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Thursday, November 20, 2008


The lottery/prize scam: The consumer will be contacted by SMS or e-mail with news that he/she has won a large sum of money, but in order to receive the winnings, he/she must first pay the taxes by depositing into a stranger’s account. The consumer sends the funds, but the winnings are never received.

The charity donation scam: The victim will be told that the culprit is a representative of either a fake charity organization or a recognized government foundation tasked to secure donations for a worthy cause. The victim will be given contact details and information on how he/she can donate via the fraudster.

The online auction purchase scam: The consumer with the winning bid in an online auction is instructed that the seller will only accept money transfer as a form of payment. The seller may also instruct the consumer to use a fictitious name for the transfer, to ‘protect themselves’ until the goods are received – but they never arrive.

The dugu-dugo or budul-budol scam: The victim will receive a call from someone who claims to be a family member stating that a loved one has been kidnapped or hurt, and will need the victim to make a transfer of money to a stranger to avoid the kidnapped relative from being harmed or to pay for medical expenses.

The recruitment scam: The victim will receive an offer to a job overseas from an individual who claims to represent an agency or the employer, and requests for a placement fee to be transferred to his/her account to facilitate the application process.

The business investment scam: A business may receive a request from a stranger posing as a representative of a major corporation offering the opportunity to become involved in a large commercial operation. The offer will involve very large financial returns and will require the victim to finance portions of the business venture. All payments will be required to be forwarded in amounts between PhP 10,000 and PhP 50,000. Examples of the requests for money include:

Payment of legal fees
Payment for the suppliers or subcontractors
Payment for the registration costs
Payment of business taxes

The Nigerian inheritance/legacy scam: The consumer is contacted, usually by email, by an individual claiming to be either a representative of the Nigerian government, a wealthy business person or the widow of a deposed leader. The trickster may claim that they have discovered a bank account belonging to a deceased citizen or has come into possession of a large sum of money. The trickster offers to share the proceeds if the consumer allows him/her to deposit the money into their bank account. The consumer is asked to provide their account details and other sensitive information. However, before the transaction takes place, an “unforeseen difficulty” occurs and additional fees from the victim are “necessary to overcome the problem”.

Avoid Being Ripped Off: Consumers, Be Wary of Text Scams

Current estimates place the number of mobile-phone subscribers in the Philippines at about 40 million with text traffic hitting the 100 million mark daily. Data from Smart Communications Inc. show a total of 24.2 million subscribers, while Globe and Touch Mobile subscribers stood at 15.7 million with analysts projecting growth in the number of subscribers to increase by 30 percent this year.

However, with the significant increase in mobile-phone users, the number of complaints against text scams is also on the rise.

Sender: +639063720735 - D'AUDITORS of PHIL.CHARITY FOUNDATION inform u that ur celfon number won Php950,000 2nd prize winner draw last March 13. Please call me now! I'M ATTY. REX F. LEE.

Sender: +639063720735 - We are glad to inform you that you have won P650,000 thru PGMA. Claim ur prize, call now i'm atty Garey B.Aquino from BSP Info. Department, DTI Permit #3920.

Sender: +639218340905 - Mabuhay! The CFPhils, special division office informing ur # had won $40,000.00 during our electronic raffle draw Pangkabuhayan 2006 para sa kababayang ofw/ocw..cfphils.. rcbc bldg 8th floor, room 803, mkati city phil/as per ncr-dti permit # 3264 series of 2006 call Nympha Salazar right now.

Sender: 09207311991 - We would like to inform you that you won 1 unit of STAREX VAN + 300 thousand pesos at DRAKKAR COSMETICS PARIS INTL COMPANY located at Rizal Ave. Olongapo City. Kindly contact LIZA SARMIENTO at 09165934232 or landline 047-2520132. Congratulations and call now!'

These are just some of the text or simple messaging service (SMS) scams usually forwarded to the Text DTI system of the Department of Trade and Industry.

Many are already aware of this fraudulent activity, yet there are still those who seem to be blinded by the promise of handsome rewards. With the popularity of text messaging, anybody who is rich or poor, educated or otherwise are always potential preys of text scams.

In a text scam, cellular phone subscribers are informed that they have won a special prize through a raffle sponsored by a particular company, government agency or foundation. Scammers often cite government agencies like the Bangko Sentral ng Pilipinas, the Philippine Charity Sweepstakes, and the Philippine Amusement and Gaming Corporation to make it more believable.

The alleged winners are usually asked to deposit money in a bank account or send prepaid load, supposedly as part of processing fees or tax payment, before they can claim the prize. However, after they have kept their end of the bargain, the culprits will then disappear with the money.

Scams through text messaging continue to victimize mobile-phone subscribers despite efforts of telecom companies and government regulators to curb the crime. As such, the DTI continuously urge the public to stay vigilant and beware of dubious text messages.

But what are other indications of a text scam?

Ÿ The text message was sent using an ordinary 11-digit cellular phone number (e.g. 0917-xxxxxxx; 0919-xxxxxxx). Raffle or game sponsors that intend to register and notify participants through SMS are required to obtain a special four-digit code from cellular network providers.

Ÿ The subscriber has won a raffle or contest without joining one. In valid sales promotions, participants usually join a contest by availing of a product or service. The receipt, coupon, wrapper, cap or any other proof of purchase can serve as the official entry form.

Ÿ The subscriber is being rushed to claim the prize. In valid sales promotions, winners are given sixty (60) days from the date of notification or announcement within which to get their prizes.

Remember that if you did not join any raffle, promo or contest, there is a slim or no chance at all of winning something. Furthermore, legitimate promos notify their winners in writing, by registered mail or any communication where proof of notice can be verified when the prize amounts to P500 or more, not through text messages.

It is also important to NEVER give access to your credit card or reveal your ATM numbers. Exposing this information is like waiving your protection against unauthorized transactions and fraudulent charges.

Unfortunately, text scammers are hard to pursue because they can easily switch from one number to another or can use multiple numbers to initiate the scam. The National Telecommunications Commission cannot file cases and can only recommend “blocking” the number used in the hoax. Blocking makes the Subscriber Identification Module or SIM card no longer usable.

Thus, the DTI reminds consumers to always keep their guard against scams in the market and to report such activities to the authorities so that perpetrators will be discouraged from victimizing innocent consumers.

Consumers may verify the promo by calling DTI Direct 7513330 or visiting Complaints may also be reported to the One-Stop Public Assistance Office (OSPAC), a sub-agency of the National Telecommunications Commission at 926-7722 / 436-7722 or email

DTI, NBI and Western Union Strengthen Anti-fraud Efforts in the Philippines

The Western Union Company (NYSE:WU), the Department of Trade and Industry and the National Bureau of Investigation launched a consumer awareness campaign in the Philippines called the Security Awareness and Fraud Education (S.A.F.E.) Program in line with National Consumer Welfare Month. The S.A.F.E. Program equips consumers with the necessary knowledge and tools to prevent them from falling victim to scams.

The DTI, the NBI and Western Union are working together on a concerted effort to protect consumers against fraud. This unique collaboration marks the first time that business and law enforcement agencies in the Philippines are working together to raise awareness among consumers about fraud prevention.

“Any Filipino can fall victim to fraud – regardless of their education level, economic status or social background. Perpetrators of fraud are constantly coming up with ways to entice people into new scams. If we can educate people about the types of fraud they will be better prepared to protect themselves. That’s a goal we hope to achieve with the SAFE program,” said DTI Secretary Peter Favila.

NBI Director Atty. Nestor Mantaring explained that once money and other valuable items are in the hands of fraudsters, they are difficult to recover. “We want to educate and inform the public about how they can protect themselves from various scams before fraudsters contact them either through e-mail or SMS. We appreciate Western Union’s initiative in supporting both the DTI and our current anti-fraud and consumer education efforts,’ he said.

Patricia Riingen, Western Union regional vice president for Philippines and IndoChina, said, “At Western Union, we do our utmost to protect our customers’ hard-earned money. Our system is designed to send money to people whom they trust such as families and friends. We advise consumers to always think twice if they don’t know the person they are sending money to, have been told to keep these deals secret, or have been asked to forward funds into a stranger’s account. When in doubt, we advise consumers to always consult the DTI or the NBI.”

In line with the launch of the S.A.F.E. Program, Western Union has re-designed its money transfer forms and added fraud prevention information as well as the NBI Hotline to encourage people to ask the right questions before they send their money.

S.A.F.E. posters and flyers offering tips on how to avoid becoming a victim of fraud will be placed at over 7,300 Western Union Agent locations in the Philippines, as well as DTI and NBI offices nationwide over the next six months.

Western Union has successfully rolled out similar consumer education campaigns in Australia, Singapore and London, the United Kingdom.

