imposed by the government in any 10 country is a major consideration for mining investments. The Philippines can lose these investments out to countries with more competitive tax system and policy regime. One example 5 is Indonesia, which to begin with imposes a lower income tax of 25%. Indonesia, however, has higher excise taxes that range 0 from 3.75% to 5% depending on the metal while the Philippines '75'76'77'78'79'80'81'82'83'84'85'86'87'88'89'90'91'92'93'94'95'96'97'98'99'00'01

Mineral exports used to account for about ¼ of total exports during the 1970’s.

Philippine Alert March 2012 34 BUSINESS

TAXES IMPOSED TO MINING COMPANIES – PHILIPPINES VS. INDONESIA PHILIPPINES INDONESIA (1) TYPE OF METAL ALL COPPER GOLD NICKEL (2) 1) Income Tax 30% 25% 25% 25% Taxes/Fees/Royalties (3) Excise Tax (4) 2.00% 4.00% 3.75% 5.00% Business Tax (5) 1.50% N/A N/A N/A In Mineral Reserve Add: Mineral Reserve Royalty 5.00% N/A N/A N/A In Ancestral Land Add: Royalty to IPs 1.00% N/A N/A N/A 2) Taxes/Fees/Royalties 9.50% 4.00% 3.75% 5.00% Notes: 1. Assumes publicly listed company; royalty rates following approval of Regulation No. 9, 2012. 2. Royalty is applicable to Nickel Ore; Nickel Matte is taxed at 4%. 3. Based on Gross Output. 4. Royalty in the case of Indonesia. 5. Assumes municipalities charge at the maximum allowable rate of 70% of 2% as per Sec. 143 (h) of the Local Gov’t Code; the 30% balance is charged at the rate applicable in Makati.

charges only 2%. But since the Philippines also requires 5% shortage. The new investments are also expected to strengthen royalty when in mineral reserves and another 1% royalty to the the infrastructure support of the ethanol industry in the country. indigenous people in the impact area, the amount of taxes paid in When the ethanol requirement was fi rst imposed, some oil the Philippines in effect becomes higher (details in table below). companies preferred importing ethanol. This has been an issue with Furthermore, an example of a company or project under local ethanol producers who argued that domestic production should the Mineral Production Sharing Agreement (MPSA) already be prioritized. To appease local producers, DOE has ordered oil contributes about 43.7% of its revenues to the public sector. And companies to exhaust the local supply of ethanol for their blending with royalties, it can go as high as 52.8%. Further raising tax requirements before resorting to imports. Under Department rates will render the country even less competitive than it is now. Circular 2011-12-0013, oil companies are to submit a regular The Philippine Stock Exchange (PSE) has also urged the report on their volume requirements for ethanol, procurement government for a clear-cut and decisive policy on the mining plans, actual purchases and other reportorial requirements. industry, which is seen to be an economic game changer given According to the Philippine Agricultural Development the country’s vast mineral resources and the continued rise in and Commercial Corp. (PADCC), at least 9 companies have metal prices. PSE president and chief executive offi cer Hans Sicat expressed interest to put up bioethanol distilleries in the said the importance of mining to the national economy cannot be Philippines with estimated combined investments of P54 ignored; pointing out that the stock market’s advance has been billion. “Together with the Department of Energy (DOE), we aided by the mining much higher than the 15% annual growth came up with a list of about nine potential investors. We need registered by the next best performing sector index – the holding 13 distilleries to comply with the 10-% blending requirement of fi rms sector, and the 8% growth of the entire market during the bioethanol,” said PADCC President Marriz B. Agbon. He also same period. He noted that the 69% growth of the mining and said that most of the interested companies have foreign partners, oil index last year was the major contributor for the stock market including Koreans, Singaporeans, and Thais, citing the big to become one of the best performing bourses in Asia amidst capital requirement of bioethanol plants. Mr. Agbon added that the uncertainties in the global environment. In the last 5 years, the 9 potential investors were in different stages of negotiations the mining index has registered an annual growth rate of 39%. with the Philippine government. The new production facilities are estimated to have a capacity of 30 million liters each. Gov’t welcomes more investments for new bioethanol During the First Philippine Bioenergy Conference, DOE distilleries Secretary Rene Almendras stated that the government currently targets P15 billion in investments in ethanol distilleries but he The Department of Energy (DOE) is encouraging more emphasized that the calculated investment will just be for the investors to build bioethanol facilities in the country amid shortage prevailing 10% blend requirement and will go up accordingly of locally produced ethanol. Last year, the government has started as the mix by volume goes higher. The investors, he added, implementing the mandated 10% ethanol blend by volume in all are already coming forward with their project plans, noting gasoline fuel distributed and sold by every oil company in the country. that the major factor triggering has been the issuance of a Department Circular, which defi ned the pricing and local The Biofuels Act of 2006 calls for blending ethanol as allocation of supply along with imports. The additional additive to gasoline to reduce the country’s dependence on volume needed would still be signifi cant at roughly 320 imported fuels. The requirement has already increased from million liters, as current production is just at 79 million liters. 1% to 10%. However, the domestic production of ethanol has not been suffi cient to supply the increased demand brought by higher blend requirement. The DOE is now encouraging investors to put up bioethanol distilleries that can fi ll in the Philippine Alert March 2012 BUSINESS 35

I.T. UPDATE win a 3-month immersion in Silicon Valley along with meetings with top-tier VC investors. The competition was sponsored by Silicon Valley’s Plug and Play Center and Globe Labs. DOST’s vision of Filipinnovation gaining The ON3 national competition will have its 3rd run this year. It is interested in local start-ups with products and traction… services in consumer web, mobile wireless, social media, gaming, software, and biotechnology. Among the 2011 winners The Department of Science and Technology’s (DOST) are Piclyf, a social network site/photo blog, and Radgreen national innovation strategy, dubbed Filipinnovation, is Solutions, which introduced a no-burn waste processor gaining traction, especially its thrust of supporting business for hazardous wastes. Both start-ups hail from Mindanao. incubation and acceleration efforts. In recent years, the Apart from the business pitch competition and the PPP with Philippines has developed a track record of venture capital Filipino technopreneurs abroad, the DOST has also contributed (VC) activities. The year 2012 will see more high-impact in establishing infrastructure for business incubation. Its VC-related events spread over the archipelago. Open Technology Business Incubator inside the Science and Technology Park of the University of the Philippines Filipinnovation’s thrust for business incubation and in Diliman currently services 16 local start-ups. Two other acceleration involves encouraging more industry participation incubators are located nearby, which are both collaborations in these activities. In the 1980’s, the DOST had already begun between the university and the Ayala Foundation. The area is tapping the community of Filipino technology entrepreneurs the nearest the Philippines gets to a Silicon Valley-like set-up. and experts abroad to establish the network and seek out Things are slowly coming together for Filipino tech avenues for the transfer of knowledge and expertise back to the start-ups. Apart from the ON3 competition, Globe Labs country. In 2007, seeing opportunity in the Philippines in the brought Startup Weekend, the famed accelerator program Internet age, one of these expat communities decided to become from the U.S., in Manila last October 2011. The country active again and sought dialogue with the DOST. In 2009, this is also getting the attention of more VC fi rms, with some community – the Science and Technology Advisory Council establishing funds solely for investments in Southeast Asia. (STAC) in Silicon Valley, North Carolina, U.S.A. – signed a That the Philippines is considered one of the software developer memorandum of agreement with the DOST, the Dep’t of Foreign hotspots in Southeast Asia today has helped get their attention. Affairs, and the Dep’t of Trade and Industry to institutionalize In fact, Hong Kong-based global IT solutions firm a public private partnership (PPP). And in February 2010, Novare Technologies in January 2012 announced the VC during the E-Services conference, the PPP launched the 1st ON3 fund “Wireless Wings” that will make available initially Competition, which is an acceleration program where the winners P111 million for investment into Filipino start-ups. One

VENTURE CAPITAL FIRMS AND THEIR INVESTMENTS IN THE PHILIPPINES Stratpoint Technologies, Inc. – Narra’s 1st fi rst investment in the country, made in 2005. Stratpoint is engaged in software development (from scope, design, usability, quality control, deployment, maintenance and analytics), with experience in web and mobile applications development, virtual communities and social networks,

PSi Technologies Inc. – a $30 million (P1.4Bn) investment made with Ayala Corp. in 2010. PSI is a focused Narra Venture Capital independent semiconductor assembly and test-service provider to the power semiconductor market.

Jeepnee – headhunter operations.

IOmni Precision – contract manufacturer for precision plastics based in Laguna, Philippines. Ionics Circuits, Inc. – publicly-listed electronics manufacturing services contractor with operations in the Philippines and China. VC investment was divested after 1.5 years. Ambergris Solutions – a call center based in Metro Manila. VC investment was divested after 2.5 years. ICCP Venture Partners Shopwise – involved in general merchandise retailing services. Level Up – game publishing fi rm Massively Multiplayer Online Games (MMOGs). Primavera Residences – property development fi rm with developments in Cagayan de Oro in Mindanao.

IPVG Corp. - with businesses in communications, BPO and gaming. AO Capital Partners Morph Labs - a Web 2.0 technology fi rm involved in SaaS for open source software, based in Cebu City. Made a pre- IPO investment of US$ 1.5 million in the company in March 2008.

G2VC Exist - specializes in developing enterprise software and interactive web applications. Located in Pasig City and Cebu City, with offi ce in Los Angeles, California, and Australia.

Interest is in local start-ups with products and services in consumer web, mobile wireless, social media, gaming, software, and biotechnology.

Philippine Alert March 2012 36 BUSINESS

That the Philippines is considered one of the software developer hotspots in Southeast Asia today has helped get the attention of venture capital fi rms.

of the founders of Novare is Myla Villanueva, a Filipino bias for start-ups coming from the colleges and universities. technopreneur; Novare is her 5th start-up. For the fi rst screening, “This is part of our commitment to the future of this the company is accepting business pitches through its website country. We want to help jumpstart the creation of a Silicon “We are providing from as low as P500,000 to the entire Valley-like ecosystem in the Philippines. This program will P111 million (initial tranche) plus time and mentorship, hoping support innovative Filipino ‘technopreneurs’ with great ideas to have success stories within 3 years,” Ms. Villanueva explained. that promises the potential of global and national commercial The fund will have a bias for start-ups coming from potential,” PLDT Chairman Manual Pangilinan said. colleges and universities and those oriented towards web, Apart from direct fi nancial and technical assistance, the mobile or digital applications. “We expect lots of good VC program will also provide the start-ups incubation and ideas to come not just from Metro Manila but from Cebu and acceleration with access to PLDT’s wide business network Davao. We are reaching out to where the good technology – these businesses span industries such as water and power universities are – Bulacan, Bacolod, Dumaguete,” she added. utilities, transportation, healthcare, IT-BPO, mining, food and VC fi rms that are already invested in local start-ups include beverage, print and broadcast media, and telecommunications. Narra Venture Capital, ICCP Venture Partners, Aureous Capital, Upon commercial launch of the start-ups’ products, IdeaSpace and G2VC (see table for their local investment portfolio). will hold a 20% stake in the companies. Its share in the Earlier this year, telco giants PLDT and Globe Telecom also companies’ profi ts would be reinvested into the VC program; in committed their own local VC programs (see next story). 5 years, it is expected that IdeaSpace would be self-sustaining. Globe Telecom, on the other hand, also has committed to having its own local VC program, founded on many earlier …as PLDT, Globe commit their own venture initiatives like Globe Labs, StartUp Weekend, and 2 technology incubators built in collaboration with the University of the capital programs Philippines (see box for more details). Globe’s VC program provides startup incubation services lasting from 3 months to Early in 2012, telco giants PLDT and Globe Telecom for- a year; it provides start-ups with matched training, one-on-one mally committed to their own local venture capital programs. mentorship, and peer support from the local startup community. This development is expected to provide a major boost to “The old fi re-and-forget model of simply handing out seed the growth of technology entrepreneurship in the country, capital and providing facilities is not suffi cient; mentoring programs, making available P500 million and more in seed funds to intensive courses on how to launch and sustain a successful Filipino tech start-ups over the next 5 years. business, and business network introductions are equally essential to kickstarting the dreams of aspiring technopreneurs,” Globe said. The Philippine Long Distance Telephone Co. (PLDT) launched its venture capital (VC) program in mid-March via the IdeaSpace Foundation. For the next 5 years, P100 million will be made available each year and invested in start-ups. These start-ups will be chosen through a nationwide competition; although open to the public, the thrust of this VC program will have a

GLOBE LABS

Globe Labs - Created in 2008, it is a division in Globe Telecom focused on future technologies for commercial deployment. Part of its goals is to build a network with Filipino developers, invite them to training and competitions in the latest mobile technologies and platforms. Globe Labs’ fi rst project was the 3G Multimedia Challenge that focused on advanced VOIP, group mobile gaming, fi le sharing, enterprise/consumer IM and social networking. D3Systems was the grand prize winner of P1Mn.

MobApp Hunt 2011 - a program for Filipino developers to showcase their creativity in building mobile applications for Android, BlackBerry and iPhone devices. Launched by Globe Labs in May 2011, it targeted innovative mobile applications that build on top of network services like mobile broadband, short messaging, voice and location based services. Open to individuals and companies registered with the Globe Labs Developer Community. Successful developers create their applications within a 6-week period, where they also attend various technical and user interface workshops. Some applications got published on myGlobe Free Apps or iTunes; the developers received a P50,000 reward for each app published.

Startup Weekend Manila – Startup Weekend is one of the most successful start-up accelerator programs that started in the U.S. Globe partnered with local web engineering fi rm Proudcloud to bring the 54-hour event to Manila in October 2011. Startup Weekends are specifi cally designed for entrepreneurs interested in receiving feedback for an idea, looking for a co-founder, or who want to learn a new skill, especially in the fi eld of mobile and internet applications. Developers, designers, marketers, technopreneurs, and venture capitalists converge during the event to share ideas, form teams, build products, and launch startup businesses. From Startup Weekend Manila, 15 teams were shortlisted to qualify for a 100-day bootcamp in Singapore in January 2012. Startup Weekend will also be held in Cebu in May 2012. The next Startup Weekend Manila is scheduled on April 27-29.

Philippine Alert March 2012 BUSINESS 37

BOI-REGISTERED FIRMS FEBRUARY 2012

PROJECT COST EQUITY INDUSTRY ACTIVITY (IN PHP MILLION) LOCAL/FOREIGN AGRICULTURE, FISHERY, & FORESTRY ANFLO BANANA CORPORATION Producer of Cavendish Banana 216 100% Filipino GOLDEN ECO GREEN FARM CORPORATION Producer of Fish and Fish Fillet (Tilapia) 41 72% Filipino; 28% Chinese MANDAUE CEBU MARINE PRODUCTS Producer of Frozen Fish Fillet 86 50% Filipino; 50% Japanese CORPORATION

AUTOMOTIVE TRADE

TOYOTA MOTORS PHILS. CORP. Producer of Toyota Full Model Change (FMC) Vios 1758 60% Filipino; 40% Japanese ELECTRICITY, WATER, ANG GAS Renewable Energy Developer of Geothermal Resources (Mt. ENERGY DEVELOPMENT CORPORATION 72.12% Filipino; 27.88% Foreign Apo Geothermal Project) Renewable Energy Developer of Geothermal Resources ENERGY DEVELOPMENT CORPORATION 72.12% Filipino; 27.88% Foreign (Tongonan Geothermal Project) SOUTH BALIBAGO RESOURCES, INC. Operator of a Water Supply and/or Distribution Project 35 100% Filipino

HOTEL, RESTAURANT, AND LEISURE SERVICES

Operator of Tourist Accommodation Establishment (Go 75.63% Filipino; 24.73% Foreign ROBINSONS LAND CORPORATION 195 Hotel - Dumaguete) (various) Operator of Tourism Accommodation Facility (Kukun NORTHGATE HOTEL VENTURES, INC. 680 100% Filipino Cagayan de Oro) Producer of Light Bulbs such as but not limited to LED and EVERBRIGHT LIGHTING PHILS. INC. 39 99% Taiwanese; 1% Filipino Filament light bulbs OFFSHORING AND OUTSOURCING GLOVAX PHILS., INC. IT-Enabled Clinical Service Provider 304 100% Filipino REAL ESTATE AND PROPERTY DEVELOPMENT Developer of Low-Cost Mass Housing Project (Crestwood 2 HOUSEHOLD DEVELOPMENT CORPORATION 114 100% Filipino Expansion - Horizontal) DURAVILLE REALTY AND DEVELOPMENT Developer of Low-Cost Mass Housing Project (Wellington 197 88.8% Filipino; 11.2% Chinese CORPORATION Place Mary Cris Complex Phase 11-A - Horizontal) Developer of Low-Cost Mass Housing Project (Camella Leyte COMMUNITIES LEYTE, INC. 165 100% Filipino Phase 2 - Horizontal) TOTAL 3,830

Philippine Alert March 2012 38 BUSINESS

APPROVED PROJECTS BY PEZA (THIRD TO FOURTH QUARTER 2011)

INDUSTRY ACTIVITY EQUITY Local/Foreign

AGRICULTURE, FISHERY & FORESTRY

PRIMEX COCO PRODUCTS INC. Manufacture of desiccated coconut and coconut milk powder 100% - Filipino 72% - Filipino 20% - Japanese SHEMBERG BIOTECH CORPORATION Processing of 6% - British seaweeds 2% - American

EEF ACTIVATED CARBON INC. Production of coconut activated carbon 100% - Japanese

APPAREL AND TEXTILE MANUFACTURES 96% - French GLOVE STORY (PHILS) INC. Manufacture of men's and ladies dress leather gloves and comfort slippers 4% - Filipino FRESHTEX PHILIPPINES INC. Production of fi nished garments 99.99% - German 55% - Taiwanese KARETEXT CO. INC. Manufacture and export of garments and other related products 35% - Marshallese 10% - Filipino Manufacture of men's and women's underwear such as brassieres, briefs, trunks, boxer shorts, and AAIN PHILIPPINES CORP. 100% - Korean undershirts

AUTOMOTIVE TRADE

Center Design and Testing of Instrument Clusters and other auto parts for Original Equipment PHILIPPINE AUTO COMPONENTS, INC. 99.99% - Singaporean Manufacturer (OEM) car assemblers MENIMA CASTING PRODUCTS INC. Manufacture of construction equipment, automotive and motorcycle parts 100% - Filipino FCC (PHILIPPINES) CORP. Manufacture of Motorcycle Clutch Parts and Motorcycle Clutch Assembly 100% - Japanese F-TECH PHILIPPINES MFG., INC. Production of motorcycle parts 100% - Japanese

CHEMICAL AND CHEMICAL PRODUCTS TAIYO NIPPON SANSO PHILIPPINES, INC. Production of liquid oxygen and nitrogen 99.99% - Japanese SAKAMOTO ORIENT CHEMICALS Production capacity of its Poly Glycerin (TG or Triglycerin) Plant 99.99% - Japanese CORPORATION AIR LIQUIDE PIPELINE UTILITIES Installation of a Nitrogen Gas Generator (APSA T6) and Underground Pipelines 99.99% - French SERVICES, INC. Installation of a 3,500 Nm3/hr Nitrogen (N2) plant at Amkor Technology Philippines, Inc. (ATPI) to LINDE PHILIPPINES (SOUTH), INC. 99.99% - German support the existing and future N2 requirements of ATPI TEST SOLUTION SERVICES, INC. Burn-in Services 99.99% - Japanese PACIFIC RARE SPECIALTY METALS & 98% - Dutch Manufacture of Scandium Oxide CHEMICALS, INC. 2% - Australian TOBACCO MANUFACTURES 88% - Filipino LI YUAN VENTURES MFG. CORP. Production, manufacturing and processing of tobacco leaf as fi ller for cigar and cigarette 12% - Chinese ELECTRONICS Manufacture of electric motors, electronic parts and equipment, automatic control equipment, and NIPPON PULSE TEC PHILIPPINES, INC. 99.99% - Japanese other related products GLOBAL THERMOELECTRIC POWER CO Manufacture/distribution of multi-fueled thermoelectric stove 100% - Filipino R P. YEHUN TELECOM PHILS., INC. Manufacture of micro speakers and dynamic receiver units 99.96% - Korean TIANLIJIA ELECTRONICS CORPORATION Manufacture of micro speakers and dynamic receivers 99.92% - Korean BOORIM TECH PHILS., INC. Manufacture of Model Toy Train 99.96% - Korean WEILAI MODEL TECH CORPORATION Manufacture of Model Toy Train 99.96% - Korean Manufacture of valves such as main starting valves, cylinder valve, pneumatic control valve, pressure H. PHIL CORP. 100% - Korean reducing valve, motor valve, conventional safety relief valve CJNT INTEGRATED SOLUTIONS Manufacture of packaging materials for the electronics and semiconductor industry, trading and services 100% - Filipino CORPORATION HEWTECH PHILIPPINES CORPORATION Manufacture of medical tubes and assembly of cable and wire harness 99.99% - Singaporean SQ TECH CORP. Reworking of main roller (re-grooving & re-coating) for PV solar wire saw machines 100% - Filipino

PENTAX IMAGING PHILIPPINES Final inspection of Pentax Binoculars and parts inspection of various products from affi liates, and to 100% - Japanese CORPORATION include the manufacture and assembly of cameras, lenses, and related equipment and components

PROMISE ARTOS TECH INC. Sub-assembly of cellular phones and tablet PC as well as spray painting 99.99% - Korean CAMEL COMPONENTS PHILS. INDUSTRIAL Manufacture and Assembly of Various Capacitors 99.99% - Hong Kong CORPORATION Manufacture of automobile electric supply parts, switch parts and connector parts, and perform follow- DUCK-IL KOREA INCORPORATED 99.99% - Korean up services COOPER INDUSTRIES PHILIPPINES, LLC, Manufacture of electronic and electrical components including inductors, fuses and super capacitors 100% - American PHILIPPINE BRANCH JTECH PHILIPPINES INC. Manufacture of computer and cellphone electronic parts 99.99% - Korean

Philippine Alert March 2012 BUSINESS 39

PHILIPPINE AUTO COMPONENTS, INC. Manufacture of automobile parts and components for Original Equipment Manufacturer (OEM) 99.99% - Singaporean

Manufacture, assembly and test of integrated circuit chips/semiconductor devices, and inspection of ANALOG DEVICES (PHILS.), INC. 99.99% - Dutch dice PHILIPPINE MANUFACTURING CO. OF Manufacture of Monolithic Ceramic Capacitor (MLCC) and Electro Magnetic Interference (EMI) 99.99% - Japanese MURATA, INC. Suppression Filter Manufacturing and export of camera modules and other electronic devices (IR Housing Assembly, Thrust NANOS TECH ELECTRONICS CORP. 99.99% - Korean Plate, Blue Filter) NISSEN ELECTRONICS (PHILS.), INC. Manufacture of electronic components as Fuses, Optical Fiber Cables and Communication Cable, and 99.99% - Japanese Magnet Wires CANON BUSINESS MACHINE Manufacture of Monochrome Laser Beam Printer and Parts 99.99% - Japanese (PHILIPPINES), INC. SAMYOUNG ELECTRONICS PHILS., PCB Assembly of Electronic Unit 99.9% - Korean INCORPORATED 60% - Filipino OMON GROUP INC. Manufacture of industrial fasteners, cable assembly and wire harness 20% - French

20% - Chinese HOUSE TECHNOLOGY INDUSTRIES PTE., Manufacture of 2 x 6 Siding Board 100% - Japanese LTD. MICROSEMI SEMICONDUCTORS-MANILA 99.99% - American Design and development of software and hardware to test integrated circuits (PHILIPPINES), INC.

Manufacturing, selling, exporting or otherwise dealing in transducers and electro mechanical components for hearing instruments and other acoustic devices such as but not limited to components, SONION PHILIPPINES, INC. 99.96% - Danish parts and solutions for microacoustic and micromechanical hearing devices, receivers, high-end microphones and high-end audio headsets, and related medical devices

TRANSITIONS OPTICAL PHILIPPINES, Manufacture of transbonded opthalmic photochromic lenses 99.99% - Dutch INC. KODEC PRECISION INCORPORATED Manufacture of HDD Base (Diecasting, E-Coating Process) 99.99% - Korean PANASONIC SYSTEM NETWORKS Manufacture of LED lighting cooling fan, sub-assemblies and parts 99.99% - Dutch PHILIPPINES CORPORATION

Production capacity of its high precision processing of plates, various types of press, assembly works ARKTECH PHILIPPINES, INC. 100% - Japanese and manufacture of die and mould for computer parts and other ATM parts

DYNA IMAGE CORPORATION PHILIPPINES Manufacture of LED Driver Module 100% - Taiwanese INTERNATIONAL ELECTRIC WIRES PHILS. 90% - Japanese Capacity of Automotive Wires CORP. 10% - Filipino WYNTRON INC. Manufacture of Lighting Control Pod 99.98% - Malaysian REMEC BROADBAND WIRELESS Manufacture, fabrication and design of microwave/emerging technologies components/systems 100% - American INTERNATIONAL, INC. SQ TECH CORP. Reworking of main roller (re-grooving & re-coating) for PV solar wire saw machines 100% - Filipino Modify/develop existing/new products based on specifi cations from the customer with local research ST-ERICSSON (PHILIPPINES), INC. 99.99% - Swiss and development inputs TSUKIDEN ELECTRONICS PHILIPPINES, Multi Media Projector Main Control Board Assembly 99.99% - American INC. NKC MANUFACTUING PHILIPPINES CORP. Manufacture of Magnetic Pulser 100% - Japanese HAYAKAWA ELECTRONICS (PHILS.) CORP. Junction box assembly for solar panel modules 99.99% - Japanese ICHINOMIYA ELECTRONICS PHILIPPINES Resolver Sensor Assembly 100% - Japanese CORP. TAIYO YUDEN (PHILS.) INC. Production capacity of its registered project, i.e., LMX Inductors 99.99% - Japanese

Production capacity of its manufacture, assembly and processing of communication transmittal devices, SR. TRANSCEIVER PHILS. INC. 99.98% - Korean parts and components such as transceivers and other devices similar in nature

IBIDEN PHILIPPINES, INC. Manufacture of FC-CSP-Flip Chip-Chip Size Package 100% - Japanese ICHINOMIYA ELECTRONICS PHILIPPINES Inner Winding Assembly 99.99% - Japanese CORP. Manufacture of Vertical Recording Spindle Motors, various parts, components, tools, jigs, trays, Die- NIDEC PHILIPPINES CORPORATION 100% - Japanese Casting, and ED-Coating ROHM MECHATECH PHILIPPINES, INC. Manufacture of Leadframe and Transfer Molding of Leadframe 99.99% - Japanese TONG HSING ELECTRONICS (PHILS.), Manufacture and assembly of electronic products (Reconstructed Wafer Products) 99.99% - Taiwanese INC. SAMSUNG ELECTRONICS PHILIPPINES Production of DVD W I-DECK 100% - Korean MANUFACTURING CORPORATION Manufacture, assembly of PC boards for computers and testing equipment; and Manufacture of black CEBU SARAH, INC. 99.95% - Japanese cores) HYSONIC PHILIPPINES, INC. Manufacture of high-tech modules/auto focus actuators 99.99% - Korean

USHIO PHILIPPINES, INC. Super-High Pressure Ultraviolet Lamps 100% - Japanese

DAE SHIN HAN TECH CORPORATION Processing and Assembly of Electronic Magnet 99.54% - Korean YUMEX PHILIPPINES CORPORATION Manufacture of Touch Panel 99.99% - Japanese HITACHI GLOBAL STORAGE Tested and Characterized Slider (Slider DET Project) 99.99% - Dutch TECHNOLOGIES PHILIPPINES CORP. PRIMA TECH PHILS., INC. Production capacity of its registered project, i.e., surface chip mounting on PCB/PWB 100% - Korean FOOD AND BEVERAGE MANUFACTURES FSI FOODSHOP INC. Manufacture of Halal and other customized food products 100% - Filipino Philippine Alert March 2012 40 BUSINESS

CALEXPORTS PACIFIC, INC. 97% - American Sorting, Cracking, Blanching, Slicing, Roasting, Packaging and export of various nuts 03% - Filipino FURNITURE AND FIXTURES TSUNEISHI ACCOMMODATION CEBU, INC. Manufacture of Ship Furniture and Fixtures 99.99% - Japanese MACHINERY AND EQUIPMENT Manufacture of and fabrication of customized products and mechanical parts including but not limited ALMEXTECH, INC. 100% - Japanese to tanks, frame parts, carrier parts, traverse part, etc. Engage in precision machining, industrial fabrication, gear manufacturing, jigs and plastic injection 97% - Korean SAM HYUNG PRECISION CORP. molds production 3% - Filipino METAL INDUSTRIES 53% - Filipino SE YOUNG PRECISION CORP. Manufacture of Coil Spring and other Metal Products and Press 47% - Korean ROHM MECHATECH PHILIPPINES, INC. Gold Plating of Metal Stem 99.99% - Japanese

Manufacturing, designing, assembling, producing and processing of Pressed Metal Parts and Plastic Insert CEBU YMTECHNOLOGY, INC. 99.99% - Japanese Mold for Electronic Components, including the designing and fabrication of die set and parts

INTEGRATED FLOW SYSTEMS LLC Manufacturing and refurbishing of stainless steel bubblers 100% - American iSTEEL, INC. Manufacture of Pre-engineered Metal Building Systems 100% - Filipino EVERBRILLIANT MANUFACTURING 99.99% - British Virgin Machining and assembly of metal parts COMPANY, INC. Islands Electro-refi ning of non-ferrous semi-fi nished products for the purpose of nickel, copper, cobalt, and 97% - Chinese L N RESOURCE CORPORATION other non-ferrous metals' purifi cation and grade enhancement processing 3% - Filipino Manufacturing, importing, exporting, buying, selling or otherwise dealing in at wholesale of copper, HOR SIN METAL CORP. 99.99% - Taiwanese brass, aluminum heat sink, building hardware and other metal products 80% - Korean HANSAN LS PHILS., INC. Manufacture of high precision ball screw, bolts, screws, and other related products 15% - British 5% - American PARTS PHILIPPINES, INC. Manufacture of Special Shafts and Other Related Products 99.99% - Chinese SOUHATSU PHILIPPINES, INC. Manufacture of iron rods and brackets 99.99% - Japanese ROHM MECHATECH PHILIPPINES, INC. Manufacture of Caulking Pin 99.99% - Japanese ENGTEK PRECISION PHILIPPINES, INC. Manufacture of Base Plate 99.99% - Malaysian GRANDWAY INDUSTRIAL 51% - Hongkong Metal parts stamping and fabrication MANUFACTURING CORP. 49% - Filipino JCC FINAL PLATING CORPORATION Plating Services 99.95% - French PHILIPPINE TONAN CORPORATION Manufacture of quadrangular metal support for plastic glass window 99.99% - Japanese TAK TOOLS CORPORATION Manufacture and Export of Industrial Cutting Tools 99.99% - Japan

40% - Japanese NEWCO (Philippine Sinter Corporation) Tugboat Operation (Pushing, Tugging, Pulling) and Support for Draft Survey, Vessel Shifting, Ore Cleaning 60% - Filipino

Production of Pipe Comp, A Joint; Pipe Comp, B Joint; Pipe Joint 21 x 10; Pipe Joint 24 x 10; Pipe 8 x PHILIPPINE IINO CORPORATION 56.5; Pipe Joint; Pipe 10.9 x 48; Pipe 10.9 x 112; Pipe 10.9 x 22; Pipe 12 x 56.7; Pipe 14.3 x 36.2; Pipe 99.99% - Japanese 10.9 x 25.5; and Pipe 10.9 x 30.7

MISCELLANEOUS MANUFACTURES

TOYO FLEX CEBU CORPORATION Assembly of mechanical unit specifi cally operator handle for house window 100% - Japanese INKASIA PHILIPPINES CORPORATION Manufacture of water-based inks 100% - Filipino Manufacture of various contamination control & cleaning products, such as wipers, swabs, cleanroom 99.99% - British Virgin ADVANCED MOLDING COMPANY, INC. stationary and TOC vials Island AGM PACKAGING SYSTEM LTD. CORP. Manufacture of wooden pallets 100% - Filipino Manufacturing of cosmetic products, such as, but not limited to make-up like foundations, pressed ARIE CEBU COSMETIC CORPORATION 99.97% - Japanese powder, eye shadows, cheek powder, etc. H.R.D. SINGAPORE PTE LTD Research and Development activities for assembly and disassembly of houses and housing parts 100% - Singaporean

HPOI CORPORATION Repair and refurbishment of endoscopes, endoscopic systems, trainings and other related activities 99.99% - Japanese

Manufacture of Transport Packaging Products (Paper pallet, Honey comb Boards, Slip sheet, Angle HEXAPACK CORPORATION 100% - Filipino Boards) OFFSHORING AND OUTSOURCING ROCOCO GLOBAL TECHNOLOGIES System Development 99.99% - Japanese CORPORATION Provide a variety of transactional activities service and support for fl ight and other services. Including accounting and reporting, reconciliation of accounts, audit support, maintenance of accounts and YOURJET FLIGHT SERVICES INC. 99.99% - Swiss general ledgers, archiving, technical support, account management services, application system development and other related services and operations Generate and export (i) software applications, system and tech-based solutions; (ii) text, illustration, and graphic based solutions and products (including games and e-games); (iii) customer service support, CEEKAPE MEDIA (PHILIPPINES), INC. 92% - Australian including technolgy enabled call centers and admin services for the company's principal shareholders 08% - Filipino and affi liates, including clients and affi liates of shareholder interests as may be incidental to the above- mentioned primary services WELLS FARGO PHILIPPINES SOLUTIONS Call center operations 99.99% - American INC. ITRS (PHILS.) INC. Development and Testing of Software Products 99.99% - British 360 TRAINING.COM, INC. Exportation of ICT based research and development and training activities 99.99% - American

Philippine Alert March 2012 BUSINESS 41

EZY SERVICE CENTRE CORPORATION Call center operations 100% - Singaporean IPGEN CORPORATION Computer Aided Design - Computer Aided Manufacturing (CAD-CAM) 100% - Korean RESEARCH PANEL ASIA PHILIPPINES INC. On-Line Project and Pricing Management 99.96% - Japanese Provide building services and structural designs which include: Computer modeling, analysis of thermal 98% - Hong Kong WSP ASIA (PHILIPPINES), INC. load, air conditioning, ventilation, ductwork and pipework system design, cable and protection devices 2% - Filipino analysis, etc. LARVENTECH INC. Business Process Outsourcing 99.97% - Danish Lay-out and design of integrated circuits (IC) through research and development engineering services, LATTICE SEMICONDUCTOR (PH) which includes coordination of builds of IC samples and prototypes with subcontractors, testing and 99.99% - American CORPORATION validation of the IC samples and prototypes 64% - Filipino N-PAX SYSTEMS AND CONSULTING, INC. Business Process Outsourcing 36% - Japanese RINASCIMIENTO MANAGEMENT & 60% - Filipino Call center and other IT-enabled services such as outsourced back-offi ce services DEVELOPMENT CORP. 40% - Irish GAMINGGATES ASIA, INC. Business Process Outsourcing 100% - Japanese ON SEMICONDUCTOR PHILIPPINES, INC. Engage in IT Services, Finance Support Services and Other Support Services 99.99% - American SHINCREATIVE GLOBAL DESIGN, INC. Computer-Aided Design & Drafting (CADD) Services 99.92% - Japanese

REALPAGE (PHILIPPINES) INC. Engage in software development, product support, business process outsourcing and call center services 99.99% - American

ACUSIS PHILIPPINES, INC. Medical Transcription Services 99.98% - American 60% - Filipino Production, incubation, collaboration, knowledge sharing, marketing and distribution of leading and ONEGLOBAL SERVICES, INC. 20% - British technologically advanced handheld internet and mobile based applications 20% - Chinese 85% - American WOW! STREAM INC. Business Process Outsourcing and live e-commerce 15% - Filipino OPTIMIZE SOLUTIONS SOFTWARE 60% - Filipino Software Development DEVELOPMENT, INC. 40% - American 95% - Chinese NORTHSTAR SUPERTECHNOLOGY INC. Provide e-commerce solutions 4% - Filipino 1% - American Develop various business tools, particularly management tools, which include marketing support tools 99% - Japanese JPACT INC. and operation support tools 1% - Filipino F5 DIGITAL OPERATIONS PHILIPPINES IT-related activities, such as content development for multimedia or internet purposes, and knowledge 99.95% - Singaporean INC. and computer-based support service activities IT-enabled services including customer support, customer care services, consulting services, research CONCUR (PHILIPPINES), INC. and development, software development and application, business process outsourcing, and content 99.99% - Dutch development NATIONSHEALTH PHILIPPINES, INC. Call center operations 99.99% - American 80% - Filipino PREMIER BPO, INCORPORATED Business Process Outsourcing services 20% - American 95% - American SASNET COMMUNICATIONS, INC. Call center operations 5% - Filipino 96% - Japan WISDOM PLUS INCORPORATED Engage in software development 4% - Filipino BBT ONLINE GLOBAL INC. Online Language Educational Service 99.99% - Japan Business Process Outsourcing support, software and in mobile application through internet and 60% - Filipino LMR INFOTECH SOLUTIONS INC. other mobile communications, internet application development services, and mobile phone/tablet 40% - American development services TRESMAX.PH Engage in software development and information technology consultancy 100% - Dutch KODENTA INC. Web development and online marketing services, as well as mobile applications 99.99% - British 60% - Filipino CEBU LEVIWORLD CENTER INC. Call center operatons (On-line English classes) 40% - Korean 60% - Filipino METRODEAL INC. Business process outsourcing using e-commerce 40% - Austrian 85% - British DATACENTRIC CORPORATION Business Process Outsourcing 15% - Filipino GAIAX ASIA CORPORATION Business processing outsourcing 99.97% - Japanese

PRINCIPLEFOCUS INC. Business process outsourcing (BPO) and exporting of knowledge-based and technology enabled services 99.90% - Australian HAMPSTEAD OFFSHORE DEVELOPMENT Business Process Outsourcing - service provider for back offi ce functions such as data encoding, data 100% - Japanese MARKETING INC. processing, contract programming, and web maintenance

Business Process Ooutsourcing - visa processing for UK visa applicants using its own software and VFS SERVICES PHILIPPINES PRIVATE, INC. 99.99% - Mauritius manpower

TALLECO.COM, INC. Data processing, software development and creative services 99.52% - American Global support services, Supply Chain Management, Production Planning and Control, Subcontractor ZILOG ELECTRONICS PHILIPPINES, INC. Management, Technical Support and Application Engineering, Test Engineering, Package Engineering, 99.99% - Filipino Quality Assurance, WW Purchasing, Customer Service, Finance, Human Resources and Information Technology OTHER BUSINESS SERVICES TOSHIBA INFORMATION EQUIPMENT Registration of Additional Activities 99.99% - Japanese (PHILIPPINES), INC. (Merger of Operations with TOSHIBA STORAGE DEVICE (PHILIPPINES), INC.) H.R.D. SINGAPORE PTE LTD Training Activity 100% - Singaporean

Philippine Alert March 2012 42 BUSINESS

PLASTIC PRODUCTS APM PRECISION MOLDING PHILS., INC. Manufacture of Plastic molds 100% - Chinese KARZAI CORPORATION Manufacture of watch holder/plastic injection 100% - Filipino PACKING & VACUUMING PRECISIONS, 90% - Korean Manufacture of vacuum plastic packing industrial supplies INC. 10% - Filipino MACTAN KARZAI EXPORT ENTERPRISE Manufacture of watch holder/plastic injection 100% - Filipino

99% - Korean GSINDUSTRIAL CORP. Manufacture and assembly of ribbon cartridge plastic injected products 1% - Filipino GLORY (PHILIPPINES) INC. Manufacture of plastic mould parts for money handling machine 99.99% - Japanese Manufacture of plastic and related components primarily for automotive industry such as convoluted DELFINGEN PH - FILIPINAS, INC. 99.99% - American tubing, PVC tubing, etc

TAIHOSANGYO PHIL. CORP. Manufacture of automotive seat plastic cover, industrial plastic bag and bottle cap 100% - Japanese

PUBLISHING AND PRINTING SUPER INDUSTRIAL PACKAGING 75% - Filipino Engage in commercial and industrial printing SOLUTIONS CORP 25% - Irish TRANSPORT SERVICES 79% - Filipino Increase in capacity of existing activity, namely, construction, shipbuilding, ship repair, conversion and KEPPEL SUBIC SHIPYARD, INC. 13% - Japanese leasing 8% - Singaporean FAMOUS SECRET PRECISION MACHINING, Manufacture of Airplane Manifold, Cylinder Stock, Titanium Blank, Gear, Rings, Housing, Spur & Sun, and 60% - Chinese INC. Hub 40% - Filipino AUSTAL PHILIPPINES PTY. LTD. Shipbuilding and ship repair, general fabrication not related to shipbuilding and ship repair 100% - Australian CONFIDENCE CEBU, INC. Engage in hull fabrication for shipbuilding 99.99% - Japanese GRAND TOTAL INVESTMENTS FOR LOCATOR & P206,3 Billion DEVELOPER ENTERPRISES

Philippine Alert March 2012 BUSINESS 43

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

TOTAL FDI 782* 1272 -38.54%

of which: equity capital 134 477 -71.91%

reivested earnings 404 279 44.8%

* includes infl ow of $244 Mn as other capital account.