DTI Direct (751. 3330) is available for consumers with inquiries regarding possible fraud-related e-mails or SMS messages. To report cases of fraud, the NBI Hotline is available at +63 2 523 82 31. Consumer-friendly advice on fraud prevention can be found on, and


About Western Union
The Western Union Company (NYSE: WU) is the world’s leader in global money transfer services. Together with its affiliates, Orlandi Valuta and Vigo, Western Union provides consumers with fast, reliable and convenient ways to send and receive money around the world, as well as send payments and purchase money orders. It operates through a network of more than 355,000 service provider locations in over 200 countries and territories. Famous for its pioneering telegraph services, the original Western Union dates back to 1851. For more information, visit

About the Department of Trade and Industry
As a key agency of the Philippine Government, the Department of Trade and Industry (DTI) is charged with creating a business-friendly environment conducive to the growth of enterprises and supportive of fair and robust trade in goods and services, both within and outside the Philippines. DTI wears several hats - it is a coordinating agency for all government activities related to trade, industry, and investments; a promotional machinery for further trade and investments; and a regulatory body to ensure that fair competition prevails. At present, DTI exercises its mandates through 20 line bureaus/support offices, 14 attached agencies which are manned by over 5,000 employees. It has 16 regional and 78 provincial offices nationwide. For more information, visit

About the National Bureau of Investigation
The National Bureau of Investigation (NBI) aims to establish and maintain a modern, effective and efficient investigative service and research agency for the purpose of implementing fully principal functions provided under Republic Act No. 157, as amended. The NBI aims to provide quality services for efficient law enforcement in the pursuit of truth and justice. For more information, visit

ADB Helping Prepare Urban Water Supply Project for Philippines

The Asian Development Bank is helping prepare a project that will improve water supply and sanitation services for urban areas outside Metro Manila, the main urban center of the Philippines.
The Multi-Donor Trust Fund under the Water Financing Partnership Facility will provide a $1.2 million grant to fund the project preparation, while the Philippines will allot $300,000 to complete the funding requirement. The Multi-Donor Trust Fund is contributed by the governments of Australia, Austria, and Norway.
ADB set up the WFPF to support its Water Financing Program 2006-2010, which aims to deliver investment, reform, and capacity development in rural and urban water services, and river basin water management.
“The project is expected to help bring the country closer towards achieving the Millennium Development Goals target of halving by 2015 the proportion of people without sustainable access to safe drinking water and basic sanitation,” said Rudolf Frauendorfer, Senior Urban Development Specialist of ADB’s Southeast Asia Department.
The MDGs are a set of global targets for combating problems including poverty, hunger, disease, environmental degradation, and discrimination against women.
The proposed Water District Development Sector Project will be designed to help improve living conditions for urban residents in provincial cities by developing water supply and sanitation facilities and boosting the capabilities of existing water utilities.
The project will also help further enhance the service of state agency Local Water Utilities Administration, which provides water districts with financial and technical assistance.
Water districts are local companies that provide water supply and, in some cases, sanitation services within their areas of responsibility, which may include one or more cities and municipalities. As of 2005, there were 585 water districts, of which 463 were operational, serving about 14 million people, or 21 percent, of the 67 million living outside Metro Manila. About two-thirds of these water districts are small.
The government is currently streamlining LWUA and refocusing its lending operations to support smaller water districts. Due to limited funding access, smaller water utilities often suffer from low efficiency and poor quality of service, and are unable to expand and rehabilitate their facilities. The technical assistance will help prepare a project with ADB loan financing of up to $50 million.

ADB Helping Prepare Urban Water Supply Project for Philippines

The Asian Development Bank is helping prepare a project that will improve water supply and sanitation services for urban areas outside Metro Manila, the main urban center of the Philippines.
The Multi-Donor Trust Fund under the Water Financing Partnership Facility will provide a $1.2 million grant to fund the project preparation, while the Philippines will allot $300,000 to complete the funding requirement. The Multi-Donor Trust Fund is contributed by the governments of Australia, Austria, and Norway.
ADB set up the WFPF to support its Water Financing Program 2006-2010, which aims to deliver investment, reform, and capacity development in rural and urban water services, and river basin water management.
“The project is expected to help bring the country closer towards achieving the Millennium Development Goals target of halving by 2015 the proportion of people without sustainable access to safe drinking water and basic sanitation,” said Rudolf Frauendorfer, Senior Urban Development Specialist of ADB’s Southeast Asia Department.
The MDGs are a set of global targets for combating problems including poverty, hunger, disease, environmental degradation, and discrimination against women.
The proposed Water District Development Sector Project will be designed to help improve living conditions for urban residents in provincial cities by developing water supply and sanitation facilities and boosting the capabilities of existing water utilities.
The project will also help further enhance the service of state agency Local Water Utilities Administration, which provides water districts with financial and technical assistance.
Water districts are local companies that provide water supply and, in some cases, sanitation services within their areas of responsibility, which may include one or more cities and municipalities. As of 2005, there were 585 water districts, of which 463 were operational, serving about 14 million people, or 21 percent, of the 67 million living outside Metro Manila. About two-thirds of these water districts are small.
The government is currently streamlining LWUA and refocusing its lending operations to support smaller water districts. Due to limited funding access, smaller water utilities often suffer from low efficiency and poor quality of service, and are unable to expand and rehabilitate their facilities. The technical assistance will help prepare a project with ADB loan financing of up to $50 million.

SSS Collects P1.77B in Southern Tagalog

SAN PABLO CITY, Laguna - The Social Security System (SSS) branches in the Southern Tagalog region collected a total of P1.77 billion during the first three quarters of 2008, which was 55 percent more compared with the same period last year, a top official said.
Secretary Romulo Neri, SSS President and Chief Executive Officer, said payments for contributions made up 65 percent of the total collections in the area and the rest are loan amortizations and other fees.
“More members are now paying through SSS branch tellers, which offer quicker processing and posting of payments in our database,” he said.
The SSS verifies members’ eligibility for loans and benefits through the agency’s electronic database, where payments for contributions and loans are posted.
The state-run institution launched its branch teller program in 2002 to make payment convenient for members, especially those from the provinces. A total of 89 SSS branches nationwide accept payments at present.
SSS branches with teller facilities in the area are Bacoor and Rosario-Economic Processing Zone Authority (EPZA) in Cavite; Batangas City and Lipa in Batangas; Biñan, Calamba and San Pablo in Laguna; Boac in Marinduque; Calapan in Oriental Mindoro; Lucena in Quezon; and Puerto Princesa in Palawan.
“Aside from SSS branches, members can also remit payments through accredited banks, Bayad Centers, participating SM malls and authorized third-party agents,” he said.
The pension fund has over 1.6 million registered members in the Southern Tagalog region, about 1.2 million of which are regular employees.

2GO Officially Begins Course in Supply Chain Management in TIP Center for Continuing Education

2GO, the total supply chain solutions provider of the Philippines, together with the Society of Fellows in Supply Management, and the Technological Institute of the Philippines (TIP) stands true to the commitment of providing more opportunities for growth as the Diploma Program in Supply Chain Management Course officially begin its classes in the TIP Center for Continuing Education (CCE).
The TIP-CCE offers programs and courses to those who would like to further their education and accelerate their growth in their chosen careers designed to cater to the specific needs of the industry. As such, the Diploma Program in Supply Chain Management will be offered in TIP-CCE wherein it will compose of six courses focusing on the four pillars of supply chain management and key business management subjects essential to the development of supply chain management professionals.
The first module is on Supply Chain Management, followed by modules on Product Supply, Managing the Procurement Function, Logistics and Customer Service, Distribution Management, and the SCM Linkage to Operations and Project Management.
2GO's passions to deliver outstanding supply chain management professionals are reflected in their efforts of creating opportunities for students and will reward them accordingly for their achievements thus each course will provide module certificates as they are completed and a Program Certificate as all six courses are finished. Classes will be held on Saturdays at the Arlegui Campus where each course will take 3 or 4 Saturdays to complete.
2GO's aim is to propagate knowledge about supply chain management and to continue to educate people on ways to help reduce the supply chain costs in this country. The partnership with TIP is a stepping stone in the achievement of this goal as the growth in the Supply Chain industry continues and the increased demand for competent practitioners in the field are elements that propelled the conception of this course.
For enrollment details, please contact the TIP-Center for ContinuingEducation at 7353176, 7339142, loc. 614-615 or 0915-4205854. For more information on 2GO, its product and services, please log on to ###

Sitel Partners with ExcelAsia to Support Business Growth

Sitel, the top-ranking global contact center, renewed its partnership with award-winning human resource solutions firm ExcelAsia. ExcelAsia also announced that it is launching a new recruitment and training strategy: purpose-built, dedicated training centers for major business process outsourcing (BPO) clients to meet increasing recruitment demand.

ExcelAsia has served as a human resource provider for Sitel since 2005. The renewed business partnership rolled out on November 3, and ExcelAsia began operating a dedicated site for Sitel to guarantee 200 or more successfully placed call center agents every month.

Sitel is confident that the firm will meet its recruitment needs. Dan Reyes, President, Sitel Philippines said, “We expect that ExcelAsia will provide the resources necessary to give Sitel the number and quality of human resources required for its growing business.”

To meet the monthly guarantee for Sitel, ExcelAsia is expanding its training facility in Makati. ExcelAsia President Rita Trillo-Ugarte said that its existing Makati facility will continue to serve other BPO clients. However, to meet demand by these clients, ExcelAsia plans to develop other dedicated facilities as well, with each facility exclusively serving a major BPO.

“Our dedicated site strategy will also be implemented for our other BPO clients,” Trillo-Ugarte explained. “For each dedicated site, clients will have around six account managers, six trainers, and training classes operating solely for them. This allows the dedicated site to focus on only one client, thereby getting more hires. All recruitment and training processes will be customized to that specific client’s needs to help boost passing rates among endorsed applicants.”