INDUSTRIAL PERFORMANCE Data Year-on-year Year-to-date JANUARY 2012 (2000=100) (index) growth growth FDI:BOP CONCEPT Volume of Production Index (VoPI) 88.8 0.2 8.3 US$ million a. Food 111.5 2.8 0.0 2500 b. Beverage 99.5 -6.3 14.9 2000 c. Tobacco 3.5 -22.2 -39.6 1500 d. Textile 41.1 -13.3 -14.2

e. Footwear and Wearing Apparel 26.5 16.2 -34.4 1000 f. Wood and Wood Products 60.6 11.4 8.5 500 g. Furniture & Fixtures 347.2 109.9 -12.8 0 h. Basic Metals 88.4 -4.4 22.3 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 i. Iron and Steel 78.7 18.5 1.0 j. Non-ferrous Metals 123.7 -20.2 -19.0 k. Fabricated Metal Products 187.0 -20.4 -13.5 l. Machinery Excluding Electrical 20.1 -11.8 -39.9 m. Electrical Machinery 75.6 -4.8 4.8

n. Transport Equipment 98.7 -10.8 -45.5 MOTOR VEHICLE SALES FEBRUARY 2012 Year-Ago Growth rate o. Other Mfg Industries 170.4 5.3 -19.7 Data level (%) p. Paper & Paper Products 73.4 -11.6 -1.0 Motor Vehicle Sales 18,977 22,518 -15.7% q. Publishing & Printing 48.5 -2.6 -11.2 Passenger Car Sales 5,299 7,856 -32.5% r. Leather Products 3.0 -18.9 -3.5 Commercial Vehicle Sales 13,678 14,662 -6.7% s. Rubber Products 227.1 21.2 9.5 t. Chemical Products 103.6 -6.1 -17.1 u. Petroleum Products 61.5 4.4 -100.0

v. Non-Metallic Mineral Products 125.5 6.5 23.8 UNIVERSAL AND COMMERCIAL BANK’S w. Glass & Glass Products 101.3 -8.0 -2.1 LOANS OUTSTANDING TO THE REAL ESTATE SECTOR (P Bn) x. Cement 152.0 9.0 6.5 % to Total % to Total Sept.-11 RE loan Jun-10 RE loan y. Misc. Non-Metalic Mineral 94.0 9.7 23.8 Products Residential 110.54 31.1 87.03 29.7 VALUE OF PRODUCTION INDEX (VAPI) 151.9 2.6 8.2 Commercial 244.98 68.9 205.77 70.3 AVERAGE CAPACITY UTILIZATION 83.0 -17.0 83.1

Philippine Alert March 2012 44 BUSINESS

BUSINESS CLIMATE INDEX

TWO STRIKES FOR 2011 There were only 2 strikes recorded for 2011, an improvement from the 8 strikes registered for 2010. The 2 strikes took place during the months of January and LABOR STRIKES September. The strikes involved 3,828 workers, higher than the 3,034 workers Man-days Strikes declared Workers involved involved in the strikes in 2010. Total man-days lost for 2011, however, fell to 3,828 lost (000) days from 34,171 days. 20102 2011 2012 2011 2012 2011 VISITOR ARRIVALS CLIMB 12.66% FOR JAN-NOV 2011 JAN 0 1 - 128 - 128 Visitor arrivals for the period of January to November 2011 increased by 12.66% from 3,126,886 in 2010 to 3,522,887 in 2011. Korea retained its position as the largest FEB ------source market, still followed by the US and Japan. Arrivals from Korea jumped 27.25%, while that of the US inched up by 3.74%, and Japan by 4.61%. MAR ------69.21% HOTEL OCCUPANCY FOR JAN-NOV 2011 APR ------Average occupancy rate of hotels climbed to 69.21% in the fi rst 11 months of 2011 MAY ------from 67.57% in the same period in 2010. De Luxe hotels retained its post as the category with the highest occupancy rate at an average of 72.50%, registering an JUN ------improvement from 70.56% posted in 2010. Standard hotels registered the 2nd highest JUL ------occupancy rate with an average of 66.76%, a slight increase from the previous year’s 65.58%. First-class hotels came in 3rd with an average occupancy of 61.88%, slipping AUG ------from the 2010 rate of 62.21%. And falling behind are Economy hotels with an average SEP - 1.00 - 3,700 - 3,700 occupancy of 59.90% from last year’s 58.57%. OCT ------NOV ------DEC ------TOTAL - 2 - 3,828 - 3,828

STRIKES DECLARED

5.500

4.375

3.250

2.125 TOURISM ARRIVALS

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

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 JANUARY 2012 Survey on the Monthly Occupancy Rates & Length of Stay Country 2012 2011 % Change Rank

KOREA 102,166 92,249 10.75 1 2011 2010 ‘11 / ‘10 USA 63,160 63,674 -0.81 2 JAN-NOV JAN-NOV GROWTH RATE JAPAN 32,089 31,591 1.58 3 De Luxe Hotels CHINA 42,868 15,656 173.81 4 Occupancy Rates 72.43 70.56 2.66 TAIWAN 21,995 13,685 60.72 5 Length of Stay 3.05 2.75 10.81 AUSTRALIA 16,145 14,106 14.45 6 First Class Hotels CANADA 14,088 13,712 2.74 7 Occupancy Rates 60.67 62.21 -2.48 SINGAPORE 11,041 9,569 15.38 8 Length of Stay 2.47 2.36 4.82 HONGKONG 11,792 8,818 33.73 9 Standard Hotels UNITED KINGDOM 9,755 8,579 13.71 10 Occupancy Rates 66.94 65.58 2.08 MALAYSIA 7,397 6,446 14.75 11 Length of Stay 2.36 2.23 5.87 GERMANY 6,473 5,645 14.67 12 Economy Hotels OVERSEAS FILIPINO 15,531 15,406 0.81 Occupancy Rates 59.55 58.57 1.67 OTHERS 56,564 50,577 11.84 Length of Stay 1.93 2.00 -3.59 TOTAL 413,075 351,723 17.44

Philippine Alert March 2012 CORPORATE BRIEFS 45

CONSTRUCTION

EEI profi t grows by 12.6% EEI Corp., a Yucheco-led construction fi rm, recorded a 12.6% growth in net earnings to P740 million in 2011. For 2012, the fi rm plans to increase construction activity and improve operations overseas to sustain growth in earnings. Records stated that the fi rm’s total construction backlog from domestic projects amounted to P11.62 billion as of September 2011. Meanwhile, its unit in Saudi Arabia had a backlog of P13.61 while units in Singapore and New Caledonia had a combined backlog of P566.7 million. At present, the fi rm is eyeing road and expressway projects in the Philippines under the Public-Private Partnership program to boost its profi tability. As of now, there are no other concrete plans disclosed by the company.

ELECTRICITY, WATER AND GAS

SN-Aboitiz gets COC for Binga hydroelectric power plant SN Aboitiz Power has bagged the certifi cate of compliance (COC) for the Binga hydroelectric power plant in Benguet from the Energy Regulatory Commission (ERC). The COC grants SN Aboitiz to contract and sell power from the 100 megawatt (MW) Binga power plant, which is currently undergoing a $290 million rehabilitation and refurbishment work. The power will be sold from 1 of the upgraded turbines, whose generation capacity was increased from 25MW to 31.45MW after being restored in 4Q2011. The rehabilitation, which will also hike the power plant’s total generation capacity to 130MW from 100MW, started in 2010 and is expected to be fi nished by 2013. SN Aboitiz bought the Binga hydroelectric power plant along with the Ambuklao power plant in 2007 for a total of $280 million from the Power Sector Assets and Liabilities Management Corp.

San Miguel Energy secures ERC nod for Soreco II power supply San Miguel Energy Corp. (SMEC) has received the Energy Regulatory Commission’s approval for its power supply agreement with Sorsogon II Electric Cooperative (Soreco II). Under the agreement, Sureco will receive a 2-year energy supply from SMEC that will range from 4.5 megawatts (MW) to over 6MW per month. The power will be sourced from the 1,200-MW Sual coal-fi red power plant in Pangasinan, whose independent power producer administrator (IPPA) is SMEC. SMEC, through its Global Power Holdings Corp., has plans to build 6 power plants in several locations throughout the country, which will include the 1,200MW plant in Cavite, 600MW in Bulacan, 600MW in Leyte, and 150MW plant in Panay.

Energy World to build P9Bn LNG facility Energy World Corp Ltd. (EWC) of Hongkong is set to construct P9 billion liquefi ed natural gas (LNG) terminal and regasifi cation facility in Pagbilao Grande Island, Quezon. The LNG terminal hub will be built in 2 phases: Phase 1, which is ongoing, includes the construction of a 130,000 cubic meter LNG storage tank, regasifi cation facility, jetty and supporting infrastructure; and Phase 2 will involve the construction of an additional 130,000 cubic-meter LNG storage tank. The commercial operation of the LNG terminal hub, expected to increase the supply and availability of LNG to Asia, is projected to start this year or by 2013. EWC has also plans to build a 300-megawatt combined cycle gas turbine power plant to serve as an anchor buyer of LNG.

Greenergy to set up P300Mn renewable energy unit Greenergy Holdings Inc. is setting up a renewable energy subsidiary that will have up to P300 million worth of capitalization. The new local unit will be managing Greenergy’s wind projects in partnership with Chinese fi rm Tianjin Tianbao Investment and Development Corporation. The wind projects will put up approximately 1,000 megawatts (MW) of wind power worth at least $1.3 billion in the next 10 years. In 2013 to 2014, an estimated $20 million worth of wind power projects will be implemented, of which the fi rst will be the 49.5MW that will be composed of 33 units of 1.5MW wind mills. Recently, Greenergy increased its capital stock from P2 billion from P1 billion due to the entry of Earthright Holdings, Inc., which will invest an additional $200 million for wind energy, biomass, solar power, geothermal energy, and hydroelectric power projects.

Manila Water to lay P126Mn submarine pipeline in Boracay Manila Water Company Inc., in partnership with the Tourism Infrastructure and Enterprise Zone Authority (Tieza), is set to carry out a P126 million submarine water pipeline project in Boracay. The water pipeline, 1 kilometer long, will augment an existing pipeline built during the management of the Philippine Tourism Authority (now called Tieza). The kilometer-long pipeline is foreseen to address Boracay’s increasing demand for water supply as it will reach the farther and elevated parts of the island. The project is also part of the “Tubig para sa Barangay” program that aims to provide water to other communities on the island. In January 2010, Manila Water took over the water operations in the island. From only 60% of households in 2010, water is now supplied to approximately 96% of the total households in Boracay.

Philippine Alert March 2012 46 CORPORATE BRIEFS

FINANCIAL INTERMEDIATION

PNB income up by 10% With the Bangko Sentral ng Pilipinas’ (BSP’s) new reportorial requirement to deduct the amortizations on losses from special purpose vehicles (SPV) against current operations, the Philippine National Bank (PNB) was able to post a net income of P3.9 billion in 2011. This is 10% higher than the income recorded in 2010. The net gains incurred from trading, investment securi- ties, and foreign exchange have increased by 23%, which is mainly attributed to PNB’s strategy to unload substantial holdings of security investments. Interest income on loans and receivables, on the other hand, grew by 4% to P320 million. The bank pursued middle markets to boost its consumer loans portfolio, which made lending activities more proactive. PNB’s total re- sources have expanded by 5% to P316.3 billion where total deposits increased to P237.5 billion due to incentive-based deposit programs like the Time Rewards and PPT 90. Meanwhile, the bank’s non-performing loan portfolio decreased to 3.1% and capital adequacy ratio increased to 21.7%.

Robinsons Bank profi t grows by 15% Robisnons Bank Corp. (Robinsons Bank) posted P367.9 million in net income, which translates to a 14.65% growth in 2011. This increase was led by the growth in lending activities and in trading gains. The bank now has a 7.15% return on equity. Net inter- est income totaled to P1.034 billion while loans grew by 28% to P13.2 billion, which comprises mostly of commercial loans. The bank’s deposits reached P25.2 billion, which is 36% higher from the previous year. Non-interest income, on the other hand, was recorded at P510 million. Meanwhile, operating expenses grew by 20% to P953.6 million due to network expansion, labor cost, and IT investments. At present, the bank plans to increase the share of consumer loans. As of now, it is setting up its organization infrastructure towards that direction. Robinsons Bank will be focusing on retail internet banking, cash management services, and mobile banking channels. The bank will be adding 9 branches to its network and 28 automated teller machines this year. It also plans to expand its market presence through mergers.

JG Summit to undertake P53Bn expansion plans JG Summit Holdings has set up P53-billion expansion plan for 2012, of which the bulk has been earmarked for its real estate unit, Robinsons Land and its airline subsidiary, Cebu Air. Robinsons Land will be spending P19.25 billion, a 74% increase from the P11.08 billion budget in 2011, to revamp existing malls, offi ce buildings, hotels, and housing units in 2012. Cebu Air, mean- while, will be spending P12.50 billion, nearly tripled the P4.22 billion budget in 2011, for its fl eet acquisitions this year. Cebu Air, which operates Cebu Pacifi c, intends to bring its fl eet of aircrafts to 47 by 2014. Other JG Summit subsidiaries are also expected to ramp up its spending in 2012 – JG Summit Petrochemical Corp., Robinsons Bank Corp., and Universal Robina Corp. will be spending P15.54 billion, P390 million, and P4.56 billion, respectively. JG Summit Petrochemical, on the other hand, is expected to open the country’s fi rst naphtha cracker raw material factory in Batangas city in the 3Q2013.

FOOD AND BEVERAGE MANUFACTURES

AgriNurture to carry out P1Bn expansion program AgriNurture Inc. (ANI) is set to undertake P1 billion expansion program to open 1000 branches of food service outlets in local and international branches this year. Opening of new outlets in the Philippines will start by April while opening of international outlets will be done by May or June. ANI, in partnership with the Department of Agrarian Reform and China’s Guangdong Agri- culture Academy of Science, has also offi cially opened its demonstration farm in Mabalacat, Pampanga. The farm is expected to help 1000 farmer-benefi ciaries of the Comprehensive Agrarian Reform Program through fi nancing and training programs on increasing production and marketing their harvest. With the expansion plans and new farm operations, ANI expects to earn P5 billion gross profi ts in 2012.

Pepsi Cola to construct P500Mn bottling plant in Northern Luzon Pepsi Cola Products Philippines Inc. (PCPPI) has earmarked P3.22 billion for its capital expenditures in 2012, of which P500 million is allocated to fund the construction of a new bottling plant in Rosario La Union. The new bottling plant is expected to produce additional 7 million cases of carbonated and non-carbonated drinks. Recently, PCPPI has also undertaken a P500 million-upgrade of its bottling plant in Zamboanga city. The upgrade consists of the installation of a state-of-the-art bottling line, new water treatment and fi ltration system, and additional inventory of containers. PCPPI has also commissioned its P500-million bottling line in Cagayan de Oro city early this year.

Philippine Alert March 2012 CORPORATE BRIEFS 47

Pancake House to build P12Mn Maple Pancake House Inc. is planning to open P12 million Maple, a high-end restaurant that will offer American comfort food, in July 2012. The fi rst branch of Maple, approximately 80 square meters, will be situated in San Antonio Plaza, Makati City. The new restaurant will offer alternative dishes from the Pancake House menu, which currently includes American, Filipino, Japanese, and French cuisine offerings, among others. Pancake House is also eyeing to open Maple branches in Ortigas and Alabang. The company has already secured a slot in Shangri-La Plaza and plans to open it by 4Q2012 or 1Q2013. In 2000, Pancake House was incorporated to engage in the development, operation, and franchise of casual dining restaurant brands.

HOTEL, RESTAURANT, AND LEISURE SERVICES

GMA Network enters gaming industry through P100Mn Gamespan Inc. GMA Network Inc. has entered the country’s gaming industry through Gamespan, Inc., a joint venture corporation with the Manila Jockey Club (MJC) that will air horse races and other betting games. Gamespan, which has a P100 million authorized capital stock, will also supervise MJC’s current betting systems as well as provide a new one. In addition, Gamespan will have exclusive broadcast rights to all betting games by MJC, which will be distributed to GMA’s subsidiaries worldwide to increase viewership. The partnership between GMA and MJC was created after MJC bagged the contract for the placement of off-track betting (OTB) stations from the Philippine Amusement and Gaming Corporation (PAGCOR).

MINING AND QUARRYING

Nickel Asia earnings double to P4Bn in 2011 Nickel Asia Corp., the country’s largest nickel producer, managed to double its net earnings to P3.54 billion in 2011 despite the disruptions caused by the tsunami in Japan in the company’s shipments and the attacks held at its Taginto mine. Nickel Asia experienced a casualty loss equivalent to P239 million from the insurgency attack in October. This loss, however, was compen- sated by the P573-million inventory write-up from the long term stockpiles of its Rio Tuba mine and the P434-million dividend from Coral Bay Nickel Corp. The company disclosed that it will delay the commercial operation of its Taginto plant to several months after its original target (August 2013). The drilling activity at its Manmanok property (for gold and copper), on the other hand, it will start soon within the 1st half of 2012.

Benguet consolidated profi t increased to P1Bn Benguet Corp. registered a consolidated net income of P1.39 billion in 2011 amidst high metal prices due to increased output productivity in its Acupan gold mining project and increased ore shipments in its BenguetCorp Nickel Mines Inc. Its non-recurring gains registered at P1.21 billion while operations income jumps by 208% to P262 million. Revenue from gold increased by 50% and will continue to grow at a speed of 300 metric tons per day by the 4th quarter of 2012. Nickel, on the other hand, grew by 189% to P533 million. Benguet Corp. expects net income to further grow to P1 billion in 2012 due to increasing metal sales and the settlement of its debt obligations. At present, it already retired 83% of debt obligations.

PETROLEUM PRODUCTS

Shell invests P3Bn for expansion Pilipinas Shell Petroleum Corp. will be investing P3 billion for expansion this year. Part of this amount (exact amount not disclosed) will be used for expanding its retail network. Last year, Shell had also invested P3 billion both for expansion and marketing programs. The company is optimistic on the Philippine market’s prospects. Shell said that the Philippines had been placed in its investments priorities map. In this line, the Royal Dutch Shell, the parent company of Pilipinas Shell, is preparing $1 billion to increase the production and strengthen the life of the Malampaya deepwater gas-to-power project. It will invest $250 million for the 2nd phase, which would develop 2 wells in 2014, and $750 million for the 3rd phase, which would construct a new platform in 2015. Also, Shell has been hinting on its investment plan for its refi nery in Batangas, which would be offi cially announced before the end of this year.

Philippine Alert March 2012 48 CORPORATE BRIEFS

Total expands its distribution network Total (Philippines), Inc., a petroleum retailer, will open 20 new stations each year starting in 2012 as the Philippines continues to be an important market for them. It plans to increase market share to 10% by building more stations to reach a critical mass of 350 stations. Currently, it has 174 retail stations, majority are located in Luzon, and 3 satellite depots (Panay, Cebu, and Negros). Its current market share is about 4.3%. In line with this growth program, Total is planning to expand its business activities to commodity production in the country by participating through the 4th Philippine Energy Contracting Round, which will offer 15 areas in the country for exploration.

REAL ESTATE AND PROPERTY DEVELOPMENT

Ayala Land sets gears to rebrand Makati Ayala Land, Inc. plans to develop 6 districts in Makati under its city redevelopment plan. The Makati North district, from Dela Rosa Carpark to Makati Medical Center, will have retail shops with offi ce spaces. The Makati South district, from the corner of McKinley Road and EDSA across Ayala Avenue MRT station, will be redeveloped to enhance commuter access to the city. Meanwhile, the Sta. Ana entertainment district, Ayala Center, Makati Central Business District, and the Ayala Triangle Gardens will also be developed to contribute to Ayala Land’s goal of placing Makati with other global cities like New York, Zurich, and Shanghai. The whole project will cost around P60 billion, which will be partly sourced from the P15 billion worth of corporate bonds issued last month. Later this year, the company will partner with the city government to promote the “Make it Happen, Make it Makati” slogan.

Federal spends P14Bn for property projects Federal Land Inc., the property unit of GT Capital Holdings Inc., plans to spend P13.5 billion in 2012 and 2013. It is allotting P4.25 billion for capital expenditures in 2012 and P9.3 billion in 2013. The fi rm is placing P2.3 billion for high-end residential projects and P1 billion for the development of retail projects. Meanwhile, it plans to spend P900 million for middle- and low- market segments. Capital expenditures for 2012 will be sourced from IPO proceeds of GT Capital, which will raise P22.3 billion in proceeds in April. Federal Land plans to expand sales in the middle-market segment, which highly contributes to the fi rm’s revenue, by tapping into migrant Filipino workers, call center employees, and small business owners. It will offer stand-alone residential high-rise condominiums in Makati, Fort Bonifacio, and Ortigas, which will cater to young professionals and migrant workers. At present, the fi rm has 19 ongoing projects. These are Bay Garden Residences, Oriental Garden Makati, The Grand Midori Makati, Marco Polo Residences, and The Capital Towers.

TELECOMMUNICATIONS

PLDT broadband revenue reaches P19Bn Philippine Long Distance Telephone Co. (PLDT) has increased its broadband internet users by 45% to 2.9 million in 2011. This increased its broadband service revenue by 18% to P18.8 billion from the previous year, accounting for a 70% market share. More than half of the company’s total revenue (P9.5 billion) came from home internet service while 34% (P6.5 billion) came from Smartbro, PLDT’s wireless internet brand. Meanwhile, the company’s new subsidiary Digital Telecommunications Philippines, Inc. and Sun Cellular has added 551,000 to its subscriber base amounting to more than P500 million. For 2012, PLDT said that it will be spending P67 billion for its network modernization program to improve service and further expand its subscriber base.