ExcelAsia plans to roll out dedicated centers to their Alabang, Cebu, and Bacolod sites. Demand for ExcelAsia’s services has increased and dedicated sites will cut the delivery time of human resource solutions without sacrificing quality, according to Trillo-Ugarte.

Reyes expressed confidence with the firm’s plans, saying “ExcelAsia has been one of the most consistent and strongest HR providers for Sitel. I believe the new partnership will further enhance our relationship and work to benefit both parties. There will be more cooperation between the two organizations to increase the yield of qualified applicants into the Sitel system.”

DA Exec Pushes Overhaul of RP's Aggie Sector

Agriculture Undersecretary Segfredo R. Serrano, who also chairs the Department of Agriculture-Biotech Program Steering Committee, says the DA Biotechnology Program Office is bent on transforming Philippine agriculture from a resource-based sector to a technology-based sector.
“We are developing and promoting biotechnologies that can ensure increased yields, low production cost, and high-value products so that we can maximize the use of limited resources available for agriculture,” Serrano stresses.
DA-BPO is also striving to improve the quality of crops and vegetables and give them resistance against diseases and pests.
A significant achievement in this regard is the successful introduction and commercialization of Bacillus thuringiensis corn. Bt corn has proven that biotechnology-based agriculture can expand production, with this type of corn gaining a unit yield of 37 percent, which translates to an additional profit of P10,000 per hectare. Pesticide expenses are also slashed by up to 60 percent.
The Philippines has also been using both traditional and modern biotechnologies in extracting high-value products from traditional agricultural commodities.
For instance, coconut is now being the used as source of sugar, honey, vinegar, biofuel, virgin coconut oil, industrial feedstock and health drink.
Abaca is now better known for non-fiber byproducts like surfboards, car accessories and insulation material.
Rice husks, bran and other milling byproducts are now utilized as energy source, medicines and health supplement. Seaweeds are also being tapped for high-value products like health supplements, medicines and cosmetics.
There have been also studies on various plants and herbs like malunggay, banaba, rice, papaya, banana, mango, pineapple, duhat, astuete, seaweeds/carrageenan, and marine bioactives.
Through modern and traditional biotechnology, the natural ingredients derived from these plants like essential oils and active pharmaceutical ingredients are extracted for various industrial applications.
biolife news service

Survey: 2009 Prospects Good to Outstanding for Non-voice BPOs

Business prospects in 2009 for non-voice providers of business process outsourcing (BPO) services are good to outstanding according to respondents participating in an industry survey. Almost 65% of respondents said 2009 prospects are excellent to outstanding, and 30 percent said prospects are good. Only five percent of respondents said 2009 business prospects are only fair, and none responded that prospects are poor.

The survey results confirm that despite the impact of the global financial crisis on business activity in major markets, providers of non-voice outsourced business process services are optimistic that their businesses will continue to grow next year. A total of 188 respondents participated in the survey, which was sent to 583 BPO executives, providing a 32% response rate. Eighty-four percent of respondents provide non-voice outsourced business process services.

The survey was conducted by the Business Processing Association of the Philippines (BPA/P) and Outsource2Philippines (O2P) and managed by strategic marketing communications firm TeamAsia. The complete results of the survey will be presented in a breakfast briefing December 3 for senior industry executives. The briefing is being organized by BPA/P and O2P with the support of TeamAsia, human resource solutions provider ExcelAsia, and recruitment consultant World Pacific.

Non-voice business process services include animation and graphics, back office services such as HR administration and accounting, customer care, engineering services, financial services, software development and other services and tech support. Most respondents, 91%, said the value add of their services was moderate, high, or very high, indicating that most non-voice BPO services provided in the Philippines are at least reasonably sophisticated.

Delegates attending the December 3 breakfast briefing, “Going Voiceless: The State of Philippine Non-Voice BPO,” will receive a detailed summary of the survey, which consisted of 20 questions ranging from current and anticipated employee base to projected revenue growth in 2009. Information on the briefing is available at or e-mail LA Limjoco at

Statement of an IMF Staff Mission at the Conclusion of the 2008 Article IV Discussions with the Philippines

The following statement was issued in Manila on November 14 after the conclusion of an International Monetary Fund (IMF) staff mission to the Philippines for the 2008 Article IV Consultation:
"An IMF mission visited Manila during November 5-14, 2008 to hold the 2008 Article IV Consultation discussions with the authorities. The findings will be relayed to the IMF's Executive Board in early 2009 but a preliminary assessment is as follows:
"As the global economy reels from the biggest financial shock since the Great Depression, the major challenge for emerging economies is to navigate through these turbulent times without sustaining major damage. As for the Philippines, significant reforms in fiscal and banking sectors in the past few years, as well as the build-up of reserves in good times, have lessened the economy's vulnerability. Nevertheless, the economy is not immune to the turmoil and it is important to undertake preemptive measures to face the challenges that lie ahead. Trade and financial linkages, including through workers' remittances, between the Philippines and advanced economies have grown over time. On the back of recent mark downs in advanced country growth, the mission expects growth in the Philippines to slow from an expected 4.4 percent this year to 3½ percent in 2009.
"The mission expects the national government deficit be 0.9 percent of GDP this year (on the authorities definition which includes privatization). The tax effort is expected to remain broadly unchanged at around 14 percent of GDP as windfall revenue gains from high oil prices were broadly offset by changes to the income tax law and weakness in VAT revenues. On a note of concern, domestic taxes have performed weakly through the year and need to be carefully monitored in the period ahead. On the expenditure side, higher current spending (including through National Food Authority (NFA) operations) will likely be offset by lower capital expenditure reflecting weak absorptive capacity. Non-financial public sector debt in percent of GDP is expected to rise modestly this year, due largely to a weaker exchange rate, reversing the recent trend. The NFA is expected to incur a deficit of 1 percent of GDP this year from a broadly balanced position in 2007. The authorities' goal of protecting the poor can be better realized instead by using well-targeted conditional cash transfer schemes.
"For 2009, the key challenge for fiscal policy is to balance the need for cushioning the impact on the real sector against the benefits of maintaining fiscal discipline. On the one hand, an expansion of the deficit would help to soften the impact of the global shock on the domestic economy. On the other hand, on account of recent changes to the income tax law and the planned reduction in the corporate income tax, the tax effort may fall close to levels seen before the reform of the VAT. This could re-kindle investor concerns, especially in the context of expected tight external financing conditions for emerging markets next year. In the mission's assessment, a measured expansion of the national government deficit, to up to 1.7 percent of GDP in 2009 (authorities basis), would help to soften the reduction in growth while containing any adverse market reaction. Reforming excises on tobacco and alcohol products and rationalization fiscal incentives, as well as accelerating the implementation of the tax administration reform program, would provide more resources. These could be devoted to raising public investment and protecting the poor. In this regard, the mission reiterates the need for legislative and administrative action to raise the tax effort.
"Monetary policy has appropriately changed course. The mission shares the Bangko Sentral ng Pilipinas' (BSP's) assessment that inflationary pressures are beginning to stem. The mission expects inflation to average 9.8 percent this year and 6 percent in 2009. If the economic slowdown proves protracted and inflation expectations adjust sufficiently downwards, which appears to be a likely scenario, monetary policy could be eased in the period ahead. Also, preserving the level of reserves at a sufficiently high level will help sustain confidence in the peso as well as the resilience of the financial system.
"Recent reforms have strengthened the financial system but spillovers from the global financial crisis need to continue to be monitored. The fallout of the global financial crisis on the domestic financial system has to date been limited. While direct exposure to Lehman Brothers and to toxic assets has been small, rising sovereign spreads have led to mark-to-market losses on banks' holdings of Philippine sovereign bonds. To provide some relief from these losses, the BSP has allowed banks to reclassify assets. The mission welcomes the BSP's resolve to not allow these measures to impair transparency about the soundness of financial institutions. The BSP has also appropriately introduced a number of measures to support liquidity positions. These include the U.S. dollar denominated deposit facility and repurchase agreement with banks and lowering of the reserve requirement by 2 percentage points and doubling the size of the rediscount window. The mission supports the authorities' plan to raise the deposit insurance limit to P500,000 and suggests that some flexibility be allowed on the coverage limit. At the same time it is important to recapitalize the Philippine Deposit Insurance Corporation to match the higher insurance liabilities under the new limits. There is scope to strengthen the banking resolution framework, including through making restructuring decisions irreversible."

Wednesday, November 19, 2008

Philippines: Reality check

The following is from a study from UBS.

We came away from our recent visit to Manila with a strong sense that growth expectations were being adjusted downward amongst government officials, the financial sector and the private sector in general.
This said, overall perceptions were still more upbeat than our own perceptions for 2009. And it is fair to say that backward looking evidence of activity growth is still reasonable. Bank lending (net of RRPs) growth is buoyant at 22.1% yoy, USD exports were up 4% on the year in Q2 (after 5.2% in Q2), and the International Container Terminal Services Inc. reported volumes through Manila’s terminal in Q3 to be up 13% yoy (after 17.5% in Q2).
Nonetheless, we expect deteriorating financial conditions and slower overseas demand for Philippines’ exports and labor to slow the economy sharply into 2009. We look for 1.8% real GDP growth in 2009, an outcome on a par with real economic growth in 2001. We hence judge that there is some further downward adjustment of expectations for the Philippines’ private and public sector to come.