Philippine Alert March 2012 INFRASTRUCTURE 49

Davao – the main hub of Asean port connectivity Th e Association of Southeast Asian Nations (ASEAN) has grand plans to connect all 11-member nations via a seamless logistics of hubs of seaports and airports by 2015. Th e connectivity master plan has the goal of facilitating trade of goods and travel within the region.

he province of Davao has been identifi ed as one of the major port hubs that would connect the 11-nation members Tof the ASEAN. Davao, as the Philippine’s main hub in the ASEAN connectivity project, will link up the country’s seaports and airports to those in Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Vietnam, Singapore, Th ailand and Vietnam (see box for details). Th e regional plan, expected to bring in increased commerce and tourism, was met with worry by the local government offi cials who were all concerned that the province’s existing support infrastructure, as well as the over -capacity of its biggest commercial port – Sasa port – will not be addressed in time for 2015 implementation of the ASEAN project. Th ere are several private-sector led port projects in Davao province (just this Feb 2012, 2 port development – P50-million Hijo Resources and P2.7-billion ANFLOCOR projects – were announced by the Department of Trade and Industry), but facility can only accommodate between four to six vessels at a time,” no concrete government plans to expand and improve the Bangcoy said. In January 2011, the Pilipino Banana Growers and national ports. In 2009, the government had put in place some Exporters Association (PBGEA) wrote the ports authority to improvements on Sasa port, the biggest and busiest commercial complain that because the container yard is crowded, movement port in Mindanao, but users of the port still complain that the of cargoes has been delayed. “It has been established that during wharf is “too small”. According to Davao’s Regional Development peak hours, the process (in the wharf, whether loading or unloading Council, the failure of government to provide suffi cient and cargoes) takes more than two hours to complete for every van,” wrote effi cient port services at Sasa has led to private fi rms engaged in the PBGEA. Th e Philippine Port Authority (PPA) responded to the export and import business being forced to patronize private ports, letter that there were already proposed expansion project for Sasa, if not build their own. “Th is means lost revenues for the government,” but nothing was specifi ed. If the Philippines is to fully realize the said Davao Bureau of Customs Collector Martiniano M. Bangcoy. benefi ts of the ASEAN-led connectivity project, the government Although the Sasa port has about 19 hectares in area, the must ensure that improvement in Sasa happens before 2015. berthing facility of the wharf, where the ships dock, is just 1,150 meters long with a controlling draft of 10.6 meters. “Th e berthing

The potential for increase in trade and tourism was met with worry.

Philippine Alert March 2012 50 INFRASTRUCTURE

MASTER PLAN FOR ASEAN CONNECTIVITY Details under Maritime Transport Integration:

Maritime Transport. ASEAN has designated 47 ports as the main ports in the trans-ASEAN transport Network.

Key actions: Enhance the performance and capacity of the 47 designated ports, with the priority set in the studies undertaken and being undertaken under Measures 6, 7 and 8 of the Roadmap Towards an Integrated and Competitive Maritime Transport in ASEAN by 2015. The enhancement of capacity can include the improvement in associated services like warehousing as well as dredging of the water channels where needed. a) Establish effi cient and reliable shipping routes (including RoRo) connecting mainland and archipelagic Southeast Asia including the related sub- regional initiatives such as BIMP-EAGA and IMT-GT. The emerging and/or potentially important international routes: Satun/Trang – Penang – Belawan, Malacca – Dumai, Davao – Bitung, Zamboanga - Sandakan, Muara – nearby ports; b) Strengthen linkages with global and regional trunk routes and domestic shipping routes; and c) Conduct a feasibility study on the establishment of an ASEAN RoRo network.

Clark Airport dev’t fi nally underway noting that EM Cuerpo’s bid was pegged at P307 million. The Clark Airport passenger terminal expansion project will expand After years of discussing plans to expand Clark Airport, the current capacity of the airport to 4 million passengers annually, real progress can fi nally be reported. The expansion project and will entail the doubling of check-in counters, expansion of of the existing terminal has been offi cially rolled-out with pre-departure and arrival areas, and the installation of a baggage conveyor for the arrival area. The funding for the project will 5 interested bidders vying for the P360-million contract. come from the recently approved P1-billion loan that CIAC Award of the project is expected by April 2012 and comple- received from the LandBank of the Philippines. The remainder of tion slated by December 2012 (we highly doubt this). the LandBank loan will fi nance the purchase of new navigational equipment and the construction of other support infrastructure. Five construction firms have submitted bids for the The Clark Airport passenger terminal expansion is phase 2 P360-million Clark Airport passenger terminal expansion of an earlier plan to transform Clark Airport into the country’s project - E.M. Cuerpo Inc., Izumo Contractors Inc., Terp Asia biggest international gateway. The Clark Airport Development Construction Corp., IPM Construction and Development Project, conceived in 2000, have had several pronouncements of Corp. and Marcbilt Construction Inc. The bidding was “project underway”, only to be stalled at the last minute. This opened last March 05, with expected announcement of the recent development is the most promising of all discussions, winning bidder by April 2012. The project initially attracted and likely to go beyond the blueprints and negotiation stage. 10 interested bidders, but only 5 eventually submitted The Department of Transportation and Communication bids. According to Clark International Airport Corporation (DOTC) Secretary Mar Roxas had placed the development of (CIAC), target completion and start of commercial operations Clark Airport on top of DOTC’s priority list under his watch. for the expanded passenger terminal is December 2012. Apart from the expansion of the existing terminal at Clark, “We are now evaluating the lowest calculated bidder, which is the government is looking to build a P12-billion new terminal the EM Cuerpo, Inc. Aft er the post-qualifi cation, if they passed, we that would serve the budget airlines. This budget terminal will will award the project,” Darwin L. Cunanan, CIAC vice-president be connected to the existing terminal facility and will have for commercial and business development group declared,

Commercial operations slated in December 2012.

Philippine Alert March 2012 INFRASTRUCTURE 515

QUICK FACTS AND STATS ON CLARK AIRPORT

Property Area: 2,367 hectares Passenger Traffi c: 2.5 million per year Facilities: 2 runways (primary & secondary), 4 taxiways, and 1 passenger terminal Airline Operators: 8 Operators 1. AIR ASIA 2. ASIANA 3. CEBU PACIFIC 4. JIN AIR 5. PACIFIC FLYER 6. SEAIR 7. SOMA 8. TIGER AIRWAYS Airline Routes: Domestic - Cebu, Kalibo, Caticlan; International- Malaysia, Bangkok, Hong Kong, Incheon, Kuala Lumpur, Macau, Singapore, Palau, and Taipei. the capacity to serve 10 million passengers annually. DOTC aft er this, the Justice department handed down a legal opinion Secretary Roxas expects the new budget facility to be in full stating that pursuant to its subsisting franchise on the Skyway commercial operations by 2015. This plan may be pushed project, Citra has the “right and authority… to construct extension back, however, given the recent set-back that Asia Foundation, and linkages” to the Metro Manila Skyway. In eff ect, the legal the agency tapped to conduct the feasibility study on the Clark opinion gave the Toll Regulatory Board (TRB) the go-signal to budget terminal, backed out. The government is currently evaluate and process Citra’s Skyway Stage 3 proposal that would searching for fi nancing for the feasibility study for the Clark extend the Skyway from Buendia to Balintawak in Quezon City. budget terminal. Once approved, the P12-billion Clark budget Citra is insisting it has a lawful claim to the NLEX-SLEX link terminal project will be included for bidding under the private- project, while MPTDC argues that the legal opinion merely public-partnership (PPP) scheme of the Aquino administration. grants Citra the right to submit a proposal and not the right to an exclusive contract. As original proponent, MPTDC’s proposal Sec. Roxas mulls over co-existing NLEX-SLEX would be subjected to a Swiss challenge, where it only needs to match competing off ers for it to be awarded the contract. Link roads Th e NLEX-SLEX Link project is among the infrastructure projects identifi ed by the government to have the highest Transportation Secretary Manuel Roxas II hinted at the impact on gross domestic product (GDP) growth and possibility of having 2 roads that would link the North Lu- employment generation. The project contract is deemed zon Expressway (NLEX) with the South Luzon Expressway highly-coveted as it is said to guarantee “high value” traffi c. (SLEX) in the midst of a verbal sparring between toll road Another point of contention between the 2 fi rms involves developers Metro Pacifi c Tollways Development Corporation the superiority of their project proposals. MPTDC is capitalizing (MPTDC) and Citra Metro Manila Tollways Corporation on the assessment made by the Japan International Cooperation (Citra) over the tollway project. Metro Pacifi c and Citra are Agency (JICA) which found the NLEX-SLEX Connector insisting on the superiority of their respective proposals, Road “the best among 4 alternative alignments,” including while also arguing over project ownership. Citra’s Skyway Stage 3, in terms of transport effi ciency, initial investment requirement, social and environmental impact, “If possible, why not approve both,” said Sec. Roxas referring construction diffi culty, and economic and fi nancial aspects. For to the 2 proposals for the NLEX-SLEX Link project. According its part, Citra is claiming that it has a better proposal as Skyway to Sec. Roxas, the 2 projects may co-exist since these are not 3 requires no government subsidy, and covers the larger market redundant as they pass through diff erent alignments and cater comprised of regular commuters, with lower end-to-end tariff . to diff erent markets. MPTDC is proposing the construction of Both MPTDC and Citra have expressed their support to the NLEX-SLEX Connector Road, while Citra is pitching for Sec. Roxas’ suggestion on co-existing link roads. Citra President Skyway Stage 3 (please see table). Th e NLEX-SLEX Connector Shadik Wahono had stated that the approval of complementing would cater to motorists, primarily cargo trucks, seeking to road projects will further hasten the fl ow of traffi c between bypass major thoroughfares, while Skyway Stage 3 is designed the north and the south of Metro Manila. Meanwhile, Metro to accommodate the traffi c patterns of regular commuters with Pacifi c chairman Manuel Pangilinan welcomed the secretary’s its entry and exit points located in major population centers. statement, saying “They (government) kept saying that Metro Pacifi c, through its other subsidiary the Manila North competition is good for the consumer. So, let’s prove it.” Final Tollways Corporation is the builder and concessionaire of the NLEX, decision on the project rests with the TRB, an attached agency while Citra is the developer of the South Metro Manila Skyway Project. of the Department of Transportation and Communications Th e pronouncement from Sec. Roxas came amid heated in charge of regulating all toll roads in the country. exchange between MPTDC and Citra. In April 2011, the Public Works department granted “original proponent” status to MPTDC for its unsolicited proposal for the NLEX-SLEX Connector Road that would stretch from Skyway-Buendia to Caloocan. Not long

The 2 proposals for the NLEX-SLEX Link project are not redundant.

Philippine Alert March 2012 52 INFRASTRUCTURE

Gov’t taps private sector to address classroom Region), III (Central Luzon), and IV-A (CALABARZON). backlog Each contract package will be bid out and awarded separately. According to DepEd Undersecretary for Finance Francisco Th e Aquino administration is turning to the private sector to Varela, the use of the public-private partnership (PPP) framework assist in eff orts to address the long-standing problem of class- for classroom construction will allow the government to harness private sector resources and expertise. He explained that the room shortage in the country. Th e government recently unveiled PSIP will not only reduce costs for the government, but will to the business community the 1st phase of the Public-Private also “fast-track construction and delivery of classroom” with Partnership for School Infrastructure Program (PSIP), which is the private proponents allowed to “introduce innovations in a 3-phased social infrastructure program for the construction the design, construction methods, and materials for classroom of public school classrooms nationwide. construction.” While the conventional procurement system only allows the government to undertake classroom construction In late February, the Department of Education (DepEd) held according to a pre-defi ned program of work, the PSIP allows st an investor conference for the PSIP where it unveiled the 1 phase private proponents to introduce their preferred programs of of the program (please see box) involving the construction of 9,332 work subject only to the minimum performance standards classrooms in the Luzon area. Phase 1 of PSIP is a P10-billion set by the DepEd. Classroom construction is expected project comprised of 3 contract packages for the construction to start in August 2012 and be completed within 1 year. and delivery of fully-equipped classrooms in Regions I (Ilocos

PPP FOR SCHOOL INFRASTRUCTURE PROJECT (PSIP)

Implementing Agency: Department of Education (DepEd) Project Cost: P10.04 billion Contractual Scheme: build-lease-transfer under the PPP scheme Status: Submission of qualifi cation documents extended to April 11, 2012

Project Details: This project involves the construction of 9,332 classrooms, with furniture and fi xtures, in various school sites in Regions I, III and IV-A using a range of school-building technologies subject to the Minimum Performance Standards and Specifi cation set by the DepEd. The contract covers the design, fi nancing, construction and maintenance of 1-storey and 2-storey school buildings. The project is divided into 3 contract packages:

PROJECT/REGION NUMBER OF SCHOOL NUMBER OF SCHOOL NUMBER OF CONTRACT PACKAGE COVERAGE SITES BUILDINGS CLASSROOMS Region I Contract Package A 660 686 2,050 (Ilocos Region) Region III Contract Package B 656 745 2,999 (Central Luzon) Region IV-A Contract Package C (CALABARZON or 946 1,097 4,283 Cavite-Laguna-Batangas-Rizal-Quezon) TOTAL 2,262 2,528 9,332

Each school building will consist of the 3 project components: Component I – school buildings / cluster of classrooms Component II – toilets (separate toilets for girls, boys, and handicapped) Component III – classroom furniture

PPP FOR SCHOOL INFRASTRUCTURE PROJECT TIMELINE*

ACTIVITY SCHEDULE

Submission of qualifi cation documents April 11, 2012

Pre-bid conference May 14, 2012 Deadline of submission of technical and July 18, 2012 fi nancial proposals Signing of contract agreement August 8, 2012 Within 2 months from contract Issuance of notice to proceed signing Construction completion deadline August 14, 2013 *Revised timetable, Source: PSIP Bid Bulletin No. 4 dated March 9, 2012, Department of Education

Will the government honor its contract?

Philippine Alert March 2012 INFRASTRUCTURE 535

Classroom shortage is 120,240 rooms, plus 44,000 more needed for the K+12 program.

Upon completion, a 10-year lease agreement between the the newly-introduced senior high school level starting with grade government and the private proponent will start. During this 11. Th is would call for an additional 44,000 classrooms at the ideal period, the government’s lease payment will be covered by a classroom-student ratio. To address classroom requirements for Multi-Year Obligation Authority that will require the DepEd these, the government would need some P107 billion, at a cost to set aside from its yearly budget the amount necessary to of about P650,000 per classroom. However, even this will not be settle the lease payments over the 10-year period. Despite suffi cient, bearing in mind that the classroom requirement is a this guarantee, industry observers expressed anxiety over the “moving target,” with student enrolment rising by 2.2% annually. possibility that the government, especially in the event of a Usec. Varela has revealed that all modes of fi nancing change in leadership, may renege on the contract. Administration considered—annual government appropriation, local government offi cials assured, however, that the contracts will be honored as provisions, and local and international donors’ contributions— the these are legal commitments entered into by the government. government could only build about 15,000 classrooms annually. Based on government estimates, the country’s classroom Th us, the administration came up with the PSIP to allow the private backlog is 66,800 at a classroom-student ratio of 1:45. At the ideal sector to supplement government’s eff orts in classroom-building. ratio of 1 classroom per 25 students, the shortage jumps to an As of late March, DepEd disclosed that there are 18 estimated 120,240 rooms. Th is is further expected to increase with prospective bidders for the 1st phase of the PSIP, including the implementation of the K+12 program that would expand the 3 foreign fi rms. Solicitation of bids is scheduled to begin in current 10-year basic education cycle by 2 years. With this, schools May. Meanwhile, Phase 2 of the PSIP for the Visayas region would have to retain 1.1 million students who would move into and Phase 3 for Mindanao that would each deliver 10,000 new classrooms are expected to be auctioned in late 2012.

Classroom requirement is a “moving target”.

Philippine Alert March 2012 54 INFRASTRUCTURE

STATUS OF BIG TICKET INFRASTRUCTURE PROJECTS AS OF MARCH 2012

IMPLEMENTING FUNDING CIVIL WORKS PROJECT TITLE PROJECT COST STATUS / ISSUES AGENCY SOURCE TIMEFRAME Project has been approved by NEDA Board. Design-and-build and O&M contract to be auctioned under PPP scheme, while rolling stock will LRT-1 South Extension DOTC/LRTA PPP/ODA 2012-2015 P60 billion be fi nanced through ODA. Terms of reference for PPP component to be fi nalized before auction, which is expected to take place in mid-April. Still under NEDA review. Earlier identifi ed for “hybrid” fi nancing where DOTC/LRTA LRT-2 East Extension PPP/ODA 3 years $251 million project construction will be funded through ODA, while O&M will be privatized through PPP. DOTC still awaiting legal opinion on whether to auction O&M contract or MRT-3 Privatization DOTC/LRTA PPP -- P6.3 billion just maintenance contract. NEDA Board approval expected by May 2012. Bidding for Cavite section CALA Expressway DPWH PPP 2014-2017 P19.69 billion slated for the latter part of the year, while awarding of contract is eyed for February 2013. Project awaiting NEDA approval. Project may be bid out by September with a revised scope of work. Locators at PAGCOR’s Entertainment City NAIA Expressway DPWH PPP 2012-2015 P13.58 billion have requested to extend the planned road from terminating at Roxas Phase II Blvd., to go all the way across this and instead terminate at Diosdado Macapagal Blvd. Citra, SMC, and MPIC reportedly interested. ROW confi rmation from DOTC still pending. Negotiations ongoing between original proponent MPTDC and DPWH. Possibility of co-existing Connector NLEX-SLEX Connector DPWH PPP 2014-2016 P19.98 billion Road and Skyway Stage 3 to link NLEX with SLEX also being studied. NEDA Road Project Board approval is expected by July, while tentative issuance of notice for postponed Swiss challenge is Feb. 2013. CIAC presently evaluating lowest bidder EM Cuerpo Inc., which posted Clark Airport P360 million a bid of P307 million. EM Cuerpo is due for post-qualifi cation before Development DOTC/CIAC PPP -- (Phase II) awarding of the contract scheduled in April. CIAC has also earlier secured (Terminal expansion) a P1-billion loan facility from Landbank for the project. Construction of airport, to be fi nanced by Korean ODA, approved by Pres. Puerto Princesa DOTC ODA/PPP 2012-2014 P4.5 billion (const.) Aquino on Dec. 2011. Meanwhile, O&M contract under the PPP scheme is Airport Development still awaiting NEDA approval. Civil works is 98.93% complete, but air navigation system has yet to be auctioned. Airport completion expected in December. O&M component Laguindingan Airport ODA-NG/ P7.85 billion (const.) DOTC 2008-2012 awaiting NEDA approval. Solicitation of bids for O&M eyed before June, Development PPP P1.5 billion (O&M) while awarding is slated in 3Q/4Q shortly before the facility is turned over to the government. The government has said that no bidding may be expected until all legal issues are resolved. The Court of Appeals recently affi rmed contractual NAIA-3 Upgrading claims of contractors against Piatco, while the Transportation department and Full DOTC PPP 2 years P2.2 million has signed an agreement with Takenaka for the completion of NAIA-3’s Operationalization civil works. However, there are at least 2 other cases involving NAIA-3 that are still pending resolution. The draft of the feasibility study conducted by JICA was already submitted New Bohol Airport to DOTC. Business case presently being prepared and is expected to be DOTC PPP -- P7.6 billion Development completed in Sept. 2012, as indicated in the contract. DOTC has, however, requested its advisor to complete the business case within 4 months. Project is “back in the drawing board,” as the administration expressed its commitment to a high-speed rail link. Suspended project described as NorthRail Project DOTC ODA -- $2 billion “slow, old technology commuter” system. Details of proposed high-speed rail have yet to be ironed out, but fi nal decision not expected soon given the upcoming leadership change in China. Project for the Bridge Phase 2 for the construction of the Umiray Bridge was recently approved Construction for by the NEDA ICC CabCom and the NEDA board. The planned Umiray Bridge P798.56 million Expanded Agrarian DAR ODA/NG -- is a 358-lineal meter bridge that will cross Umiray River to improve the (Phase 2) Reform Communities distribution of goods and the mobility of people in the provinces of Aurora Development and Quezon. Mactan Airport The previous studies made for the project are being reviewed by DOTC’s Development DOTC PPP -- P10.15 billion transaction advisor to repackage the project for PPP. The target schedule (Terminal 2) for the project’s bidding is in the 2nd half of 2012. Samar-Pacifi c Coastal DPWH ODA -- P1.81 billion The project was recently approved by the NEDA-ICC and the NEDA board. Road Project The PPA is now designing the details of the project based on the sample Iloilo Port Expansion analysis made in the soil investigation, which was completed in March. DOTC/PPA NG 1.5-2 years P500 million Project After the design is completed, a program report will be submitted for approval before bidding starts. The feasibility study conducted by Tonkin & Taylor is almost complete. Angat Dam The draft of the fi nal report has already been presented and is slated for DPWH/MWSS PPP 2013-2017 P5 billion Rehabilitation Project completion in May 8. The project implementation is expected to begin in Sept. 2013. The feasibility study for the project will start in May 2012. Meanwhile, the Metropolitan Cebu Bulk Water project engineering design is eyed for approval in June 2012. The Manila Cebu Water PPP 2012-2013 P702 million Supply Project Water Consortium has scheduled to secure an Environmental Compliance District (MCWD) Certifi cate (ECC) by October and begin the civil works right after. New Water Supply A pre-investment study for the project is currently being conducted to MWSS PPP -- P25 billion Source Project determine the project’s structure and other details. DOE has fi nished designing the project with JICA. DOE said that Philippine Batangas-Manila National Oil Co. (PNOC) will construct, own and operate the pipeline in DOE NG 2013-2016 $200 million (BatMan 1) Pipeline order to avoid monopoly. Bidding for the engineering and procurement contract of the project is scheduled for the fi rst quarter of 2013.