Investors should hence prepare for more bad news from the economy, but also looser fiscal and monetary policy over the next twelve months. We look for policy rate cuts of at least 50bps in 2009, with timing a function of the currency (which we expect to overshoot towards USDPHP 51). We also expect a wider fiscal deficit of at least 1.5% of GDP in 2009, 0.3ppts above the 1.2ppts now suggested by the government, and 2.3% in 2010. Excess domestic savings and a relatively low starting point for the deficit should mean successful government debt issuance is a matter of price not availability of creditors in 2009. The private sector may find life more difficult especially in terms of foreign currency borrowing, but low credit to GDP levels should mitigate the risk at the aggregate level. Finally, we highlight that politics, while not a focus now, may be a wildcard as the May 2010 election looms.

What the economy faces and why
We have long argued that the Philippines is exposed to global trade, financial market and sentiment shifts.
Historical experience suggests that, at times of global economic weakness or financial stress, Philippines real GDP growth can drop below 2.0% - we now project 1.8% real economic growth in 2009, before a recovery to 3.4% growth in 2010.
Chart 1 takes a brief look at the historical experience. The red line shows US real GDP growth, the dotted blue line world real GDP growth and the green line Philippines real GDP growth. We have labeled four distinct periods of weak growth in the Philippines. Of these the early 1990s and 2001 corresponded with a sharp slowdown in the US economy, while the late 1990s was associated with the Asian crisis. In the mid 1980s, the Philippines bucked the global economic recovery with a crisis associated with the end of the Marcos dictatorship.

Chart 2 highlights the interaction of the Philippines growth cycle with the rest of the world. Here we can see the periods of weak growth in the 1980s and 1990s were preceded by periods of current account deficits as the Philippines imported more goods and services than it exported.
The negative current account balance means that the Philippines was relying on capital inflows to finance its imports and hence domestic consumption and investment. The associated rise in net foreign liabilities was periodically halted as financing flows dried up.
In each case the halt or reversal of capital flows was preceded by, or concomitant with, signs of export weakness and hence weaker profitability and income for Philippine corporates and households - increasing the credit concerns of lenders (Chart 3). The actual trigger for reduced financing and hence the sharp drop in domestic demand and imports can also be linked to political concerns, as was the case in the 1980s; global risk aversion in the early 1990s; and regional capital flight as was the case in the late 1990s. The end result in each case was a sharp drop in imports along with real GDP growth and a rise in the current account balance.
In 2001, the effect on the current account balance was less pronounced only because exports slowed particularly sharply as the global growth slowdown was centred on the electronics sector. This said, import growth moderated just as sharply as export growth; consistent with the reduced availability of capital in a weaker global economic environment (along with political turmoil in the Philippines). As in previous cycles, real GDP growth slumped.
Which brings us to the present. The difference going into this cycle is that the Philippines has been running a current account surplus in recent years. A combination of rising remittance transfers and a declining trade deficit mean that, as the global crisis began to unfold in 2007, the Philippines has not been increasing its net foreign liabilities in recent years.
This is not the same as saying that the Philippines has experienced no inflow of capital. Or that a dramatic deterioration in global financial conditions will not impact the availability of capital in the Philippines. It is clear from the decline in the stock market, the weakness in the currency and the decline in portfolio flows that the cost of capital has gone up and the availability of capital has gone down.
What the current account surplus does mean, however, is that the pace at which capital inflows have been turned into physical investments has been moderate. This in turn reduces the risk that investments have been based on unsure assumptions or unrealistic expectations – as is common when easy money is married with an apparent track record of above normal growth. The downtrends in investment and credit to GDP shown in Charts 6 and 7 both support the idea that investment excess has not occurred in the Philippines in recent periods. Chart 8 shows this has probably been more true in the Philippines than anywhere else in the developing world.
This said, the acceleration of Philippine bank credit growth to over 20% in August is a worry since the availability of low risk investments must be deteriorating fast. Indeed, the acceleration in credit growth may be related to corporates’ desire to hold more or excess working capital for liquidity reasons. We do not expect this rate of credit growth to last because banks are most likely trying to de-risk portfolios not expand them aggressively.
Our point is that the Philippines was very late to this particular global growth party. It does not mean that the reduced availability of capital will not slow domestic growth in the Philippines. It does not mean that slower export growth will not act to reduce business sector income growth and that remittances growth will not slow sharply and potentially into negative territory. We should look for Philippines growth to slow as it has in other times there has been external economic weakness and financial stress. It is for this reason that we look for the growth outcome in 2009 to be as bad as in 2001 at 1.8%. We hence expect the following.
􀁑 Export growth to fall into negative territory as global trade contracts, imports to fall both on export deterioration and lower investment (Table 1).
􀁑 Investment to contract as export income and remittance income (actual and expected) reduce the willingness and ability to invest. Investment growth will also suffer from a sharply higher cost of capital and reduced availability of credit both offshore and onshore (Table 1).
􀁑 Consumption growth will moderate, but not collapse, as unemployment fears rise. USDPHP strength will help keep peso remittances up, even if USD remittances slip a little. Sharply lower inflation will also support household real incomes as energy prices, along with food items like rice, fall back in price.
We expect inflation to average close to 3% in 2009, down from 9.4% in 2008 (Table 1).
􀁑 In aggregate, lower commodity import prices and reduced capital and consumer goods imports should out weigh the modest decline in US dollar remittances and exports we expect. As such we look for a larger current account surplus in 2009 than in 2008 (Table 2).
􀁑 The peso will remain under pressure from global risk-aversion and de-leveraging. We continue to look for an overshoot of the currency relative to expectations, before calmer capital markets and the current account surplus drive a rebound towards USDPHP 48 later in 2009 (Table 3).
􀁑 All the above suggests the credit cycle should worsen, but the degree of deterioration should be milder than many of the countries on the right hand side of Chart 8.
Where does that leave us relative to market expectations? Our sense from our discussions in Manila is that growth expectations on the ground are now being quickly adjusted lower, particularly amongst the business community. Because of publication delays, this renders traditional economic consensus forecast figures
misleading. The latest government growth forecast is for 3.7%-4.7% real GDP growth in 2009. We think that most businesses are expecting something at the low end or below the government’s forecasts, but a less severe economic cycle than our own projection.

Monetary policy help is coming (but perhaps only next year)
The good news is that the door for monetary easing is opening fast. The sharp fall in commodity prices accompanying the weakness in global growth should take inflationary cost pressures out of the economy.
Recall we expect inflation close to 3% in 2009. This should ultimately open the door for policy makers to ease monetary and fiscal policy settings.
And the Bangko Sentral ng Pilipinas has already signalled a shift to a neutral stance with regards to monetary policy as commodity prices have dropped and inflation peaked. Important catalysts for more policy rate cuts will be the BSP’s and public inflation expectations for 2009 and 2010 relative to the inflation target, which will be a function of growth and the currency. We note that the 2010 inflation target is currently being debated by the government. An upwardly revised inflation target would be a catalyst for more policy rate cuts, but the implications for credibility suggest an unchanged target.
In 2006, forward inflation expectations had to fall closer to target than they are now before policy was eased (Chart 10), but growth expectations were rising, not falling, at that time (Chart 11). Meanwhile, the trade weighted peso is not excessively weak relative to the last year on average, but further near term weakness could hold up monetary easing through its implications for inflation expectations (Chart 12).
We do expect lower policy interest rates and have initially pencilled in 50bps of policy rate cuts during 2009.
If the currency depreciation from here is limited, more policy rate cuts are quite possible.
Further non-policy rate policy measures are also likely in the sense that they can guard against a tightening of monetary conditions within the banking sector. The key measures so far include:
(1) On 20 October, the BSP allowed Philippine banks to use RoP bonds to access a BSP dollar repo facility.
This complements the US dollar IOU or promissory note rediscounting facility that already existed.
(2) On 23 October the BSP allowed ‘Held For Sale’ and ‘Available For Sale’ securities (both categories subject to market to market) to be reclassified as ‘Held To Maturity’ at the price of 1 July with a deadline of 1 November. This was in line with new International Account Standards which have now been adopted by many countries in the region. ‘Held To Maturity’ securities are not subject to mark to market rules.
(3) On 6 November, reduced the regular reserve requirement on bank deposits and deposit substitutes by two percentage points effective 14 November. The BSP estimates that this is equivalent to releasing 60bn pesos into the system, or about 6% of M1 money supply.
(4) Also on 6 November, the Board agreed to increase the budget for the peso rediscounting facility from PHP20bn to 40bn to allow more banking institutions to obtain loans from the BSP against eligible promissory notes for short-term liquidity needs. The US dollar and yen exporters’ rediscounting facility budget of USD 500m was unchanged.
These and further measures should help limit risks in the banking system. However, they do not change the fact that perceived credit risks will drive credit conditions tighter both between banks and their customers and between non-bank entities in the economy, adversely impacting economic growth.
Fiscal easing on the way in 2009
Finance Secretary Gary Teves announced on 12 November that the National Government deficit would reach PHP 102bn in 2009, well above the 40bn initially pencilled into the 2009 budget. The deficit is higher than the 75bn estimated for 2008, but once intended privatisation revenues are accounted for the government will only increase its cash injection into the economy buy PHP 12bn or 0.2% of GDP1.
An important feature of the government package for 2009 is infrastructure spending. The National
Government’s infrastructure spend is budgeted to rise 25bn pesos or 0.3% of 2009 GDP in 2009. This is a positive for the economy in that it will offset some of the contraction in private sector investment and will contribute to longer term growth prospects. This is a theme we highlighted for the Philippines in Asian
Economic Perspectives – Where is ASEAN in the infrastructure cycle; Ed Teather; 25 March 2008.
Table 4: Public sector infrastructure spend
2007 2008 2009E
Total public sector 190.0 205.6 229.6
% GDP 2.8% 2.7% 2.9%
National govt. 132.4 122.2 147.5
….% GDP 2.0% 1.6% 1.9%
Source: Congressional Budget Office
A further point of note in the 2009 fiscal settings is the long planned tax cut for the corporate sector at a cost of 15-20bn pesos (0.2% of GDP) and the ongoing relief in terms of reduced taxation on low income households worth an extra 9.5bn pesos (0.1% of GDP) in 2009.
We expect the government to come up with additional stimulus measures in coming months such that the deficit to GDP ratio rises to at least 1.5%, from its current projected 1.3%. Moreover, lags in (corporate) revenue collection and the weak economic growth in 2009 should mean revenues remain weak into 2010 and the deficit to widen further to 2.3% of GDP – which will help drive the growth recovery.