Philippine Alert March 2012 CONGRESSWATCH 55

Senate approves Data Privacy Bill on 3rd reading

The Senate has approved on 3rd and fi nal reading the Data Privacy Act. The measure seeks to protect consumers’ personal data, promote trust and user confi dence in electronic commerce, and enhance the competitiveness of the local business process outsourcing (BPO) industry.

he proposed bill requires both public and private entities to protect and preserve the integrity and Tconfi dentiality of personal data that they may collect throughout their operations. The measure also highlights the importance of complying with global data security standards. Senator Edgardo Angara, principal author of Senate Bill 2965, said the measure is based on Directive 95/46/EC of the European Parliament Council, the commonly adopted data privacy system. Th e directive bars European Union-based companies from outsourcing the processing of private information to countries that do not follow particular data protection standards. Th e bill provides for the creation of a National Privacy Commission that will implement and enforce the law’s provisions. Among the Commission’s duties is to enforce policies that will balance the right of the private person to privacy with the need 1. Unauthorized processing to speed up the utilization of the internet. “By establishing such 2. Access due to negligence a policy framework, we actually protect internet freedoms while making sure the Web remains safe. In this way, we reduce the 3. Improper disposal of data risk for true harm to be infl icted and heighten the opportunity 4. Wrongful/unauthorized processing for our digital space to be a truly productive and collaborative 5. Unauthorized access venue,” Sen. Angara said. He added that the passage of SB 6. Concealment of security breaches 2965 sends a signal to the rest of the world of how serious the Philippines is in “cultivating” its IT-driven industries. 7. Malicious disclosure Th e 9 major off enses with corresponding penalties 8. Unauthorized disclosure specifi ed in the bill are the following: 9. Breach of confi dentiality

The Data Privacy Bill is a step away from being signed into law.

Philippine Alert March 2012 56 CONGRESSWATCH

BILL STATUS PROGNOSIS Approved on 3rd reading by both the House of Representatives and the Senate Priority of the Aquino administration Data Privacy For Bicameral Committee approval Likely to be approved this 2nd regular session Not a priority of the Aquino administration but unlikely to be vetoed; Approved on 3rd reading by both chambers; Department of ICT Enactment into law possible before the end of the 2nd regular session For Bicameral Committee approval (June 8, 2012) House – Pending on 2nd reading Anti-Cybercrime House approval on 3rd reading possible this 2nd regular session Senate – Approved on 3rd reading

Industry observers believe that the measure’s enactment the mother tongue-based multilingual education (MTB- will help attract investors into the local information and MLE) method should be made to the following cases: communications technology-business process outsourcing (a) When the pupils in the kindergarten classroom have (ICT-BPO) sector. The Data Privacy bill is one of the 3 measures different mother tongues or when some of them speak supported by the Business Process Outsourcing Association of another mother tongue; the Philippines (BPAP), the umbrella organization of BPO fi rms (b) When the teacher does not speak the mother tongue of in the country. The other 2 are the Anti-Cybercrime Act and the the learners; Department of Information and Communications Technology (DICT) Act. Both measures have also been approved on 3rd (c) When resources, in line with the use of the mother reading by the Senate. BPAP is optimistic that the passage of tongue, are not yet available; and the 3 IT-related bills will help the industry meet its targets of (d) When teachers are not yet trained how to use the $25 billion in revenues and around 1.3 million jobs by 2016. MTB-MLE program. The Philippines has overtaken India as the world’s The authority to regulate the implementation of the largest provider of call center services. We also have the kindergarten education program of both public and private schools potential to become a leading provider of higher value- is vested upon the Department of Education through the creation of added IT services like software engineering, finance, a new division under the Bureau of Elementary Education (BEE). accounting and legal transcription, but the government DepEd, in consultation with the Department must fi rst provide an environment that is protective of data. of Budget and Management (DBM), will promulgate The bill’s counterpart in the House of Representatives, the law’s implementing rules and regulations. House Bill 4115, has also been approved on 3rd and fi nal reading. The Education department welcomes the passage of the bill, Bicameral committee hearings are expected to commence on May saying the Kindergarten EducationAct is just among the components 7. Once the leaders of both houses of Congress sign the consolidated of the agency’s thrust to push for serious education reforms. bill, it will be transmitted to the President for his signature. The Mandatory kindergarten is part of the 10-point basic measure is practically a step away from being signed into law education agenda of the Aquino administration (see box). Kindergarten education is seen to suffi ciently prepare children President Aquino signs Universal for formal education and solve the high drop-out rate among Kindergarten Act primary school students. Researches have shown that children who fi nish pre-school are better prepared to enter grade 1 President Aquino has signed into law the Universal Kindergarten and eventually fi nish the 6-year primary school cycle while Act (Republic Act 10157) which will institutionalize kindergarten those who don’t are prone to dropping out of grade school. education into the Basic Education System. The enactment of the The implementation of the law is also expected to help law is seen to strengthen the country’s basic education program the government with its UN Millennium Development and help the government with its Millennium Development Goal (MDG) commitment of achieving universal primary Goal of achieving universal primary education by 2015. education by 2015. As of 2008, the country’s net enrolment ratio in primary education (ratio of the number of children of The law states that for school year 2012-2013, kindergarten offi cial primary school age enrolled in school to the number education will be made mandatory and compulsory of children of offi cial primary school age in the population) for entrance to Grade 1. Mandatory kindergarten will stood at 85.1%, still far from the country’s goal of 100%. serve as the foundation of the Education department’s The country has only 3 years left to achieve its objective. expanded pre-university education program, the K+12. Close to 2 million children are expected to enroll in Republic Act 10157 also stipulates the use of the some 15,840 public and private schools nationwide this mother tongue of the kindergarten pupils as the primary school year. President Aquino has set aside P2.4 billion medium of instruction. However, exceptions for the use of for the implementation of the law. Th e fund accounts for a mere 1% of DepEd’s P238.8 billion budget for 2012.

Children who fi nish pre-school are better prepared to enter grade 1.

Philippine Alert March 2012 CONGRESSWATCH 575

THE DEPED, THROUGH THE BEE, HAS THE FOLLOWING POWERS AND FUNCTIONS:

(a) Oversee and supervise the organization, operation and implementation of the kindergarten education program;

(b) Develop the curriculum for kindergarten education consistent with the universally accepted norms and standards

(c) Develop teaching strategies using the unique feature of the MTB-MLE

(d) Conceive, develop and extend a continuing professional development program for kindergarten teachers to ensure constant updating of their knowledge in current trends, pedagogy, methodologies and concepts on early childhood education;

(e) Prescribe the necessary qualifi cations for the hiring and accreditation of teachers who will handle the kindergarten education program;

(f) Exercise authority over the operation of private kindergarten institutions;

(g) Supervise the establishment of various venues for early childhood education which may be institution-based, home-based, hospital-based or community- based, and which shall be duly accredited by the DepEd; and

(h) Introduce innovative programs in kindergarten that shall include educational technologies, whenever applicable.

GOAL: ACHIEVE UNIVERSAL PRIMARY EDUCATION Ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling PROBABILITY OF ACHIEVING INDICATOR BASELINE TARGET LATEST DATA THE GOAL Net enrolment ratio 84.6% 100% 85.1% in primary education Year: 1990 Year: 2015 Year: 2008 Low

PRESIDENT AQUINO’S 10-PONT BASIC EDUCATION AGENDA:

1. 12-year Basic Education Cycle 2. Universal preschooling for all 3. Madaris (Muslim private schools with emphasis on Islamic studies) education as a sub-system within the education system 4. Technical vocational education as an alternative stream in senior high school 5. “Every child a reader” by Grade 1 6. Science and Math profi ciency 7. Assistance to private schools as essential partners in basic education 8. Medium of instruction rationalized 9. Quality textbooks 10. Covenant with the local governments to build more schools

HIGH DROP-OUT/LOW SURVIVAL RATE 100 - ENTER PRIMARY SCHOOL 100% 35 - DROP-OUT 35% 65 - FINISHT PRIMARY SCHOOL 65%

Philippine Alert March 2012 58 CONGRESSWATCH

PRIORITY BILLS FOR THE 15TH CONGRESS: AN UPDATE AS OF 02 MARCH 2012

BILL NO. TITLE SALIENT FEATURES STATUS HOUSE SENATE AGRICULTURE, ENVIRONMENT AND NATURAL RESOURCES HB 1726 Seeks to amend certain sections of the Comprehensive Agrarian Pending in Committee Pending in Committee CARP Reform SB 883 Reform Law, such as expanding the defi nition of agricultural lands on Agrarian Reform on Agrarian Reform Pending in Committee HB 1429 Pending in Committee Clean Air Act Amendment Seeks to strengthen the Clean Air Act and its implementation on Environment and SB 2909 on Ecology Natural Resources Seeks to consolidate and strengthen the procedure for fi ling and Pending in Committee HB 8 Environmental Impact Pending in Committee implementing Environmental Impact Assessment and issuance of on Environment and SB 1362 Assessment Amendment on Ecology Environmental Compliance Certifi cate Natural Resources Pending in Committee Pending in Committee HB 4 Creates the Land Administration Authority and institutes reforms in Land Administration Reform Act on Government on Environment and SB 2114 land administration system Reorganization Natural Resources Pending in Committee HB 2717 Pending in Committee Mining Act Amendments Seeks to amend various provisions of the Mining Act on Environment and SB 1365 on Natural Resources Natural Resources Pending in Committee HB 4840 Seeks to discourage and phase out the use of plastic bags in the Transmitted to the Plastic Bag Reduction Act on Trade and SB 1543 retail industry Senate Commerce FINANCE AND CORPORATE GOVERNANCE Seeks to exempt employees of the Bureau of Internal Revenue and HB 292 BIR/BOC exemption from Pending in Committee Pending in Committee Bureau of Customs from the salary standardization to promote the SB 809 Salary Standardization on Ways and Means on Finance hiring and keeping of professionals within these offi ces Seeks to expand the authority of the BSP to supervise and regulate Pending in Committee Pending in Committee HB 5394 the operations not just of banks but also quasi-banks and other on Banks, Financial BSP Charter amendment on Banks and Financial SB 708 fi nancial institutions that perform quasi-banking functions; grants Institutions and Intermediaries the BSP 'tax-exempt' status Currencies Customs and Tariffs Approved on 3rd HB 3224 Seeks to prescribe the guide for customs and tariff modernization None Modernization Act reading Seeks to establish a Medium Term Fiscal Accord (MTFA), set caps HB 2263 on national debt and personnel services, ensure funding for Pending in Committee Pending in Committee Fiscal Responsibility Act SB 2177 enacted laws, and strengthen transparency and accountability in on Appropriations on Finance government transactions. Pending in Committee Seeks to enable the insurance industry to adequately address the Pending in Committee HB 1502 on Banks, Financial Insurance Code amendment various issues and challenges in both local and foreign insurance on Banks and Financial SB 2500 Institutions and markets Intermediaries Currencies HB 4935 Rationalization of Fiscal Seeks to rationalize the grant and administration of fi scal and non- Transmitted to the Pending in Committee SB 2142 Incentives fi scal incentives Senate on Ways and Means Seeks to provide an uniform and equitable taxation by limiting the Simplifi ed Net Income Taxation allowable deductions for self-employed individuals or professionals Pending in Committee SB 380 None Act and to grant self-employed individuals and professionals an on Ways and Means optional standard deduction of 40% of gross income Pending in Committee Seeks to enhance regulatory environment that will allow the Stock Market Competitiveness on Banks, Financial SB 2009 Philippine stock market to grow by taking out unnecessary tax None Act Institutions and impediments Currencies Seeks to adopt a just, equitable, impartial and nationally Pending in Committee HB 1164 Pending in Committee Valuation Reform Act consistent valuation based on internationally accepted standards, on Government SB 2360 on Ways and Means concepts, principles and practices Reorganization HUMAN CAPITAL DEVELOPMENT AND HEALTH Pending in Committee HB 479 Seeks to ban asbestos in all forms of construction materials to Pending in Committee Asbestos Ban on Trade and SB 89 ensure the safety and health of Filipinos on Ecology Commerce Pending in Committee Creative Industries SB 1064 Seeks the creation of the Creative Industries Development Council None on Trade and Development Council Commerce Amends the Expanded Government Assistance To Students and Pending in Committee Pending in Committee HB 88 GASTPE Act amendment Teachers In Private Education Act; Provides for an expanded on Basic Education and on Education, Arts and SB 2035 voucher or coupon system in secondary and tertiary education Culture Culture Seeks to reinforce the role of labor in Philippine economy by Pending in Committee Pending in Committee HB 3321 Omnibus reform for the Labor amending various provisions of the labor code; calls for partial on Labor, Employment on Labor and SB 868 Code amendment to Book V relating to labor cases at the NLRC, rights of and Human Resources Employment workers to bargain effectively, and the right to strike Development 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 the Pending on 2nd Pending on 2nd reading SB 2865 Populace Development various methods of family planning reading INFRASTRUCTURE AND INFORMATION TECHNOLOGY Seeks to bring Philippine telecommunications, broadcast Convergence: Telecom Policy communication, cable television and broadband industry at par Pending in Committee SB 229 None amendment with global trends and standards through technology transfer, and on Public Services to prescribe the entry capital for both foreign and local companies

Philippine Alert March 2012 CONGRESSWATCH 595

Seeks to defi ne and penalize cybercrimes and computer-facilitated HB 5808 Pending on 2nd Approved on 3rd Anti-Cybercrime Act crimes, which include data theft, online fraud, hacking, online SB 2796 reading reading pornography, introduction of viruses, and computer sabotage. Seeks to protect consumers, promote trust and user confi dence HB 4115 Data Privacy Act in electronic commerce, and enhance the competitiveness of the For Bicameral Committee Approval SB 2965 country as a hub for the BPO industry Upgrades the Commission on Information and Communications Creation of Department Technology (CICT) and seeks to raise public sector focus and HB 4667 of Information and usage of e-governance ; The DICT will be tasked to formulate For Bicameral Committee Approval SB 50 Communications Technology national communication policies, standards, and specifi cations for (DICT) telecommunications, automated data processing and management information systems Seeks to achieve a more self-suffi cient energy mix, reduce Pending in Committee SB 2027 Energy Effi ciency Act None consumption of oil and coal, and ensure long-term sustainability on Energy HB 1291 Seeks to re-commission the Bataan Nuclear Powerplant to allow its Pending in Committee Pending in Committee Nuclear Power Resolution SB 1642 commercial operation on Energy on Energy Pending in Committee HB 2848 Seeks to regulate the use of voice over internet protocol (VOIP) to on Information and Pending in Committee VOIP Act SB 1067 avoid abuse and misuse Communications on Public Services Technology Seeks to consolidate maritime and admiralty laws and to Pending in Committee HB 1156 Maritime Law None modernize the maritime industry on Transportation Among the proposed amendmentsare the following: addition of new PPP variants or contractual arrangements, such as joint Technical Working ventures, concessions, and management contracts; restructuring HB 4151 BOT Law Amendments Group (TWG) drafting None and tightening of eligibility requirement for unsolicited proposals; bill and the composition of the approving body at the national and local levels. PUBLIC SECTOR GOVERNANCE Seeks to expand the defi nition of money laundering and include HB 4275 Approved on 2nd AMLA amendments other crimes in the list of predicate crimes for the purposes of Pending on 2nd reading SB 3009 reading money laundering Pending in Committee HB 588 Seeks to extend the prescriptive period in graft and corruption Pending in Committee on Constitutional Anti-corruption amendments SB 472 cases on Revision of Laws Amendments, Revision of Codes and Laws Seeks to defi ne private armies, provide the executive with the Pending in Committee HB 2111 Pending in Committee Anti-private Armies Act power to dismantle them and penalize leaders, protectors, in Public Order and SB 238 on Justice fi nanciers, suppliers and members of such groups Illegal Drugs Seeks to strengthen the drive against anti-smuggling by increasing HB 46 Pending in Committee Pending in Committee Anti-Smuggling Act the penalty and empowering the Commission on Audit to perform SB 2408 on Ways and Means on Ways and Means post-entry audits. Intends to promote a level playing fi eld in trade, industry and all HB 3534 commercial economic activities, and rid the country of abusive Approved on 2nd Anti-Trust Act Pending on 2nd reading SB 3098 monopolies, cartels, and anti-competitive behavior. Promotes reading easier and more effective entry of new players in the market. Seeks to systematize appointments and promotions in the HB 5624 Career Executive Systems Act government by providing for a systematized career rank For signing of the President SB 2671 progression in the bureaucracy Seeks to ensure public access to offi cial records, documents Pending in Committee HB 1033 Freedom of Access to and any other information of public concern and compel all Pending in Committee on Public Information SB 2283 Information Act government offi ces to comply with requests for information on on Public Information and Mass Media matters of public concern Pending in Committee Government Classifi cation and Seeks to reclassify positions and compensation of government HB 1027 on Civil Service and None Compensation Act employees by providing step increments Professional Regulation Seeks to amend the Intellectual Property Code through the HB 47 Intellectual Property Rights Act integration of comprehensive, swift, effi cient and adequate Transmitted to the Pending on 2nd reading SB 2842 amendments strategies designed to respond to the criminal onslaught of Senate internet piracy. Pending in Committee Pending in Committee HB 3248 Jueteng Act Seeks to legalize jueteng on Games and on Games, Amusements SB 2548 Amusements and Sports Seeks to protect consumers in the sale of motor vehicles against Pending in Committee HB 4841 Transmitted to the Lemon Law sales and trade practices which are defective, unfair and inimical on Trade and SB 1310 Senate to the interests of the consumers and public Commerce Pending in Committee HB 846 Pending in Committee Ombudsman Act Amendment Seeks to strengthen the powers of the Offi ce of the Ombudsman on Justice and Human SB 1447 on Justice Rights Seeks the creation of the Philippine Transportation Security Pending in Committee HB 299 Philippine Transportation Pending in Committee Authority which will consolidate civil aviation, maritime, land and on Government SB 970 Security Authority on Public Services rail security programs Reorganization HB 5715 Seeks to set up a system of rewards and protection for Pending in Committee Approved on 3rd Whistleblowers Protection Act SB 2860 whistleblowers and their families. on Justice reading Seeks to promote fi nancial viability and fi scal discipline in HB 4067 government-owned or controlled corporations and to strengthen Signed into law GOCC Governance Act of 2011 SB 2640 the role of the state in its governance and management to make Republic Act 10149 the GOCCs more responsive to the needs of the public Appropriates funds for the operation of the government of the Signed into law General Appropriations Act for HB 5023 Republic of the Philippines from January 1 to December 31, 2012 Republic Act 10155 FY 2012 and for other purposes General Appropriations Act of 2012

Philippine Alert March 2012 Regional Update

Asia Pacific Executive Brief

March 2012

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

CONTENTS

Overviews Global Outlook

Regional Outlook

North Asia Japan

China

Hong Kong

Taiwan

South Korea

Southeast Asia Indonesia

Malaysia

Philippines

Singapore

Thailand

Vietnam

South Asia India

Australasia Australia

New Zealand

60

Regional Update Global outlook

The outlook The key question at the close of Q1 is whether the latest jump in global stock markets improves marks the start of a stronger and sustainable upturn in demand for goods and services. This month’s Asia Brief finds support for that view based on changes in the global risk … as risk eases outlook and the demand recoveries underway in the US and Japan. This won’t be a repeat of the surprising rebound in late 2009, which was driven by massive monetary and fiscal … central banks stimulus in the US and China. Moreover, the debt on government balance sheets hasn’t step up QE, gone away and households in the US and in Europe are still expected to focus on deleveraging. The single biggest change in the last month was a surprising swing to … & growth quantitative easing by the European Central Bank (ECB) and the Bank of Japan (BOJ). edges up in the The risk to watch by late 2012 will be inflation as markets are awash with liquidity and US and Japan central banks will need to siphon that off without crimping a return to healthy loan growth. Our 2012 forecast for global GDP growth has lifted to 3.6% from 3.3% in the IMF’s January update, while trade growth has been lifted to 4.2% from the 3.8% in last month’s Asia Brief.

The risk of a Euro The Euro area is on track for the “muddle through” scenario outlined at last November’s area bank crisis forecasting sessions. Two developments are important for the global market. First, the risk fades of a bank crisis igniting in the Euro area is greatly reduced thanks to the ECB’s provision of cheap 3-year money to Euro area banks. Second, most Euro governments have … but little announced multi-year fiscal austerity packages, which make it hard to see GDP growth chance of growth getting much above 1% during the next five years. Our forecast for the Euro area is for years unchanged at -0.5% this year, with a lift to 0.8% next year. The ECB has just cut its forecast to -0.1% this year and 1.1% in 2013.