Liquidity issues to be a key focus
According to our calculations in previous work, a deficit of just a little over 2.0% of GDP will still be
sustainable (in that the debt to GDP ratio falls) so long as the currency does not trend lower at 20% per annum2.
However, in 2009 we do not think long term stability of wider budget deficits will be the dominant issue.
Given the downside risks to growth, fiscal stimulus will be an important part of the policy response to the financial market crisis. Instead the pace of debt issuance and the market’s willingness to absorb it will be key.
Here it is worth noting that planned privatisation receipts may need to be replaced by borrowing because of market conditions, which matters from a market perspective, but not from the impact of the budgetary spending on the economy. Currently the government has the following asset sales lined up, with Petron to be sold in 2008 and the remainder on the block for 2009. Planned asset sales for 2008 were 30bn, of which 8bn has been achieved. Planned asset sales for 2009 are 15bn, which as we shall see is not large compared to the 131bn pesos of net borrowing the government intends to undertake in any case.
Table 5: Assets for Privatisation
Asset Reported value
Petron 22-34bn
Food Terminal Inc (agro industrial property) 15-20bn
PNOC-Exploration Corp. 16bn
Property in Fujimi Japan and elsewhere Na
Source: UBS
2 Southeast Asian Focus – Philippines: Watch the peso; Ed Teather; 24 April 2008
The table below shows our estimates for the government’s planned borrowing requirements. These estimates include the latest policy guidance from Mr Teves of the 12 November. Chart 14 suggests, relative to history, the level of domestic and external net issuance is modest in peso terms.
Our expectation is that domestic issuance in 2009 will not be too much of an issue as private sector investment intentions will be down, freeing up savings to fund government expenditure. The government will no doubt find its dollar issuance programme more difficult. Although the net issuance is not large relative to history, dollar markets are difficult at present. However, we believe that the ADB and World Bank are working on making more funds available. Meanwhile the BSP’s new dollar repo facility (which accepts RoP’s) will no doubt encourage Philippine banks to take on more government dollar debt. Incoming US dollar remittance flows if increasingly saved and not spent at the margin can only help that dynamic.
Table 6: Government financing plan 2009
Absolute amount (Peso bn) Share of total financing
Gross domestic borrowing 386.5 76%
Less principle payments -290.03
Net domestic borrowing 96.47
Gross foreign borrowing 123.4 (2.6bn USD) 24%
o/w foreign debt 72 (1.5bn USD)
Less principle repayments -88.84
Net foreign borrowing 34.56
Gross domestic and foreign
Net domestic and foreign
Budget deficit 102
Privatisation 15
Budget deficit less privatisation 117
Source: UBS Estimates
More risky will be the private sector’s efforts to raise US dollars or roll over US dollar debt, especially if creditworthiness is a problem given further declines in the peso and economic weakness. The following table highlights that the BSP is in a good position to provide dollar liquidity against near term liabilities, but this will not necessarily solve the problem of peso weakness and deteriorating credit worthiness for some private sector borrowers.
In conclusion we do not expect fundamental sovereign credit problems, although sovereign credit spreads may spike higher on global risk aversion. We do acknowledge, however, that even with lower bank credit to GDP, private sector credit difficulties are quite possible.
A final wildcard: the run-up to the 2010 election.
The overwhelming consensus from our vist to Manila was that President Arroyo would run out her term in office. And while a serious bid to extend the incumbent of the Malacañang Palace’s Presidential term could be made, the focus is on the following candidates as contenders in the May 2010 presidential elections.
The election is not a focus for markets or in Manila at present; the economy is instead the dominating force.
However, periods of economic weakness often prompt loud calls for change. And if we are right about the degree of economic weakness to come globally and in the Philippines next year, economic reform may well dominate the agenda of the winning candidate. Exactly how this may play out – with populist reforms or more long term growth friendly plans remains a wildcard.

To get full paper, email us.

Fedex Extends Subic Hub

FEDEX Express, a subsidiary of Federal Express Corp., said on Tuesday its global operations would escape disruption and discontinuity when its Asia-Pacific hub opens in China next year since it intends to maintain its Philippine facility until the move is complete.
FedEx, the second-largest US-based package-shipping firm, said it is now testing its new hub at Guangzhou Baiyun International Airport. The facility in southern China would start operations next year.
“There will be no service impact to FedEx global customers as a result of the revised operating schedule, as the current Asia-Pacific Hub located in Subic Bay will continue operations,” the company said.
The company earlier said it would cease the Philippine operations in Subic Bay at the end of the year, or at the same time the operations in China would start.
With the latest development, FedEx extended its Philippine operations toward the first half of 2009.
“The revised operations date provides FedEx with the necessary time to fully test all systems and processes, as well as work closely with the Guangzhou authorities to ensure all necessary approvals are in place,” the company said in a statement
Over the past several months, progress has been made in construction, laying down of various information-technology infrastructure, employee training, and the installation of the hub’s unique package and sorting system of 16 high-speed sorting lines, seven round-out conveyer belts, as well as a total of 90 primary and secondary document-sorting splits, it added.
This will enable FedEx to sort up to 24,000 packages an hour at the start of operations.
“Since we announced plans for a new FedEx Asia-Pacific hub in Guangzhou in 2005, we have achieved many important milestones toward our vision of delivering growth while providing our customers with expanded access to the global marketplace,” said David Cunningham Jr., president Asia-Pacific, FedEx.
“As the largest FedEx hub outside of the US, it will help stimulate business both in southern China and globally, and will enable us to meet the growing demands for air express services in the region over the next three decades,” Cunningham added. The new hub features its own ramp control tower—a first for an international air express cargo company facility in China.
Operations testing has begun, which includes the Hong Kong/Guangzhou cross-border transportation processes, sort systems and flight operations.
FedEx Express uses a global air-and-ground network for faster delivery of time-sensitive shipments

Major IT Upgrade to Boost SSS Operations

SAN PABLO CITY, Laguna - The Social Security System has started an extensive upgrading of its information technology facilities to make it run applications faster and handle more transactions, a top official said.
SSS President and Chief Executive Officer Romulo Neri said SSS has been acquiring new hardware as part of a major mainframe overhaul, which the pension fund expects to complete by the second quarter of 2009.
He said the improvements would result in upgraded software applications, which include programs such as contribution posting, online inquiry and benefit claims processing.
“This is a big boost to SSS operations. It enables us to keep up with a growing membership, which is about 28 million at present,” Neri said.
“One immediate effect in the foreseeable future is self-service capabilities in which members can remit contributions, get quick confirmation of posted payments and check easily their eligibility for loans and benefits without going to an SSS office,” he said.
Neri and other senior SSS officials motored to San Pablo, a major industrial center south of Manila, to inaugurate a major IT facility and confer with big employers on SSS-related matters.
With a new computer system, SSS can start modifying its current applications and incorporate new features, such as the self-service capabilities, with an improved business recovery system in place to protect members’ data from loss or damage due to man-made or natural disasters such as fires and earthquakes.
Neri said SSS is also acquiring new high-powered servers to prevent downtimes or temporary stoppages, which were recurring problems in the old system due to the aging equipment and the increasing volume of transactions.