China pulls off a China is also on track for the “soft landing” scenario outlined last November. The property soft landing sector has cooled, house prices are down 10%yoy, and inflation has dipped to 3-4%. The 2012 growth targets announced in March for GDP (at 7.5%) and trade (at 10%) are in line with what was expected. Although down from the strong expansion of 2010-11, China is still expected to deliver about a third of global growth this year.

A weak upturn February saw the US report the best six straight months of employment growth since 2006, consolidates in and even though the unemployment rate stayed at 8.3%, consumer sentiment is lifting. the US Retail sales for January and February were stronger than expected and also broad-based, with growth in 11 of the 13 main industry categories. The Fed’s latest economic commentary has shifted to cautious optimism while keeping the option of a third quantitative easing on the table if growth softens. GDP growth is set to climb to 3% next year instead of the 4% growth rate typical of past upturns. The weak recovery means that there are still 5.6m fewer Americans in jobs today than there were four years ago.

Inflation will edge A gradual but steady rise in oil prices (West Texas Intermediate is up 14%yoy) is pushing up up inflation rates. Fortunately, food prices, although elevated, are stable and there is plenty of spare capacity in manufacturing to hold down prices. The wild card for inflation remains … the risk from an Israel-Iran war, which could trigger an oil price spike similar to that in 2008. While that an oil price spike risk must be acknowledged, it is far from certain and the planning assumption remains a low inflation environment with prices lifting as growth picks up in 2H’12. There is also a risk of higher inflation in 2013 if central banks misjudge the reduction in liquidity.

IMA Asia’s forecasts 2009 2010 2011 2012 2013 World – Real GDP growth, % -0.7 5.2 3.8 3.6 3.9 - US -3.5 3.0 1.7 2.5 2.9 - Euro area -4.3 1.9 1.6 -0.5 0.8 - Asia/Pacific (14) 1.0 7.1 4.3 4.6 5.4 - NICs (4) -0.7 8.1 4.0 2.7 4.1 - Developing Asia (7) 7.4 9.7 8.1 7.3 7.9 - ASEAN (5) 1.5 7.0 4.5 5.1 5.8 World goods & services trade volume, % growth -10.9 12.7 6.9 4.2 5.5 Interest rates, US Fed target rate, year end, % 0.25 0.10 0.10 0.10 0.10 Inflation, CPI, US, year avg., % -0.3 1.6 3.1 1.8 1.8 Inflation, CPI, Euro area, % 0.3 1.6 1.5 0.8 1.8 Crude oil, avg of 3 spot crudes, US$ 62 79 103 100 104 US$ / Euro 1, year average rate 1.39 1.33 1.39 1.36 1.34 Yen / US$1, year average rate 94 88 80 84 86 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]

61

Regional Update

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 1.5 2.1 China 9.2 10.4 9.2 8.2 8.6 Hong Kong -2.6 7.0 5.0 1.8 3.9 Taiwan -1.8 10.7 4.0 3.2 4.0 South Korea 0.3 6.2 3.6 2.7 4.0 Indonesia 4.6 6.2 6.5 6.0 6.6 Malaysia -1.6 7.2 5.1 4.0 4.8 Philippines 1.1 7.6 3.7 4.0 4.5 Singapore -0.8 14.5 3.5 2.5 4.5 Thailand -2.3 7.8 0.1 4.5 5.5 Vietnam 5.3 6.8 5.9 5.7 6.8 India (CY) 6.8 9.9 7.2 6.3 7.0 Australia 1.4 2.5 2.0 2.8 4.4 New Zealand -0.1 2.4 1.3 2.2 3.2

Inflation, CPI year average, % 2009 2010 2011 2012 2013 Japan -1.4 -0.7 -0.3 0.0 0.3 China -0.7 3.3 5.4 3.7 3.2 Hong Kong (composite CPI) 0.6 2.4 5.3 4.0 3.8 Taiwan -0.9 1.0 1.4 1.7 1.5 South Korea 2.8 2.9 4.0 3.4 3.0 Indonesia 4.8 5.1 5.4 7.0 5.2 Malaysia 0.6 1.7 3.2 2.6 2.5 Philippines 3.3 3.8 4.8 3.5 4.5 Singapore 0.6 2.8 5.2 3.0 2.5 Thailand -0.8 3.3 3.8 3.9 4.2 Vietnam 6.7 9.2 18.7 14.0 9.0 India (CY CPI urban non-manual workers) 10.9 12.0 8.9 7.5 6.5 Australia 1.8 2.8 3.4 2.5 2.8 New Zealand 2.1 2.3 4.0 3.0 3.8

Exchange rate to US$1, year avg. 2009 2010 2011 2012 2013 Japan 94 88 80 84 86 China 6.83 6.77 6.46 6.30 6.18 Hong Kong 7.75 7.77 7.78 7.76 7.76 Taiwan 33.1 31.6 29.4 29.4 28.8 South Korea 1,277 1,159 1,107 1,119 1,097 Indonesia 10,356 9,086 8,776 8,358 8,037 Malaysia 3.52 3.22 3.06 3.03 2.88 Philippines 47.6 45.1 43.3 41.6 40.4 Singapore 1.45 1.36 1.26 1.28 1.25 Thailand 34.3 31.7 30.5 29.7 29.1 Vietnam 17,860 19,151 20,511 21,299 22,117 India (FY) 48.3 45.8 46.6 46.6 45.3 Australia 1.27 1.09 0.96 0.91 0.90 New Zealand 1.60 1.39 1.26 1.20 1.18

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

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Regional Update

Regional outlook

Political & policy issues to watch

China is on track The single most important factor in Asia’s political outlook remains the stability of the for a stable leadership change in China. Despite the entertainment of the rise and fall of Bo Xilai, the leadership party head of Chongqing, there is no change to the outlook. Xi Jinping looks set to take over change as paramount leader from Hun Jintao while Li Keqiang looks set to replace Wen Jiabao as premier this autumn. The stability of this change is crucial to global growth.

China 2030 Xi and Li should get two 5-year terms at the helm if they don’t blot their copy book. When they step down China will likely be close to replacing the US as the world’s largest economy. … a good The question is what sort of market will China be? From a Western MNC perspective there place for all is a real risk that it will be a nationalistic, non-market economy dominated by largely businesses unfettered state owned enterprises (SOEs). This wouldn’t be good for Chinese citizens, China’s growth or global growth and stability. But many in China’s rising fifth generation … or just leadership may well have a strong vested interest in cementing exactly this type of China in SOEs? place. An alternative, pro-market vision has been cogently outlined in the China 2030 report just released by the World Bank and a leading Chinese government think tank (see the China page). That the current leadership has lobbed this report into the public debate is a plus for China’s long-term outlook (the report came out just days before the fall of Bo Xilai, the most visible proponent of a state-run economy).

Indonesia’s dark Indonesia has a wonderful economic and political story that is correctly captured in its return side to an investment grade sovereign rating by two of the three main ratings agencies. Yet the Asia CEO Forum’s latest review of the Indonesian outlook found worrying signs of rising nationalism combined with an almost rudderless bureaucracy. This is a toxic mix for foreign firms and a worrying development for ASEAN, as Indonesia’s powerful business lobby has little interest in free trade agreements. A lot depends on who replaces Yudhoyono in 2014.

Outlook for the market

Growth down a 2011 was a good year in Asia with, we’d estimate, a quarter of our clients doing better than notch in 2012 budgeted and another 50% close to target. Growth this year will likely step down a notch, almost wholly due to a weaker export manufacturing sector. Simply note China’s forecast for export and import growth in 2012 is 10%, versus last year’s 25% for imports and 20% for exports. During Q1 we’ve suggested that clients start with a 2012 growth objective that is a third less than that delivered in 2011. There is upside potential to this in an improving global outlook, but the chickens with this good news have yet to hatch.

Big pay rises for Since late 2010 we’ve suggested that when China lifts its wages by 20%pa it default lifts the Asia’s lowest pay for cheap manufacturing labour around the world. Other factors pushing in the same paid workers direction have come into play, including the commitment by PM Yingluck’s government to lift Thailand’s minimum wage by 40% in seven provinces, the impact of the national rural employment policy in India, and the implementation of a minimum wage in Hong Kong and possibly also Malaysia. You could say that Asia is running out of cheap labour. You could also suggest this represents a big pay rise for some of the lowest income households in Asia’s cities. It may prove inflationary, if productivity growth fails to lift.

China halts the China appears to have signalled that it will pause the appreciation of the Yuan this year to Yuan’s rise for help its export sector cope with the combination of weaker global demand and fast rising now factory labour costs.

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

63

Regional Update

Japan

Political & policy issues to watch

Continued grid- Japan’s policy outlook suffers from a divided parliament, with the opposition LDP, which lock in Tokyo controls the upper house, delaying most legislation with the aim of forcing an early election. While this is unlikely to tip Japan into a crisis in the immediate future it has undermined … delays key efforts to deal with three big challenges: rebuilding after the March 2011 tsunami; curbing reforms massive public debt (gross is 220% of GDP); and revitalising Japan’s economy. PM Noda has managed to get the budget bill for the fiscal year starting April 1 through the lower house, although the upper house may delay approval until April 6. The LDP also forced Noda to split a bond bill (covering 40% of revenue) from the budget bill and they could stall this bill for months (in 2011 they stalled the bond bill until August, forcing Noda’s predecessor to resign as PM before allowing its passage). Grid-lock in Tokyo has seen mayors of some cities take on greater responsibility and push for more autonomy.

PM Noda hopes PM Noda’s primary goal is passage of a bill to raise the consumption tax from 5% to pay to lift the sales for a steep rise in social security costs. Noda hopes to lift the rate to 8% in April 2014 and tax rate from 5% 10% in October 2015 but progress on the legislation will be difficult as elements of the to 10% DPJ, Noda’s own party, oppose it. Rumours suggest that Noda has met his LDP counterpart to seek support for the bill in return for a promise to call an early election … if he can win before the current Diet session ends in June. If true, this would be a difficult choice for LDP support Noda, as popular support for his cabinet has slipped under 30% from 60% when he took office last September. The LDP has previously acknowledged the need for a higher sales tax but sees it as a useful tool to force an early election.

A rebuilding The Yen 90 trillion (US$1.1tr) budget includes an array of spending measures for stimulus in 2012 reconstruction and some mild stimulus (including an incentive for eco-friendly car sales). Total reconstruction spending by the government is put at Y18tr ($225bn or 4% of GDP), which should provide a boost for growth in FY2012.

Outlook for the market

We’ve switch our While we try to avoid big swings in our forecasts there is one this month for Japan with last forecast month’s forecast of a 0.8% contraction in 2012 being replaced with this month’s 1.5% growth forecast. Most of this swing is due to a better global outlook and a surprise move … to weak by the central bank to aggressive quantitative easing (QE), which will help local demand growth in 2012 and contribute to a weaker Yen (which further boosts exports). Our inflation forecast has also been raised and our Yen forecast weakened.

Big changes are January’s combination of an early Lunar New Year (triggering a 9.3%yoy fall in exports) underway in the and soaring thermal energy imports to replace lost nuclear power (pushing imports up economy 9.9%) forced Japan into a record current account deficit under the balance of payments system adopted in 1985. Japan traditionally runs large current account surpluses … as the trade (meaning it lends to other countries rather than borrows from them), which has been surplus swings crucial to funding massive public debt. If the current account deficit continued Japan would to a deficit have to borrow from overseas and the sub 1% yield on 10-year government bonds would rise, crippling the budget. At present this seems unlikely, although it accurately portrays one aspect of the fiscal challenge for Japan. We expect the trade and current account balances to recover as global growth picks up from mid-2012 and the Yen weakens. The current account surplus, although reduced, is also protected by large dividend remittances from a very large pool of overseas investments. This will, however, focus more attention on the debt debate and we expect it to ease upward pressure on the Yen.

The BOJ opts of In a surprise policy shift on February 14 Bank of Japan (BOJ) Governor Shirakawa QE announced a big lift in BOJ purchases of government bonds to almost ¥38tr (US$475bn or … which will about equal to total government bond sales in 2012) and set an inflation target of 1%. This weaken the Yen is aggressive quantitative easing and some investors will see it as debasing the currency. & held end While we thing the gains for growth outweigh the potential risk this is another factor (along deflation with a weaker current account surplus) that should ease Yen appreciation pressure.

2009 2010 2011 2012 2013 GDP, real growth (2005p), % -5.5 4.4 -0.7 1.5 2.1 CPI, year average, % -1.4 -0.7 -0.3 0.0 0.3 Overnight call rate, year end, % 0.10 0.10 0.10 0.10 0.10 Yen to US$1, year average 94 88 80 84 86 Sources: 2009-2011 data from the BOJ and government sources; 2012-2013 forecasts by IMA Asia.

64

Regional Update

China

Political & policy issues to watch

On track for a The Chinese Politburo begins its once-a-decade changeover in autumn, with President Hu stable leadership Jintao and Premier Wen Jiabao stepping down. Their replacements are expected to be Xi change Jinping as paramount leader (of the party, state, and military) and Li Keqiang as premier. But peaceful changeovers are new to China, so surprises cannot be ruled out. Other politicians expected to enter the 9-person Politburo Standing Committee include problem- … but Bo Xilai’s solver Wang Qishan and reformist Guangdong Party Secretary Wang Yang. Chongqing hopes are gone Party Secretary Bo Xilai, noted for championing Maoist political ideals, has been sacked from his post following corruption allegations against his police chief.

A steady reform The National People’s Congress (NPC) is underway with a focus on the 2012 policy push agenda. The main reforms on the table are continuing progress towards an open capital account, restructuring industry in favour of high-tech, and further expansion of the rural and … with a bit of urban pension schemes. Despite a significant slowdown in export growth, China isn’t fiscal & monetary planning a big stimulus this year. However, Beijing aims to run a small budget deficit of stimulus 1.5% of GDP (RMB 800bn), of which RMB250bn will be local government bonds for projects including social housing. Money supply growth is targeted at 14% and lending conditions are likely to ease in Q2’12 through further cuts to the bank reserve requirement ratio and explicit lending directions to state bank managers.

China 2030 The World Bank and the Development Research Centre of China’s State Council have jointly released a detailed study of China’s long-term policy options. The 468-page “China … key issues 2030” report is essential reading for all firms doing business in China and can be freely for China’s future downloaded from the World Bank (site www.worldbank.org/). It urges China to move back to a more market-based development model without which GDP growth will fade.

Outlook for the market

China pulls off a China has set a 2012 GDP growth target of 7.5%, the lowest in eight years, reflecting soft landing slower trade growth (forecast at 10% from 20% for exports and 25% for imports in 2011) and a weak property sector. As China habitually overshoots, we’ve retained our forecast of … with a big 8.2%. China is right on track for the “soft landing” scenario, which has been its goal for shift in its trade over a year. The surge in China’s trade surplus over 2005-2008 (peaking at 7.5% of GDP sector in 2007) is fading in the face of a stronger currency and much higher wages. China is moving back to more balanced trade growth, which is good for China (particularly Chinese consumers) and good for the global economy.

Mild inflation with Inflation over the first two months dropped to 3.8%, its lowest level since before the pork room to cut fuel price spike of 2010/11. We don’t expect it to go much lower as the government will likely subsidies take the opportunity to further cut local fuel subsidies. Lower inflation also leaves the government with room to lift its stimulus, should that be needed this year.

A mild consumer Local governments have announced minimum wage increases across the country over the pullback last two months that on average come close to the 13% annual goal set in the current 5- year plan. After two straight years of lifting factory pay by 20%, this puts a lot of money into households. However, real growth in consumer spending may dip slightly from our 8- 9% estimate for 2011 as consumers react with caution to slower growth in export manufacturing and a continued clamp on the property sector.

The brakes are Tight credit conditions and falling property prices cut residential investment growth, still on for decreasing from 30% in 2011 to 23%yoy in Jan-Feb. We expect the pace to drop to 10- housing 15% in coming months, with property prices down 10% from their mid-2011 peak.

The Yuan’s rise Since its recent decoupling from the US$ in June 2010, the RMB has appreciated 8.5%, halts in 2012 from 6.82 to the US$ to 6.30 in March 2012. At the NPC, Premier Wen stated that the currency will remain basically stable for the rest of the year. In 2013, the improved global outlook is expected to lead China to appreciate the RMB by 1-2%.

2009 2010 2011 2012 2013 GDP, real growth, % 9.2 10.4 9.2 8.2 8.6 CPI, year average, % -0.7 3.3 5.4 3.7 3.2 PBOC 1-year loan, at Dec., % 5.31 5.71 6.96 6.46 5.96 Yuan to US$1, year average 6.83 6.77 6.46 6.30 6.18 Sources: 2009-11 data from CEIC and government agencies; 2012-13 forecasts by IMA Asia.

65

Regional Update

Hong Kong

Political & policy issues to watch

HK’s race for the Chief Executive Donald Tsang finishes his second and final 5-year term on July 1. Tsang Chief Executive has become a lame duck and faces corruption allegations related to lavish visits to Macau and elsewhere in Asia. Tsang’s successor will be decided by 1,200 HK voters on March … undemocratic 25. Former Chief Secretary Henry Tang was seen as the likely winner, as his status quo but with plenty of policies are popular with the HK business community and civil servants. However, Tang mud to throw has become embroiled in scandals involving adultery and the illegal construction of a lavish basement. The new favourite, former Convenor of the Executive Council CY Leung, is more popular than Tang, but also faces allegations of misuse of power in a prior role. The third candidate, Democrat Albert Ho, has no chance of winning as the 1,200 members of the electoral committee will follow Beijing’s wishes.

Even Legco has The HK election has surprisingly become big news, distracting the government. The been distracted Legislative Council (Legco) has slowed its work in order to focus on allegations against the candidates. Increased public protests are also likely, especially if the unpopular Tang wins. Beijing may, in the interests of social stability, use its influence to back a Leung victory and avoid an unpalatable stalemate on March 25.

An unpopular March’s political entertainment has little impact on our 2012 market outlook. Yet, a clearly government leads unpopular government can weaken if not derail policy (via mass popular protests) and to policy shifts force higher spending on social welfare and housing issues to curry favour. This may come into play in 2013.

Room for stimulus The HK government has no net debt and a AAA government rating. The 2012/13 budget if needed was largely as expected, with no permanent tax cuts and a tiny budget deficit of 0.2% of GDP. This provides room for further spending if economic conditions worsen.

Outlook for the market

Hard to grow in HK finished 2011 with barely any growth (0.3%yoy for Q4’11) and we see little reason yet 2012 to lift our cautious forecast of 1.8% growth in 2012 and 3.8% in 2013. As a global trade and services hub on the south coast of China, HK faces two big head winds in a weak … with a weak global economy and a slowing China economy. Rising global oil prices and a falling local global economy & property market could also derail a lift in sentiment in the first few months. However, like China slowing Singapore, HK’s economy is small enough to be swung by one-off factors and open … but watch for enough to trade to rapidly accelerate as the world recovers. Such rebounds require low an upswing internal risks and a high degree of economic resilience and both these characteristics appear to be firmly in place, so we must watch for signs of a change in the outlook.

Strong tourist and One of the biggest exceptional factors in HK is the tourist inflow from China, which grew steady consumer 24% in 2011 to 28m (pushing total inbound tourism up 16% to 42m). The strong tourism demand inflow helped push the value of retail sales up by 25% in 2011. Local consumer demand also improved, with supermarket sales up 12.5% last year.

Construction HK’s construction sector has been slowed by government curbs and falling market supported by sentiment. Housing prices have fallen by 6% since the May 2011 peak, and are expected public projects to continue to trend down, with some analysts predicting prices could fall up to 25% from their peak. But we expect construction to rise by 3% in 2012 and 5% in 2013, with major public works, including the HK-Macau-Zhuhai bridge, driving the sector.

Inflation should Higher energy prices are feeding through into the HK economy (electricity prices rose 4.9% ease if oil avoids a at the start of 2012) and this may become a problem if the global oil prices jump this year. spike At present, however, we’ve kept to our 2012 forecast of an easing in inflationary pressure through 2012 before an uptrend in 2013 as global growth recovers.

2009 2010 2011 2012 2013 GDP, real growth, % -2.6 7.0 5.0 1.8 3.9 Composite CPI (04/05), year average, % 0.6 2.4 5.3 4.0 3.8 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]

66

Regional Update

Taiwan

Political & policy issues to watch

Ma faces a beefy In his final four-year term, President Ma Ying-Jeou aims to forge not only closer economic challenge relations with China but also widen Taiwan's global trade ties. A key component in this strategy is the USA, but already it is in trouble: he is being criticised for his attempts to … which may allow Taiwan to import US beef with ractopamine residue, a chemical banned in the EU. stall FTA talks His actions have met with staunch opposition from domestic food industry lobby groups, with the US the public, and members of his own party. Ma may well be forced to ban ractopamine to appease these groups, even though this decision will likely stall discussions under the US Trade and Investment Framework Agreement (TIFA).

Don’t expect a The Taiwanese government is unlikely to instigate major fiscal or monetary policy change fiscal stimulus in the near future. The KMT appears to view the economic downturn as a global problem, with its best policy response being to wait for the global economy to recover while … just a bit of decreasing structural barriers within the economy. Structural policies being implemented reform include training unemployed people to reduce skill mismatches, and simplifying visa requirements for Chinese business people.

Outlook for the market

Taiwan shrinks in Taiwan’s economy shrunk in Q4’11 by 0.2% in quarter-on-quarter terms, reducing year-on- Q4’11 year growth to a mild 1.9%. While official indicators suggests the downturn continued through January, a strong rise in manufacturer’s sentiment in February (see below) suggests Taiwan’s economy may soon begin to recover. The government forecasts 2012 … Q1’12 has GDP growth of 3.85%, with a solid recovery starting in Q2’12 building to +5%yoy growth in positive signs Q4’12. We forecast a milder recovery, as unlike after the GFC, Taiwan’s export demand will not be supported by other countries’ stimulus packages.

Wage cuts have Consumer growth eased from 3.2%yoy in Q3’11 to 1.0% in Q4’11. This was due to lower held back incomes, as employers cut back overtime shifts (-15%yoy in Q4’11) and asked workers to consumers take unpaid leave. However, the employment situation has started to stabilise, with fewer cuts in overtime shifts (-6%yoy in Jan), and 40% of the unpaid leave workers returning to work. We expect consumer spending to stay soft (1.0-1.5%yoy) in 1H’12, as consumers remain wary of the economic situation. As the outlook brightens in 2H’12, consumption growth is expected to strengthen to 2-2.5%yoy.

Manufacturing Taiwan’s manufacturing sector is showing signs of recovery, with February’s Purchasing prospects have Managers Index jumping from 48.9 to 52.7 (over 50 means expansion), based on improved expectations of stronger export orders. Risks for the manufacturing sector are centred on higher oil prices (see below) and a breakdown in the electronic components supply chain, following the shutdown of a large Japanese DRM manufacturer.

Construction to Taiwan’s construction sector is expected to experience flat growth in 2012, as public be flat in 2012 construction projects support the weak housing sector. Housing construction has been weakened as restrictions, including a new tax of 10-15% on investment properties, saw property prices fall 7%yoy in Q4’11. In 2013, improved housing affordability and the relaxing of housing restrictions are expected to increase overall construction by 4.5%.

Inflation slows, CPI inflation has slowed from 2%yoy in Dec’11 to 1.3%yoy over the Spring Festival (Jan & but risks remain Feb) period. However, Taiwan will be exposed to inflation pressures in 2012 due to its high oil dependency (about 8% of GDP). Inflation fears and signs that the economy is stabilising make an interest rate cut unlikely.

NT$ has The NT$ has risen from 30.1 to US$1 at the start of 2012 to around 29.5 in early March. A appreciating stronger recovery from Q3’12 may cause the NT$ to rise further, although the central bank pressures could intervene to slow the NT$ rise to protect economic growth.

2009 2010 2011 2012 2013 GDP, real growth, % -1.8 10.7 4.0 3.2 4.0 CPI, year average, % -0.9 1.0 1.4 1.7 1.5 Official discount rate, year end, % 1.25 1.63 1.88 1.88 2.00 NT$ to US$1, year average 33.1 31.6 29.4 29.4 28.8 Sources: 2008-2010 government data and CEIC; 2011-2012 forecasts by IMA Asia. The above forecast is by IMA Asia. Companies seeking local advice and forecasts should contact: Michael Boyden, Managing Director, Taiwan Asia Strategy Consulting Tel: (886 2) 8789 0978♦ Fax: (886 2) 8789 0877 ♦ Email: [email protected]

67

Regional Update

South Korea

Political & policy issues to watch

Endless political President Lee Myung-bak of the New World Party (NWP, the renamed GNP) is a lame battles in 2012 duck leader of an unpopular government heading into National Assembly elections in April and a presidential poll in December. A weak economy, corruption allegations, and public … which may unease over the Korea-US Free Trade Agreement (the KORUS FTA) have swung opinion lead to a divided against Lee and his government. A left-wing coalition led by the Democrat United Party government in (DUP) was predicted to secure a large victory in the National Assembly elections. However 2013 the NFP’s presidential candidate Park Geun-hye, has run a shrewd campaign, which will likely reduce the size of the opposition’s victory. Park is marginally ahead in the presidential polls, but the opposition candidate has yet to be chosen with two strong contenders, Moon Jae-In and leading anti-establishment campaigner Ahn Cheol-Soo.

The US FTA is due KORUS is due to go into effect on March 15 after the NWP forced approval through the to start legislature last November. It will help Korean exporters to the US of auto parts, textiles and electronics while opening up the agriculture, pharmaceutical and service sectors to greater … but remains a competition. If the DUP wins government it will try to cancel the FTA unless changes are hot political issue made to its Investor State Dispute clause. Despite KORUS arguments, China FTA talks are set to go ahead this year as this deal would not include sensitive agricultural products.

A mild fiscal Once the National Assembly polls are over, the government is expected to announce a mild stimulus is fiscal stimulus package. With low net debt (31% of GDP in 2011), Korea can enlarge its possible budget deficit (2.1% of GDP in 2011) without risking its A+ sovereign credit rating with Standard & Poor’s.

Outlook for the market

Softer growth in As a big global exporter Korea faces a slow 2012 with weak domestic demand further 2012 undermining GDP growth. A cheap Won and a strong foothold in emerging markets will help cushion the export downturn but the slowdown in China (24% of all exports in 2011) … with upside will hurt a range of Korean industries. A stronger global economy should start to lift growth potential from mid-year, with 4% real GDP growth expected for 2013. Our 2012 forecast is below the government’s 3.7% forecast and we acknowledge that there is upside potential to the export outlook, which would quickly feed into consumer spending.

The EU recession Export growth slowed from 24%yoy in 1H’11 to 15%yoy in 2H’11 and just 7% for the first cuts Korea’s two months of 2012. The heart of the downturn is exports to the EU. Although just 10% of export outlook all exports in 2011, the swing from 17%yoy growth in 1H’11 to an 8% contraction in 2H’11 stands out. US-bound exports dipped from 18%yoy to 8%yoy while China bound exports … a mild lift for grew about 15%yoy in both halves of 2011. Overall, we expect export growth of 10% this manufacturing year from 19.6% in 2011, with the pace rising towards 14% in 2013. This should be sufficient for real growth in manufacturing of around 4% this year, from 7% in 2011, with a lift to 5-6% in 2013. There is upside potential to this export forecast.

Consumers will Real growth in consumer demand is expected to ease from 2.2% in 2011 to 1.4% in 2012. cut back until pay Spending by Korean households is often correlated with industry’s export performance, lifts in 2H’12 and with exports down we expect weak wage growth, little overtime, and some workers to be put on unpaid leave. Export manufacturing should lift through 2H’12, putting more money into pay packets, which will help retail sales.

The threat from an Inflation needs watching this year. While it eased to 3.1% in February, Korea is wholly oil price hike dependent on imports for oil (oil imports are a high 12% of GDP), which makes the country vulnerable to oil price shocks. The Won is up 3% since the start of the year as business … little upside sentiment lifted and carry trade activity favoured the Won. However, the government will for the Won aim to hold the Won down to help exporters this year.

2009 2010 2011 2012 2013 GDP growth, % 0.3 6.2 3.6 2.7 4.0 CPI, year average, % 2.8 2.9 4.0 3.4 3.0 BOK Overnight call rate, year end, % 2.00 2.50 3.25 3.00 3.25 Won to US$1, year average 1,277 1,159 1,107 1,119 1,097 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] 68

Regional Update

Indonesia

Political & policy issues to watch

Who follows SBY? The central question in Indonesia’s political outlook is who will succeed President Yudhoyono (called “SBY”) when he steps down at the end of his second term in 2014. … PD starts a Prominent opposition contenders include Aburizal Bakrie, one of Indonesia’s wealthiest leadership purge businessmen and head of Golkar, and Prabowo Subianto, a questionable military/political hold-over from the fallen Suharto regime, who will represent Gerindra. Both carry … which might considerable baggage that will worry markets. PD, the president’s party, has failed to put allow it to run a forward a candidate as it has been embroiled in a corruption scandal. However, a purge of pro-reformer the party’s top leadership has started. If successful, this should lift its low polling numbers over the next year and provide a strong platform for a PD candidate who might continue with SBY’s mix of anti-corruption policies, steady fiscal management, and mild reform, all of which are essential to the strong Indonesia story.

The oil challenge This year’s policy challenge looks to be soaring oil prices, which confront the government with two equally painful options: a budget deficit blow-out to fund a fuel subsidy; or a jump … watch for a in inflation if the fuel subsidy is cut. SBY has opted for the latter course. Highlighting the 30%+ fuel price urgency of the situation, the finance ministry will likely submit its revised 2012 budget, hike on April 1 normally done in June or July, in early March, with lawmakers planning to fast track deliberations. The hearings will be tough and divisive. However, with both PD and Golkar endorsing a fuel price increase, there is a good chance the other coalition members will fall in line and approve revisions allowing for prices to be raised by 33-44% from April. The inevitable public backlash will be partly countered by direct cash assistance and social safety net programs for low-income households.

Renegotiating The government has started talks aimed at renegotiating mining contracts with foreign and mining contracts local miners. This is likely to be a lengthy process. Given the strong demand outlook for coal and metals, this may not unduly discourage new investment if carefully handled.

Outlook for the market

Strong local Indonesia’s outlook has changed in the light of plans for a 30%+ fuel price hike on April 1. momentum The central bank has lifted this year’s inflation forecast from 3.5-5.5% to 5-7%, trade associations have cut their industry sector forecasts, the rupiah has weakened, and the … briefly cut by stock price of locally listed consumer good companies has dropped. SBY’s government the fuel price hike carried out two similar fuel price hikes during its first term with surprisingly good results (a brief inflation spike and a quick rebound for local demand). At most we expect the 2012 price hike to cut real GDP growth in 2012 from our forecast of 6.9% last month to around 6% in this month’s review.

Consumers ease We expect real growth in consumer spending to dip to 4.5% this year from 4.7% last year back a bit before lifting towards 5.5% in 2013. Consumer spending on durables cooled at the end of 2011, with motorcycle sales dropping 2.4%yoy in Q4 after 12.4%ytd growth in the first … but capex three quarters while vehicle sales eased to 14.7%yoy from 18.6%ytd through the first three should lift quarters. Fixed investment, which grew 8.8% last year, could well grow 10-12% this year, particularly as the government pushes forward some big infrastructure projects.

Inflation lifts to Inflation has been steady around February’s 3.6%yoy for the last three months after 7% declining from a recent high of 7% in January 2011. In anticipation of the fuel price hike, we’ve lifted this year’s forecast inflation rate to 7% from 4.7% but left 2012 at 5.2%. The … with a mild central bank’s policy rate, which dropped 25 basis points to 5.75% last month, is likely to rate hike & a firm return to 6.50% or higher by the end of this year to help curb inflation. If well carried out, rupiah as seems likely, the fuel price hike and its inflationary impact shouldn’t undermine the rupiah, which may even get a speculative boost from the lift in interest rates.

2009 2010 2011 2012 2013 GDP, real growth, % 4.6 6.2 6.5 6.0 6.6 CPI, year average, (2007=100), % 4.8 5.1 5.4 7.0 5.2 Central bank policy rate at end-Dec., % 6.50 6.50 6.00 6.50 6.75 Rupiah to US$1, year average 10,356 9,086 8,776 8,358 8,037 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]

69

Regional Update

Malaysia

Political & policy issues to watch

Najib’s election PM Najib Razak is gearing up for an early election sometime in Q2’12. A convincing win timetable will allow him to consolidate his power in UMNO (the ruling party) and push through his moderate reform program. The election will follow the “giveaway” FY2012 Budget (announced late-2011), the likely introduction of a minimum wage at M$700-900 (US$233- 300) per month, and the April review of the Economic Transformation Program (ETP). Najib may time the general election to coincide with a state election in Selangor, the country’s most populous and prosperous state, controlled by the opposition since 2008. Successful implementation of the ETP crucially depends on UMNO regaining Selangor, as the state’s administration has been stalling progress of several ETP projects.

Regaining a two The UMNO-led ruling coalition is expected to win the election, but is unlikely to regain the thirds majority will two-thirds majority it enjoyed up to 2008. It seems to have lost the support of the ethnic be a tough call Chinese (a quarter of the population) and urban Malay professionals. The opposition’s more daring reform agenda is being showcased in the island state of Penang, controlled by the DAP (ethnic Chinese) party. The Penang administration cut down corruption, dismantled the preferential awarding of projects to well-connected ethnic Malays and turned around the state government’s finances. Moreover, its policies helped to attract US$4bn of investments into Penang in 2010 alone, more than any other Malaysian state.

Mega-projects to Some of the US$444bn private sector-led projects that the government has scheduled for start in 2012 2010-20 will start this year. The projects will be led by a M$36.5bn railway network in Kuala Lumpur area, with daily capacity to carry 2 million passengers, and a M$26bn financial district also in KL. These projects need heavy private sector financing as the government’s funding ability is constrained by relatively high public debt (56.5% of GDP in 2011 and rising). Moreover, national oil company Pertonas warned that its contribution to the government’s revenue (one third of the total M$183bn in 2011) will be diminished by falling oil & gas production.

Outlook for the market

Domestic Domestic spending has been the main driver of Malaysia’s growth in 2010-11. GDP spending to drive posted an average increase of 6.2%, compared to a much higher 9.8% of domestic GDP in 2012 demand. This is likely to continue into 2012 as the government’s investment program gears up and election considerations keep consumption elevated. However, much of the expected 7% increase in domestic spending will spill over into imports in 2012, reducing GDP growth to 4%. Faster global demand should lift GDP growth to 4.8% in 2013.

Mining revival Besides oil & gas, Malaysia’s mining industry has been an insignificant player after the collapse of the tin market in the mid-1980s. However, rising world metal prices have renewed interest by local and foreign investors in the rest of Malaysia’s resources. In the last 3-4 years there has been a significant increase in the issuance of mining leases and concessions in Terengganu for iron ore, and in Perak for tin mining. Moreover, in the state of Kuantan, Australian company Lynas Corp. is building the world’s largest refinery of rare earths, a key component in music players, flat-screen TVs, and hybrid cars. At full capacity, Lynas’s project may account for 39% of the world’s supply outside of China.

Monetary policy The CPI eased to 2.7% in January, after hovering around 3.3% for most of 2011. We on hold and stable expect it to remain within 2-3% in 2012. The central bank appears comfortable with the M$ in 2012 current level of interest rates (3%, up from 2% in early-2010), but will keep a watchful eye on inflation risks from the introduction of a minimum wage, rising crude oil prices and fast- rising government spending. We expect the M$ to be stable this year at around 3.00 to the US$. A more robust world economy in 2013 is expected to appreciate the currency by 5%.

2009 2010 2011 2012 2013 GDP, real growth, % -1.6 7.2 5.1 4.0 4.8 CPI, year average (2010=100), % 0.6 1.7 3.2 2.6 2.5 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 3.03 2.88 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]

70

Regional Update

Philippines

Political & policy issues to watch

Corona’s President Aquino’s anti-corruption campaign is not moving as smoothly as he hoped. The impeachment trial lengthy impeachment trial of Chief Justice Corona is losing public interest, with its outcome could backfire becoming more uncertain. The prosecution alleges that Corona enriched himself after being appointed Chief Justice in the final days of ex-President Arroyo’s term in office. To return the favour, Corona’s High Court issued rulings that protected Arroyo from corruption charges. Arroyo is awaiting pre-trial, set for April 19, for rigging the 2007 senatorial elections. In the Corona case, the prosecution managed to present evidence on only three of eight articles of impeachment, reducing the chances of a successful outcome. Failing to impeach Corona will be a major setback to Aquino’s anti-corruption drive. Corona would return to the High Court from where he will frustrate attempts to convict Arroyo and he could block or delay government legislation.

IMF thinks that The IMF’s latest country report on the Philippines discuses a number of key policy issues fiscal policy is on (Philippines Article IV Report at www.imf.org). On fiscal policy, the Philippines will have the right track room for a stimulus in 2012 because of unintended underspending in 2011. Further out, the IMF expects to move from a 3.5% budget deficit in 2010 to a surplus of 1% of GDP that will reduce public debt to 44% of GDP by 2016, from 55% in 2011. This will be achieved through more efficient tax collection, spending reorientation towards infrastructure and social sectors, and better public debt management. The IMF approves of the authorities’ efforts towards faster and more socially inclusive growth, through increased investment in public-private partnership (PPP) projects.

Monetary policy in Monetary conditions may be more expansionary than indicated by the level of policy expansionary interest rates, with bank credit expanding rapidly (+22%yoy in November). Nevertheless, mode the IMF feels that inflationary pressures are well contained, as the economy currently operates below its long-term trend (estimated at 5% pa). The banking system has been resilient during the GFC, but potential vulnerabilities remain, including some highly leveraged corporate firms, and the prominence of conglomerates and bank owners receiving credit.

Outlook for the market

Domestic We decided to lift our 2012 and 2013 growth forecasts to 4% and 4.5% from 3.3% and spending to drive 4.3% respectively, given interest rate reductions in Q1’12 (see below) and the growth in 2012 government’s ability and commitment to increase public spending. The authorities should be able to implement some of the PPPs that failed to take off last year. The IMF expects GDP growth of 4.2% in 2012 and 4.7% in 2013.

Trade balance The 12-month rolling trade deficit widened rapidly to US$12.1bn in Dec 2011 from deeply in the red US$2.4bn in Oct 2010, as 2H’11 exports fell 16.1%yoy and imports increased 3.8%yoy. We expect the trade deficit to hit US$15bn by Dec 2012, as strong domestic demand is forecast to boost imports by 8%, twice as fast as export growth. However, the current …but current account is expected to remain in surplus, as the business process outsourcing (BPO) account to stay in sector will drive service exports. Moreover, we expect remittances from overseas Filipino surplus workers (OFW) to continue supporting consumer spending, which was up 6.1% in 2011, on the back of a 7.2% increase in OFW remittances.

Lower interest Contrary to the IMF’s view on monetary policy being overtly expansionary, the central bank rates with slower cut its overnight lending rate to 6% from 6.5% in a two-step move in January and March. CPI and steady Its action is supported by slowing inflation (2.7%yoy in February from 5.2%yoy in October) Peso and weak global demand. Lower interest rates failed to upset the Peso, which is broadly in line with medium-term fundamentals. We expect the Peso to appreciate 4% in 2013.

2009 2010 2011 2012 2013 GDP growth, % 1.1 7.6 3.7 4.0 4.5 CPI, annual average, % 3.3 3.8 4.8 3.5 4.5 Central bank overnight loan rate, year end 6.00 6.00 6.50 5.75 5.75 Peso to US$1, annual average 47.6 45.1 43.3 41.6 40.4

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

71

Regional Update

Singapore

Political & policy issues to watch

Budget takes The FY2012 Budget, delivered on February 17 and starting on April 1, focused on long- long-term focus term economic and social issues, instead of counter-cyclical pump-priming. The authorities are using the current economic slowdown to cool some of the overheated areas of the economy, such as real estate and the very tight employment market (unemployment at 14-year low - 2% in Q4’11). Budget changes focused on addressing some of the grievances that resulted in the ruling PAP party suffering its smallest electoral win in 2011 since the country’s 1965 independence. To counter rising inequality, the Government announced S$7.6 bn in increased health spending and low-income assistance, and partial funding for upgrading of the bus network.

Increased social The Budget also included measures to reduce the high influx of migrant workers (8%pa in spending in line 2010-11), a key public grievance. The government will cut the percentage of foreign with IMF workers companies can employ in manufacturing to 60% from 65% and in services to 45% recommendations from 50%. The foreign worker levy paid by local employers will rise if these restrictions fail to slow down the immigrant intake in the next 12 months. The Budget provides incentives to companies for employing older workers (50-65 years old) and raises the rate of annual contribution to their pension fund.

Enhancing Easy availability of foreign workers has encouraged overemployment, contributing to productivity relatively low productivity in Singapore’s economy. For example, the productivity of its retail sector is only one-third that of the US. Reducing the availability of foreign workers could help lift productivity. Moreover, the government will boost spending on its Productivity & Innovation Scheme and the Continuing Education & Training Scheme. The Budget will also help local companies internationalise their operations by establishing a project finance company through a Temasek-led consortium of financial institutions.

Fiscally neutral The government’s fiscal position was mostly neutral last year and will remain so in 2012. This is reflected in miniscule surpluses of about 0.5% of GDP in 2011 and 2012. Public spending is projected to rise 5.4% and revenue 3.4% in FY2012.

Outlook for the market

Singapore’s GDP growth eased to 3.6%yoy in Q4’11 from 6%yoy in Q3’11 on the back of noticeably growth to mirror softer private consumption (1.9%yoy from 5.9%yoy) and virtually flat fixed investment. A global recovery 9.4%yoy decline in residential construction was roughly offset by rising non-residential and infrastructure spending (12.8%yoy and 8.9%yoy respectively). More than any other Asian country, Singapore’s economy is highly geared to the swings of global business cycle. Its growth slowdown started in 2H’10, mirroring that of the global economy. We expect it to bottom out by mid-2012. Thereafter, improved global demand should lift GDP growth to 4.5% in 2013 from 2.5% in 2012.