RP and UAE Launch Joint Pilot Project to Administer Full Employment Cycle for OFWs

Firming up the international thrusts and cooperation to protect and ensure the welfare of vulnerable migrant workers, the Philippines and the United Arab Emirates joined hands in launching a pilot project designed to administer the proper employment of overseas Filipino workers.
Labor and Employment Secretary Marianito D. Roque, and His Excellency Minister of Labour Saqr Ghobash of the UAE, launched the international initiative at the Sofitel Philippine Plaza in Manila, as a sideline event to the ongoing 2nd Global Forum on Migration and Development.
Roque emphasized the significance of the cooperative effort between the countries involved, in partnership with the International Labor Organization, the International Organization for Migration, and the Arab Labour Organization on the initiative dubbed as the “Pilot Project: Administration of Temporary Contractual Employment Cycle from India and the Philippines to the United Arab Emirates."
He cited the active bilateral labor cooperation between the Philippines and the UAE, which holds the distinction as the second top destination of OFWs in the Middle East, after the Kingdom of Saudi Arabia.
Roque cited that the burgeoning economy of the UAE, host to an estimated 304,241 documented overseas Filipinos. There are also some 92 Filipino community organizations and associations in the UAE actively supporting the efforts to boost and ensure the welfare of OFWs.
Roque said the Pilot Project, as conceptualized, will contribute towards the development of a multilateral framework for cooperation among Asian countries of origin and destination based on best practices in the administration of the full temporary contractual employment cycle.
“The Project is designed to address the effective administration of temporary contractual employment in a holistic manner, taking account all phases in the employment cycle from recruitment and pre-deployment of temporary contractual workers; their temporary contractual employment and residency in the host country; their preparation for returning to their country of origin; and their return and reintegration into their home communities.”
Roque added that the DOLE, the UAE Ministry of Labor, and the Ministry for Overseas Indian Affairs of India, as the main actors of the Project, together with the ILO, the IOM, and the ALO as technical advisers, will form the Project Steering Committee, with Labor Undersecretary Rosalinda D. Baldoz sitting as the Philippine focal person.
Importantly, the Labor Chief said the DOLE, together with the UAE-MOL and the MOIA, will create respective “project management teams” locally, while the UAE-MOL, as the proponent of the Project, has commissioned a group of international experts to assist with the formulation of a draft comprehensive regional framework for cooperation based on the results and lessons learned form the project.
Initially, the direct beneficiaries of the Project are a number of temporary overseas contractual workers from the Philippines and India on the construction, hospitality, and healthcare sectors. The Project will run for a period of 24 months starting in November 2008 and ending in 2010.
Roque, in behalf of the Philippine government, expressed appreciation to the UAE, as well as India, the ILO, IOM and ALO, for realizing and putting into effective motion the joint initiative.

'Biotechnology is Key to Food Security'

In the Philippines, 40 percent of our people have experienced the pangs of hunger and more are about to suffer the same unless the government, the private sector, the religious, professionals, the academic community and workers and peasants do something about it.
Higher food prices that have caused so much pain to many nations in the last two years, abetted no doubt by expensive oil, forces the nation to work double-time to increase food production.
Unwieldy population growth and diminishing agricultural lands also conspired to create a regime of high food prices, which are the bane of any concerted effort to mitigate hunger worldwide.
Agriculture Undersecretary Segfredo R. Serrano, who also chairs the Department of Agriculture-Biotech Program Steering Committee, believes that modern farm technologies, particularly biotechnology, are the key to solving the country’s food security program.
“We are utilizing biotechnology safely and responsibly to increase the supply and stability as well as improve the nutritional quality of food in the market,” says Serrano.
There are new biotechnologically enhanced rice varieties that can provide the country with adequate supply of the staple.
Not only that, he adds, improved wagwag has been commercialized to make it tungro-resistant, saline-tolerant and capable of producing yields higher than 5 tons per hectare.
Moreover, the DA official claims, Tubigan 7 (NSIC Rc142) and Tubigan 11 (NSIC Rc154), two strains developed by the Philippine Rice Research Institute (PhilRice) are resistant to bacterial leaf blight. This pest is the bane of Filipino farmers during the wet season.
Tubigan 7 yields 7.4 tons per hectare, nearly double the current national yield. Research and development on drought-tolerant, saline-tolerant, and flood-tolerant rice varieties is also being done as strategic responses to the country’s erratic climatic conditions.
Government scientists are also developing Golden Rice to help curb Vitamin A deficiency among children and pregnant women, arming them with nutrients that battle blindness. The genes of the Golden Rice are being incorporated into local varieties that are resistant to tungro and bacterial blight.
“In attaining food sufficiency, we do have high hopes in biotechnology to make our food production system efficient,” Serrano reveals.
biolife news service

SSS Pays P1.18B for Benefits in Southern Tagalog

SAN PABLO CITY, Laguna - Benefit payments for the Social Security System’s (SSS) members at the Southern Tagalog region totaled P1.18 billion for the first nine months of the year, which was 12 percent higher compared with the P1.05 billion it paid during the same period in 2007, a top official said.
SSS President and Chief Executive Officer Romulo Neri said maternity benefits, which rose by 8 percent from P278.43 million in 2007 to P300.61 million this year, made up the biggest share of the total at 26 percent.
“We urge our members to remit contributions regularly so they could avail of SSS benefits, which help ease their financial burden in times of great need,” he said.
Death claims, which comprised 18 percent of total disbursements for the area, increased by 10 percent to P216.41 million from P197.14 million in 2007. Survivors of members who had paid a minimum of 36 contributions receive monthly pensions, while those with less are entitled to a lump sum benefit.
Neri said the pension fund also paid 19 percent more or P267.81 million for retirement benefits and 8 percent more for funeral claims, which totaled P221.14 million.
Disbursements for sickness claims amounted to P111.09 million, up 15 percent from P96.71 million last year. Disability benefits, which comprised only 5 percent of the total, increased by 27 percent to P60.81 million.
SSS members from the Southern Tagalog region fall under the pension fund’s South Luzon Cluster, which holds its primary office at the SSS San Pablo branch in Laguna.
The institution has over 1.6 million members under its South Luzon Cluster, about 75 percent of which are regular employees. Over 400,000 self-employed members in the region are also registered as SSS members.

Recto Sees Lower Pump Prices, Puts Gasoline at P36/liter, Diesel at P32/liter

Socioeconomic Planning Secretary and NEDA Director General Ralph G. Recto expects another big-time rollback in pump prices of gasoline and diesel as crude oil continues to go down in the world market.
“We welcome the recent price rollbacks undertaken by the oil companies but I join the Department of Energy (DOE) and the new Senate President Juan Ponce Enrile in saying that these are still not enough,” Recto said.
“In our estimate at NEDA, the pump prices of gasoline should now be at PhP35.86 per liter and diesel at PhP31.77 per liter based on Dubai crude oil prices of US$56.00/bbl,” Recto said, adding that these estimates were computed using the exchange rate of PhP49.32 to the US dollar.
Meanwhile, at US$67/bbl of Dubai crude using the same exchange rate, Recto said gasoline should be about PhP40.86 per liter while diesel at about PhP35.22 per liter.
As of November 8, the DOE monitored the average retail price of gasoline at PhP43.96/liter while diesel stood at PhP40.94/liter at an exchange rate of PhP48.54 to the US dollar. “It is important to be mindful of the actions of the oil companies because every peso rollback counts for the ordinary Filipino consumer as this should translate into lower prices of transportation, food and other commodities,” the NEDA chief said.
He noted that the continued drop in prices of oil, food and commodities is beneficial as this lowers inflation. “That’s a positive thing because whether good or bad times, you want lower prices,” Recto said. Moreover, the socioeconomic planning secretary said that fertilizer prices have already gone down by 30 percent in November following the oil price rollback.
“We now see that the Filipino farmers have already started to benefit from the oil price cut. We hope to further ease their burden with lower oil prices,” Recto said.