PMI suggests The improving outlook for Singapore is evident in the forward-looking Purchasing brighter outlook Managers Index (PMI), which climbed to 50.4 in February (below 50 means construction), after declining in the previous seven months. The electronics component of the PMI was even stronger, rising to 51 in February from 50.5 in January. Non-oil domestic exports and non-oil imports also showed signs of a turnaround in Dec-Jan, after a weak 2H’11. The next indicator to improve its outlook should be (ex-pharma) industrial production, which posted consecutive year-on-year declines in the eight months to January.

Mild monetary Inflation eased to 4.8%yoy in January, after hovering around 5.5%yoy in 2H’11. Last year easing placed the the MAS prudently decided that the slowing economy will take care of the CPI and eased S$ on hold monetary policy. The US$/S$ exchange rate decreased from an all-time high of 1.2 in September to 1.32 in October. Since then, the S$ traded within the 1.2-1.32 range and is expected to resume its steady long-term appreciation once the global economy enters a sustained recovery.

2009 2010 2011 2012 2013 GDP, real growth, % -0.8 14.5 4.9 2.5 4.5 CPI, year average, % 0.6 2.8 5.2 3.0 2.5 3 month interbank interest rate, Dec, % 0.69 0.44 0.38 0.38 0.88 S$ to US$1, year average 1.45 1.36 1.26 1.28 1.25 Sources: 2008-2011 government data and CEIC; forecasts for 2012-2013 by IMA Asia. 72

Regional Update

Thailand

Political & policy issues to watch

A balance of Thai politics has entered a stable period due to the government’s strong position in forces provides parliament and a delicate balance in the country’s broader political contest between the brief stability main contending powers. While this is a plus for short-term growth, longer-term concerns remain about the potential for civil strife if – some would say when – the broader political … despite long- balance collapses. In addition, the quality of government to instigate reform remains under term uncertainties question. Short-term the politics stack up, which has allowed us to lift our 2012 and 2013 GDP forecasts.

A very odd PM Yingluck is seven months into her 4-year term at the head of the Pheu Thai Party government (PTP), which has a comfortable majority of 265 seats in the 500-seat lower house. Her popularity remains high despite poor handling of the 2011 floods. While there are disputes … held together within PTP, all ministers and MPs owe their allegiance to ex-PM Thaksin, Yingluck’s elder by Dr Thaksin brother, who runs the government from outside the country. The solid parliamentary majority, popular support, and Thaksin’s unchallenged dominance in PTP contribute to stability and help to hold in check the military and other powerful forces.

… facing plenty Unfortunately, there are plenty of triggers for instability. These include redrafting of the of triggers for 2007 constitution, plans to engineer an amnesty for Thaksin, and the annual battle over top instability military appointments at the start of October. Military acquiescence in the rise of a second Thaksin government may not continue. More street protests are also possible.

A big fiscal This year’s other big policy challenges are implementation of a massive plan to prevent stimulus ahead uncontrolled flooding on the central Thai plain and containing the budget deficit despite an expensive new subsidy for rice farmers and the cost of flood related works. The budget … focused on deficit for FY2012 (to September) has already been boosted to 3.7% of GDP from 3.5% by flood mitigation emergency spending and a deficit of 3.5% is targeted for FY2013. This suggests a strong fiscal stimulus; ratings agencies are watching this but have yet to warn of a downgrade.

Outlook for the market

After a Q4’11 Thailand’s growth collapsed in the final quarter of 2011 due to devastating floods: GDP fell collapse 9%yoy, industrial production plunged 34%, exports (US$ terms) and tourist arrivals both fell by 5%, and housing completions fell 63%. 2012 has started with some surprisingly … local demand strong signs of resilience. Retail sales surged 32.5%mom in December, recovering all the rebounds in Q1 lost ground of their September-November decline. The consumer confidence index also increased to 74.2 in January from 71 in November, and tourist arrivals hit a new record of 1.9m in January. Stronger personal consumption has partly justified a lift in our GDP forecast to 4.5% for 2012 (previously 3%) and 5.5% in 2013 (from 4.5%).

Watch for a big lift Fixed investment should rebound to 12-14% real growth in 2012 from 3.3% in 2011 and an in capex average compound growth rate of just 1% over the prior five years. We expect strong growth across public and private construction as well as plant and equipment spending. A … but a slow full recovery in the manufacturing sector (assuming repeat floods are avoided this year) is recovery in not expected until Q3’12. Industrial production growth of 3-5% is expected this year after a manufacturing fall of 9.3% for 2011. The combination of strong consumer demand and a slow recovery for export manufacturing suggests a weak trade position, which may become a risk.

Inflation edges up After easing to 3.3%yoy in February from an August high of 4.3%, inflation could start to as does the Baht rise from Q2’12 due to higher oil prices, a hike in the minimum wage, and a surge in rebuilding work. The central bank’s policy rate, now at 3% from 3.50% last October, is unlikely to fall further. The Baht has been under mild appreciation pressure since the start of the year and could rise some 2-3% this year as growth recovers.

2009 2010 2011 2012 2013 GDP, real growth, % -2.3 7.8 0.1 4.5 5.5 CPI (2002 index), year average, % -0.8 3.3 3.8 3.9 4.2 Central bank, policy rate, year end, % 1.25 2.00 3.25 3.00 3.50 Baht to US$1, year average 34.3 31.7 30.5 29.7 29.1 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]

73

Regional Update

Vietnam

Political & policy issues to watch

Banking reform Vietnam’s policy makers have tamed runaway inflation and trade deficits at the expense of speeding up extensive damage to large sections of the domestic economy. Restrictive macro-economic policies since late 2010 have triggered a steep property market downturn, exposed structural weakness in the banking system, and sent 150,000 SMEs out of business. Regardless, the government is stepping up its efforts to reform the banking system by 2015. Plans are underway to forcefully merge banks, allow greater foreign participation, and inject capital into balance sheets through the purchase of non-performing loans (NPL). Official data shows that the ratio of NPL to total loans increased to 3.4% in 2011 from 2.1% in 2010, but it could be up to 3 times higher if measured by international standards. Three small banks have already merged into one and nine weak banks have been put under “tight control” by the central bank in order to restructure them.

Land disputes Widespread land disputes between local authorities and individuals threaten to undermine could threaten political stability. This was recently highlighted by the Tien Lang District episode, where political stability family members killed local officials trying to violate their land leases. Responding to the huge display of public sympathy towards the family, PM Nguyen Tan Dung admitted that local officials made mistakes and ordered a review of land management procedures.

Vietnam’s exports After China, Vietnam was the world’s second largest exporter of textiles & apparel to the set to grow US in 2011, with two-way trade between the two countries totalling US$21.8bn. This could increase a lot more if the current Trans Pacific Partnership (TPP) negotiations are successful. According to the US Trade Representative, Vietnam will gain the most among the nine countries involved in the TPP. The other TPP countries are the US, Australia, New Zealand, Chile, Peru, Singapore, Malaysia, and Brunei.

Outlook for the market

Exports support The large size of its external sector (2010 exports accounted for 74% of GDP) has made weak domestic Vietnam resilient to the changes in its domestic economy. Despite domestic spending economy falling from 10.1% in 2010 to an estimated 3.1% in 2011, GDP growth only slowed from 6.8% to 5.9%. We expect domestic demand to ease further to 2.7% in 2012 and GDP growth to stabilise at 5.7%. The lessening of Vietnam’s macroeconomic imbalances, lower interest rates, and a stronger global economy should lift GDP growth to 6.8% by 2013.

Domestic demand There has been considerable progress towards stabilising the Vietnamese economy. to continue to Inflation has fallen from a 23%yoy peak in August ‘11 to 16.4% in February, while the 12- slow month rolling trade deficit has fallen from US$17.3bn in March 2010 to US$7.5 bn in February. However, conditions remain weak in some domestic sectors. Realised foreign direct investment (FDI) has fallen 9%yoy, while FDI pledges were down 54.5%yoy in Jan- Feb ‘12. Construction has also decreased by 10.5%yoy in Q4’11. Overbuilding, combined with high interest rates, lifted vacancy rates in the Hanoi office market to 34.5% from 9.8% in 2011 and drove rents significantly lower. We see no prospect of an early recovery in the real estate sector.

Interest rates to Confident that inflation and the trade deficit will continue to decline, the central bank has decline said it will cut its refinancing and repo rates by 100bps to 14% and 13% respectively. The throughout 2012 aim is to cut interbank rates to around 10% by year-end, but this could be derailed by rising crude oil prices that may disrupt the smooth downtrend of the CPI into single digits.

Macro- The government’s restrictive policies have helped to stabilise the Dong and brought it in stabilisation line with the official rate of 20,828 on the US$. A more balanced macro environment will helping the Dong slow down the pace of Dong depreciation.

2009 2010 2011 2012 2013 GDP, real growth, % 5.3 6.8 5.9 5.7 6.8 CPI, yoy, % (2005=100 from 2007) 6.7 9.2 18.7 14.0 9.0 Central bank refinancing rate, year end, % 8.00 9.00 15.00 13.00 11.00 Dong to US$1, year average 17,860 19,151 20,511 21,299 22,117 Source: 2008-2010 data from the IMF and CEIC; 2011-2012 forecasts by IMA Asia.

74

Regional Update

India

Political & policy issues to watch

Stuck with a weak State election results in March have two implications for the market. First, the failure of the government in Congress Party to make ground, particularly in the crucial state of Uttar Pradesh, may Delhi bring to an end plans to elevate Rahul Gandhi to head the party and quite possibly become prime minister prior to the 2014 elections. This suggests that there will be no change in the weak government in New Delhi, led by PM Singh and Congress Party head Sonia Gandhi, so progress on reforms will be very slow. Mamata Banerjee, chief minister of West Bengal and head of the Trinamool Congress, appears to have more power in the coalition government in New Delhi than PM Singh. Congress needs a plan B for leadership succession, although it’s not apparent what that is (Plan P for Priyanka?).

The emergence of Second, local political analysts have applauded an apparent shift in voter behaviour with modern voters bread-and-butter issues being given priority for the first time over caste allegiances or adherence to traditional ruling families, such as the Gandhis. State-based political leaders … & the rise of appear to have done best at capturing this transition and this may well trigger better state politicians government and stronger growth in specific states, as local politicians focus on staying in office by delivering the goods. More effort by companies on figuring out which states will have the best leaders and on understanding their goals and plans is likely to pay off.

India’s fiscal One strategy open to Congress is to announce big increases on social spending in the challenge budget speech in mid-March, in an effort to buy back popular support. India doesn’t have the fiscal room for this as the current year’s deficit is well over its target of 4.6% of GDP and next year’s deficit likely to be in a 5-6% range, even though a target of under 5% will be set. Poor fiscal management exposes India to considerable downside risk including entrenched inflation and currency volatility.

Outlook for the market

Stuck in first gear India’s economy is stuck in first gear with December quarter growth of 6.1%yoy, the slowest pace since the GFC some three years ago. The downturn is policy induced … as the RBI following 13 interest rate increases by the Reserve Bank of India (RBI) in an effort to force waits for a fall in inflation down. Manufacturing has borne the brunt of the downturn with barely any growth inflation in the last quarter (up 0.4%yoy) while construction and the services sectors managed to maintain growth in the 7-9%yoy range. The challenge for the RBI – and for India – is that inflation, which came in at 6.9%yoy for February, remains uncomfortably high and it may remain so if the government is unable to curb its spending. Our forecast assumes inflation eases in the June quarter, allowing the RBI to cut its repo rate from a current 8.50% towards 7.50% by end-2012 to encourage an industrial upswing.

India’s 2-speed Underlying demand indicators suggest that manufacturing has scope to lift its growth rate economy over the next quarter. In the vehicle segment cars sales rose 10%yoy for the first two months (against full year growth of 4.1% in 2011) while commercial vehicle sales were up …strong rural 16.2%yoy (17.8% in 2011). Meanwhile our clients report very strong rural sales, which sales while sales appear to be partly supported by the rural employment scheme. A breakout of the to industry slump production index for January provides an even sharper picture of the two very different demand stories. Output of capital goods fell 1.5%yoy while intermediate goods were down 3.2%. By contrast, non-durable consumer goods production soared 42.1%yoy.

The RBI aims to Tight liquidity conditions should start to ease in the June quarter, providing breathing space improve liquidity for industry. The RBI has been struggling to ease tight liquidity conditions by cutting the commercial bank cash reserve ratio by 50 basis points (bp) in January and another 75bp from March 10. With global risk easing, the rupee is regaining ground.

Calendar year starting January 2009 2010 2011 2012 2013 GDP (Production), real growth, % 7.0 8.6 6.7 6.4 7.2 GDP (Expenditure), real growth, % 6.8 9.9 7.2 6.3 7.0 Inflation - WPI, year average, % 2.2 9.4 9.4 6.4 6.5 Inflation - CPI, Indust workers, yr avg, % 10.9 12.0 8.9 7.5 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 46.6 45.3 Sources: 2008-2010 data from the government (NCI, RBI) and CEIC. 2011-2012 forecasts by IMA Asia with guidance from IMA India. The above forecast is by IMA Asia. Companies seeking local advice and forecasts should contact: Adit Jain, Chairman, IMA India Tel: (91 124) 459 1200 ♦ Fax: (91 124) 459 1250 ♦ Email: [email protected] 75

Regional Update

Australia

Political & policy issues to watch

Can PM Gillard The key political question for Australia is whether PM Julia Gillard can lift public support for rebuild support her Labor Party government before elections in late 2013. Labor has been well behind the for Labor? opposition Coalition (Liberals plus Nationals) for months, with the February 2012 gap at 46% to 54% in favour of the Coalition. Gillard’s strong negotiating skills have allowed her … if not then to overcome a slender hold on power to pass some major legislation (she leads a minority government will government dependent on the support from three independents and one Green MP). Her change in 2013 decisive win over Kevin Rudd’s leadership challenge in February may help her rebuild popular support. If she fails then her own party might dump her before the 2013 poll even though that would be unlikely to stop opposition leader Tony Abbott winning office and bringing a 180-degree change to Gillard’s big policies on the carbon and mining taxes.

New carbon & Gillard needs to move the mining tax through the Senate in 1H’12 and prepare Australia mining taxes from for implementation of the carbon and mining taxes from July 1. If passed, personal and July 1 small business tax rates will be reduced from 2H’12 to compensate for the new taxes, with medium and large business taxes to fall from 2H’13.

Room for fiscal Treasurer Wayne Swan would like to get the budget into surplus by 2012/13. However, if stimulus if needed the global economy slows more than expected, the government’s low public debt level (7.7% of GDP) and AAA credit rating provide room for fiscal stimulus.

Outlook for the market

A lift in growth Australia grew 2.3% in 2011 and growth is set to gradually rise through 2012. Fixed through 2012 investment, which grew 8.4%yoy in Q4’11, has entered a strong upswing that will last five years or more as mining companies expand iron ore and coal capacity and LNG production … but still a 2- facilities are built. With a stronger global economy in 2013, Australia’s growth rate should speed economy lift towards 4.4% in 2013 as exports accelerate. The main challenge will be spreading the benefits of the resource boom from the mining states to the rest of the country. GDP growth in Q4’11 in the mining states of WA (+11%yoy) and QLD (+10%yoy) was considerably above the rest of the country (+2%yoy).

A massive rise in Mineral export prices and the A$ will continue to oscillate through the next 12-18 months mining capex until China’s growth steadies after a two-year campaign by Beijing to cool off its property and infrastructure markets (particularly local government projects). In some quarters the $ … means a value of export earnings may even drop. Despite this, the volume of exports is expected to massive rise in continue growing as new processing and shipping facilities come on stream. During 2013, export volumes commodity prices should start to lift providing a surge in export revenue.

Steady demand Real growth in consumer spending is currently running at a mild 3%yoy as households from consumers cope with higher interest rates and rising fuel costs. This is close to the 10-year average growth rate but shows little sign of a resources boom. Unemployment is likely to remain stable around 5% (5.2% in February) and wage growth is running at 3.7%yoy (Nov’11). Consumer growth should lift to 3.5% and possibly 4% in 2013.

The A$ could go While the Reserve Bank of Australia (RBA) thinks the A$ is now overvalued (at US$1.06 to higher still A$1), this could persist for several years. Apart from a big interest rate differential (the policy rate is currently 4.25%), some global investors will see Australia as one of the few big currencies not being debased by its central bank printing money. Swings in global market sentiment about China will continue to be reflected in the A$ (a liquid proxy for a China bet), but as we are long-term bullish on China, this means a stronger A$.

Year ending December 31 2009 2010 2011 2012 2013 GDP, real growth, % 1.4 2.5 2.0 2.8 4.4 CPI, year average, % 1.8 2.8 3.4 2.5 2.8 RBA cash rate, year end, % 3.75 4.75 4.25 4.00 4.25 A$1 = US$, year average 0.79 0.92 1.04 1.09 1.12 US$1 = A$, year average 1.27 1.09 0.96 0.91 0.90

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

New Zealand

Political & policy issues to watch

PM Key tackles Four months into his second 3-year term, PM John Key has set out on the unpopular tasks the tough policies of cutting public spending and privatisation. Both will cause fireworks in the single-chamber as he starts his parliament and may trigger union strikes. The first reading of the asset sales bill passed by 2nd term just one vote in early March as the Maori Party opposed it. Key’s National Party fell two seats short of a majority in last November’s elections and relies on support from the Maori … privatisation (3 seats) or ACT (1 seat) and United Future (1 seat) parties. Opposition Leader Phil Goff of & cuts to public the Labour Party has led the attack, and gained impetus on the floor of parliament from spending strong opposition to headcount cuts in the Foreign Affairs Department and the Defence Force. Key hopes to get these unpopular tasks completed in 2012 so he can rebuild support before an election. The privatisations might raise NZ$6bn and, together with cuts to spending, may allow a return to a small budget surplus in FY2014/15 from a deficit of 6.4% of GDP in 2011. Public debt is a low 8% of GDP, but NZ’s small but open economy requires a cautious debt policy to avoid punishment by global capital markets.

Selling power NZ has been through several waves of increasing state ownership (under Labour-led firms & Air NZ governments) and privatisation (under National-led governments). The public is quite ambivalent about the process. The current plans calls for a stock market float of 49% of three power companies (NZ has a fourth power company, which is already private), a coal company, and Air New Zealand.

China would like a Shanghai Pengxin’s attempt to buy almost eight square kilometres of farmland has stalled little bit of NZ due to High Court challenges and a rival NZ-backed bid. Failure to sell the land might discourage other Chinese investors, but we don’t expect it will do much damage to NZ’s … Kiwis aren’t very strong trade ties with China. China is NZ’s second biggest market after Australia and sure the NZ$ is often seen as a proxy for China growth.

Outlook for the market

Weak growth with Growth is not expected to rise above 1% in the first half of 2012 due to a weak global a lift from 2H’12 market and modest local construction growth. However, from 2H’12 to 2015 we expect growth to lift towards 4% due to a global recovery and a lift in earthquake reconstruction (assuming there are no further delays in the insurance payouts for earthquake victims).

A strong outlook Food exports, primarily dairy, are expected to do well thanks to strong demand from for dairy exports emerging markets. Q4’11 saw food exports up 9%yoy and we expect this to help lift manufacturing growth into a 3-5%yoy growth range through the next two years. Last year the manufacturing sector grew by 2.2% as tough times in the non-food manufacturing sector saw manufacturing employment drop 3.5%yoy in Q4’11.

Unemployment While manufacturing was shedding jobs, stronger growth in services helped to pull the should drop from unemployment rate down to 6.3% in Q4’11 from 6.6% in Q3’11. Workers are leaving 2H’12 Canterbury (the epicentre of the earthquake) for other towns around NZ. Unemployment should fall further from 2H’12 as reconstruction gears up, and may fall to 5% in 2014.

… helped by a We expect a 5% lift in housing construction this year led by earthquake reconstruction and lift in construction increased property demand in Auckland. The pace will lift to 9% in 2013 as reconstruction peaks before easing to 7% growth in 2014.

Inflation will rise Inflation dropped to just 1.7%yoy in Q4’11 from 4.6% in Q3’11 due to falling fruit and from 2H’12 vegetable prices in a strong harvest season. However, inflation will likely climb above 3% by late 2012 as growth and reconstruction accelerate. This should see the RBNZ lift its … with a firm policy rate by 25bp to 2.75% in Q4’12. The NZ$ is expected to remain firm on the US$ with NZ$ as rates lift higher interest rates from 2013 supporting the currency.

Calendar years 2009 2010 2011 2012 2013 GDP(Expenditure), real growth, % -0.1 2.4 1.3 2.2 3.2 GDP(Production), real growth, % -2.1 1.3 1.2 2.2 3.2 CPI, year average, % 2.1 2.3 4.0 3.0 3.8 Official cash rate, year end, % 2.50 3.00 2.50 2.75 3.50 NZ$1 = US$, year average 0.62 0.72 0.79 0.83 0.85 US$1 = NZ$, year average 1.60 1.39 1.26 1.20 1.18 NZ$1 = A$. year average 1.26 1.27 1.32 1.32 1.32 Source: 2009-2011 data from Statistics NZ; 2012-2013 forecasts by IMA Asia.

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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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