How RP Can Weather the Crisis

Taken from a paper from the World Bank


Philippine economic performance has decelerated in 2008. Growth in the first
half slowed to 4.6 percent from over 7 percent last year. Higher food and fuel prices have
caused real household income to decline, pushing private consumption growth to its
lowest level in years. Public sector consumption and investment spending were even
weaker, contracting in real terms. Similarly, the services sector also slowed. Growth to
date has been buoyed instead by private investment and non-factor service export on the
demand side and agriculture and manufacturing on the supply side.
Rising inflation has brought significant hardships to the poor. Monthly
headline inflation since June have risen to decade-high levels, and the inflation faced by
the poor is rising even faster given the large share of food in their consumption basket.
The government has responded by postponing its balance budget goal this year to allow
for spending increases in infrastructure, social protection, and subsidies.
In addition, the recent global slowdown arising from the financial turmoil
has also taken its toll on the performance of the external sector, notably through
merchandise exports and foreign investment inflows. Slower growth in partner
countries and higher oil and food prices have bloated the trade deficit. Remittances,
however, have remained robust, and have kept the current account in moderate surplus.
Direct investment inflows have diminished but remain positive so far. Portfolio
investment has been more adversely affected by the financial market turmoil and global
risk aversion. Nonetheless, the overall balance of payments has remained in surplus and
enabled the country to continue to accumulate international reserves.
Despite the twin challenges of slower growth and higher inflation, the
situation is expected to remain manageable. The Philippines is in a better position to
weather the uncertainties brought about by the recent global slowdown and escalating
fuel and food prices given the fiscal and other reforms it has undertaken in the last several
years. With the appropriate fiscal and monetary policies, short-term growth prospects can
be improved while inflationary pressures contained. Nevertheless, a significant slowdown
in the economy is likely, and growth is projected to slow to 4-4.5 percent this year, and 3-
4 percent next year.
It is in this light that the Philippines must consolidate its fiscal position and
improve revenue efficiency so as to limit fiscal risks and increase the quality of
spending. Increasing tax revenues remains the key immediate challenge. Without it, the
budgeted higher infrastructure, social services, and social protection spending may not be
feasible. New tax policies and better tax administration are needed to raise revenues to
more sustainable levels. In the area of tax policy, improving the structure and rates of
tobacco excises and rationalizing fiscal incentives can boost revenues and have social and
economic benefits. Institutionalizing third party data sharing with the BIR and enhancing
tax enforcement activities can have a significant and immediate impact on compliance.
On the expenditure side, improving spending quality and its composition—and in
particular the targeting of the social safety net, and capital spending efficiency—are
Recent Economic Developments
Philippine economic growth has decelerated in 2008. Higher food and fuel prices
have caused real household income to decline, pushing private consumption growth to its
lowest level in years. Public sector consumption and investment spending were even
weaker, contracting in real terms. Rising inflation has brought significant hardships to the
poor. The government has responded by postponing its balance budget goal this year to
allow for increases in infrastructure and social protection spending and subsidies to the
poor. The recent global slowdown has also taken its toll on the performance of the
external sector, notably through merchandise exports and foreign investment inflows.
Despite these challenges, the economy is expected to remain resilient and manageable. In
the short-term, the Philippines is expected to weather the crisis but growth will
nevertheless slow down significantly. In the long-term sustainability of growth remains
dependent on improvements in the investment and governance climate.
Real sector performance
Economic growth decelerated in 2008, after posting the strongest growth in
three decades last year. From 7.2 percent in 2007, GDP growth slid in the first quarter
to 4.7 percent and again in the second quarter to 4.6 percent.1 The slowdown in the
second quarter was rooted in rapidly rising inflation which reduced household real
income, and to some extent last year’s high GDP base due to higher government
spending.2 As oil and food prices soared worldwide, domestic household consumption
grew at a slower rate of 3.4 percent in contrast to its average growth of 5.4 percent in the
previous 21 quarters. Growth in the consumption of almost all commodity groups
weakened and has been most pronounced in food consumption which grew at a much
slower rate of 2.7 percent from 4.9 percent in the first quarter and 6.3 percent last year.
Households also consolidated their spending on fuel, light, and water which dropped by
1.3 percent. Government spending was even slower despite earlier pronouncements by
the administration to pump-prime the economy and increase spending for infrastructure
and social protection, and subsidies to the poor. Public consumption and investment
contracted by 5.9 and 6.4 percent respectively in real terms. Expansionary fiscal policy,
as a means to stimulate the economy, was therefore underutilized and contributed to the
lackluster performance of the economy. In the third quarter, government spending has
picked up, and government reported a higher deficit in the months of August and
Unexpectedly, higher growth of capital formation and exports cushioned
overall growth. Capital formation grew at a respectable rate of 14.7 percent in the
second quarter as private construction and investments in durable equipments held up
well despite the weakening economic environment. Private construction, mainly
residential and office buildings grew by a hefty 25 percent in the second quarter, tracking
higher growth in the real estate sector and lifting first half growth to 21.7 percent. The 4
percent growth in durable equipment spending was driven by investments in vehicles,
mining and construction machineries, and other specialized machineries. Changes in
stocks have turned positive from negative last year and while it has the effect of pulling
up investment growth, it nevertheless reflects the slowdown in economic activity.
Exports of goods and services rebounded in the second quarter, growing by 7.7 percent,
from a slump in the first quarter. As expected, non-factor services, which include the fast
growing business process outsourcing industry, grew by 18.3 percent, driving growth in
external demand (Figure 1).
On the production side, growth was buoyed by better than expected crop
harvest and higher production in the manufacturing sector. Gross value added in
agriculture expanded by 4.9 percent in the second quarter, the highest growth among the
three sectors. Encouraged by higher commodity prices, domestic production of rice, corn,
and banana registered double-digit growths while sugarcane production was
exceptionally strong with a growth of 111 percent. The manufacturing sector
unexpectedly grew at a higher 6.1 percent, the highest in 13 quarters, and was supported
by strong growths in food manufacturing, and to a lesser extent, beverage, basic metals,
chemical and chemical products, and footwear and apparel manufacturing. Productivity,
however, remains low.
The services-led growth story in the last seven years appears to have taken a
backseat. The services sector, which comprises more than half of GDP and employs
more than half of the total workforce, posted its weakest growth in the second quarter—
4.3 percent compared to 4.9 percent in agriculture and 4.8 percent in industry (Figure 2).
Only the real estate and private services sub-sectors, which include the fast growing
business process outsourcing (BPO) industry, posted higher than average growth in the
second quarter. The rest of the services sub-sectors, most notably trade and
transportation, communication, and storage were adversely affected by subdued demand
because of higher prices. The much slower growth of the financial sector at 2.4 percent
deserves some mention, as it has been one of the fastest growing sub-sectors in the last
five years—with double-digit growth in 13 out of 18 quarters. The decline in financial
sector profits, in particular treasury earnings, has begun to eat up the gains posted in the
previous quarters given higher risk aversion and tightening of global credit markets.
The slowdown in the economy has begun to affect the labor market. Although
the rate of unemployment improved in the first three quarters of 2008 to 7.6 percent—
slightly lower than last year’s 7.7 percent—the bulk of the improvement is traced to the
contraction in the labor force participation rate, from 64.3 to 63.3 percent, and the
increase in the number of unpaid family workers, which comprised 11.2 percent of total
employment and is prevalent in agriculture and private households. Moreover, the high
value-added manufacturing sector shed some 130,000 jobs. The good news, however, is
the underemployment rate improved to 19.9 percent from 20.8 percent last year.
Inflation and monetary conditions
After a period of falling inflation in the last three years, rapidly accelerating
inflation resurfaced this year. Higher food and oil prices were initially muted by the
strong peso which appreciated by nearly 20 percent in 2006-07. In early 2008, inflation
breached the central bank’s 4-5 percent target as world food and oil prices surged.
Inflation continued to escalate, reaching double digit levels by June. In August, inflation
reached a peak of 12.5 percent before falling in September to 11.9 percent, bringing yearto-
date inflation to 9.2 percent (Figure 3).
The decade-high inflation is primarily traced to escalating food prices. Food
comprises about half of the CPI basket and thus has a strong impact on headline inflation.
Food prices have increased at double digit rates since April, triggered primarily by the
steep increase in the international price of rice. The government’s now-abandoned
practice of announcing large tenders of rice imports may have also contributed to the
spike in the international price of rice. At the local level, there were reports of domestic
rice hoarding and speculative pricing by traders, more prevalent in areas outside the
National Capital Region, which have contributed to higher retail prices. At its peak, rice
price increases reached 50 percent in July before descending to 45 percent in August and
37 percent in September.
At the same time, fuel prices, especially diesel oil, increased sharply in the
second quarter and have brought significant hardship to the transport sector and
commuters. To mitigate the rise in fuel prices, the government gradually removed the
tariff rate on oil and asked oil companies to cross-subsidize diesel oil, which is the
dominant fuel used by public transport. An increasing number of public vehicles have
converted to the cheaper liquefied petroleum gas (LPG). Buses powered by compressed
natural gas (CNG) have also begun service. Falling fuel prices since the beginning of
September has offered some relief and enabled the government to resume levying the
tariff on imported fuel in October.
As inflationary pressures mounted, core inflation has doubled since the start
of the year. Without respite from the rising prices of basic commodities, prices of other
goods have also risen rapidly, pushing up core inflation from less than 3 percent in 2007
to 7.5 percent in September 2008. In an effort to control spillovers, the central bank
increased policy rates thrice since June (see discussion below).
In line with the rising consumer price index, nominal wages have increased.
As of June, all 17 regions have been granted wage hikes by the regional boards of the
National Wages and Productivity Commission. The increases in the regional minimum
wages, however, have been less than the increases in regional year-to-date inflation,
resulting in a decline in the minimum wage rate in real terms. For instance, the National
Capital Region (NCR) was granted a 6 percent increase in June, but this was lower than
the September year-to-date inflation of 7.2 percent. And since minimum wages cannot be
increased more than once in a year (barring exceptional circumstances), higher inflation
in the succeeding months, averaging close to 9 percent between June and September, has
further eroded real wages.
Production costs have also picked up. Growth in the producer price index (PPI)
of the manufacturing sector had remained almost flat in the first four months of the year
but rising input prices on the international market and rising nominal wages have filtered
into the production sector, giving rise to higher PPI inflation beginning May. From less
than 1 percent between January and April this year, PPI inflation jumped to 5.8 percent
year-on-year in July and August. In particular, manufacturers of food, petroleum
products, basic metals, iron and steel, and non-ferrous metals had to grapple with fastrising
production costs. Similarly, the construction materials wholesale price index
started to pick up in April (Figure 4). The August year-to-date construction wholesale
price inflation in NCR reached 12.7 percent compared to an average of 4.4 percent in
2007 as the prices of fuels, lubricants, and steel increased.
With inflation breaching the central bank’s original and revised targets,
policy rates were hiked to contain inflation. From a relaxed monetary stance last year
to mitigate the expected slowdown in growth following the onset of the subprime crisis,
the Monetary Board hiked the 7 percent policy rate by 25 basis points on June 5, 2008
after seeing the May inflation of 9.5 percent, a nine-year high. The hike in policy rate was
initially modest given expectations that upside inflationary risks would be tempered by
the global economic slowdown. However, further increases in the inflation rate in the
succeeding months prompted a second hike in policy rates by 50 basis points on July 17
and another 25 basis points on August 28. In October, the Monetary Board left key policy
rates unchanged after considering the improved inflation outlook and developments in the
global financial market.
Monetary growth has slowed in 2008. Growth in M3 (broad money) slowed to
9.8 percent in August from 11 percent in 2007 and over 23 percent in 2006. The
authorities had used various tools since 2006 such as special deposit accounts to mop up
excess liquidity. At the same time, banks have been encouraged to lend more and reduce
their holdings of government securities. In addition, the government has cut down on the
issuance of securities following improvements in its fiscal position. Also, holding of
government securities will eventually have higher risk weights under Basel II. Relatively
low lending rates, despite the hike in policy rates, have also helped increase lending
activity. Growth in loans outstanding of universal and commercial banks (net of RRPs3)
rose gradually in the last 12 months, reaching 22.1 percent in June with significant
increases in both commercial and consumer lending. Lending to utilities, trade, and the
transportation, communications and storage sectors comprises 60 percent of new
commercial net lending in the year ending August while credit card loans comprised 80
percent of the increase in consumer lending. The rapid growth in credit gives some
reason for concern, as credit growth during a period of economic slowdown could lead to
higher defaults in the future.
Fiscal performance
Tax effort, which fell below expectations in 2007, improved significantly in
the first half of 2008. The VAT reform had boosted tax effort to 14.3 percent of GDP in
2006 from 13 percent in 2005. Weaker tax administration and macroeconomic
developments such as a stronger currency, however, pushed back tax effort to 14 percent
of GDP in 2007 and cast some doubt on the sustainability of the government’s fiscal
program. In late 2007, both the Bureau of Internal Revenue (BIR) and the Bureau of
Customs (BOC) began to focus on the reforms in addition to meeting monthly collection
targets. These reforms included scaling up the use of third party information to detect tax
evaders and non-registrants, and the control of smuggling, in particular petroleum and
cars. As a result, tax effort improved in the first quarter of 2008, and continued to
improve in the second quarter, although higher prices, notably for oil appear to have been
the main driver of the second quarter results. Tax effort in the first half is estimated at
14.6 percent of GDP from 13.8 percent a year ago.
At the same time, government spending was lower than planned, and helped
keep the deficit in check. The late passage of the budget as late as April, low absorptive
capacity of several agencies, and the pending rationalization plan, which generally
prohibits the hiring of new staff all contributed to the slow growth in government
spending.4 In the first half, primary spending grew by 6 percent while interest payment
grew by 8.7 percent given higher borrowing spreads and interest rates. Total spending
grew by only 6.7 percent versus a tax revenue growth of 18.5 percent. Consequently, the
deficit in the first half was well contained at P18 billion and was equivalent to less than
0.2 percent of estimated GDP for the whole year.
The hike in food and fuel prices and slower growth has prompted the
government to increase spending. In May 2008, the government announced that it was
prepared to provide as much as P93.6 billion (1.3 percent of GDP) in additional spending
to help the poor cope with rising fuel and food prices. The additional spending for
infrastructure, subsidies, and social protection are to be financed by higher tax revenues
and new borrowings. Of the P93.6 billion in additional spending, P18.6 billion is
expected to be sourced from ‘windfall’ revenues from the VAT on oil, which as of July
amounted to about P9.2 billion. The remaining P75 billion which is equivalent to 1
percent of GDP would be sourced from additional borrowings. A portion of the new
borrowing requirements was financed from the July retail treasury bond offer, which
amounted to P70 billion (0.9 percent of GDP). The remaining balance of $500 to $750
million is expected to be sourced from a combination of official development assistance
and bond offering. Earlier in the year, the government raised $500 million in ROP bonds
which completed its external borrowing requirements net of ODA under the original
balance budget framework.
The latest fiscal accounts have begun to show higher overall spending.
Consistent with the government’s plan to increase spending, primary spending grew by
21 percent in the third quarter (Figure 5). Tax revenues, however, grew at a much slower
pace of about 10.6 percent given lower collections by the BIR (Figure 6). Collections
from the BOC, however, remain strong, aided in part by higher oil prices. Lower than
programmed tax revenues are expected in the second half from the implementation of
Republic Act (RA) 9504 which increases personal and additional exemptions of
individual taxpayers and exempts minimum wage earners from the personal income tax.
With total revenue growth easing to 2.6 percent in the absence of new privatization
receipts, P35.3 billion was added to first half deficit, bringing the September year-to-date
deficit to P53.4 billion or P18.3 billion higher than program (0.7 percent of full year
GDP). Privatization receipts for the year are estimated between 0.2 and 0.4 percent of
But disbursements on short-term mitigating measures have been slow so far.
Of the P18 billion allocated to social protection and subsidies from the “Katas ng VAT”
program, only about P4 billion has been released for the following projects: 1) P2 billion
in cash transfers to electricity lifeline users (i.e. consumers of less than 100 kwh of
electricity per month); 2) P1 billion in scholarship grants and interest-free loans to poor
students; and 3) P1 billion for demand-side management programs such as the conversion
into energy-efficient light bulbs and provision of low interest loans to jeepney drivers
who wish to convert their engines into the cheaper and more environment-friendly LPGfired
engines. Two other tranches of P4 billion each to be spent on subsidies for small
power users, rehabilitation of infrastructure affected by typhoon, livelihood and loans to
families of transport operators, cash assistance to senior citizens not covered by pension,
upgrade of provincial hospitals, and financial assistance to small farmers, have yet to be
released in full.
External sector performance
Though clearly hit by the global slowdown, the external sector remained
resilient. In the first half of 2008, a BOP surplus of $1.9 billion was recorded. The
current account also remained in surplus at 2 percent of GDP. Although the trade deficit
was much higher at about 6.9 percent of GDP, rapid growth of remittances kept the
current account balance in check. The capital and financial accounts maintained a
respectable surplus despite net outflows of portfolio investment following the increase in
market volatility.
Foreign trade performance has been hit by the global slowdown and rising
prices. The first half trade deficit ballooned to $6.4 billion from $3.2 billion in the same
period last year. Nominal imports, in dollar terms, expanded at a fast rate of 15.5 percent
in the first half, with significant contributions from oil, cereals, fertilizers, and iron and
steel imports. The increase in cereal imports reflects the rapid inflation of food prices and
the government’s move to stock up more rice in view of the food crisis felt earlier this
year. Demand for fertilizers was also propped up by the government’s intensified support
to the agriculture sector through the FIELDS program, which provides for bigger
fertilizer subsidy to farmers. Higher demand for office and residential buildings has
continued to push up iron and steel imports, although the large increases in international
prices posed concerns for the construction and real estate industries going forward.
Consistent with the experience of other countries, export growth in the first half
moderated to 4.1 percent from 7.1 percent last year. While preliminary export data for
July-August indicate an uptick from 1 percent last year to 5.4 percent, the country’s top
export, electronics, remained sluggish as demand for high tech products fell worldwide
and as competition intensified among global manufacturers of semiconductors, reflecting
falling Philippine export productivity. Export of garments also dropped with increasing
competition from other low-cost manufacturers after the US lifted the quota. The
depreciation of the peso by about 18 percent between January and October this year has
been a relief to exporters and has helped bigger exporters cope with falling demand but
has yet to encourage smaller exporters that have closed shop last year to reopen.
Inflow of remittances remains strong although the pace of growth has
slowed. Notwithstanding the global economic slowdown, the country continues to deploy
overseas workers at astonishing speed. In the first eight months of the year, deployment
rose by 26.4 percent to more than 884,000 as demand persists, especially in sectors like
education and health. Moreover, the destination of overseas workers has become more
diversified. Recent bilateral talks with host countries have also opened up new
employment opportunities abroad for Filipinos. The rapid growth of overseas Filipinos
and the huge amount of remittances they send back has encouraged more local banks to
expand their international presence. These expansions have also brought more overseas
Filipinos into contact with various financial products, thereby increasing the share of
remittances channeled to investments. It is estimated that about 30 percent of remittances
are now being invested in housing.5 Against this backdrop, the central bank recorded the
highest monthly inflow of remittances in June, $1.5 billion or 30 percent higher than last
year. However, in the succeeding months remittances started to register slower growth,
from 24 percent in July to 10 percent in August. This brings the August year-to-date
inflows to $10.9 billion or 17.2 percent higher relative to the level a year ago.
Total capital inflows remain solid even as foreign investors turned cautious.
Net direct investment in the first half stood at $742 million and is much higher than the
$1.4 billion in net outflows recorded in the same period last year.6 Although net inflows
were higher, direct investments by non-residents declined by 57.9 percent to $813 million
from $1.9 billion in the same period last year. The decline was even more pronounced in
July as direct investment inflow dropped by 70 percent. Net placement of equity capital
accounted for about 94 percent of total net inflows in January-July. Several sectors, such
as financial intermediation, hotels and restaurants, real estate, and construction appear
more upbeat with greater net equity investment inflows this year compared to last year,
although the sustainability of their growth is doubtful. Portfolio investment was more
adversely affected by continuing risk aversion, recording a net outflow of $520 million in
the first nine months, a trifle compared to $3.4 billion in net inflows last year. Placements
in the stock market, peso denominated government securities, and money market
instruments were offset by higher outflows from peso bank deposits amounting to $2.3
billion. The other investment account turned positive in the first half to $643 million from
a deficit of $632 million last year as residents pulled out their investments abroad.
The BOP surplus has contributed to a higher reserve position. Gross
international reserves rose to $36.7 billion in June from $33.8 billion in end 2007. In
July, reserves had inched up to $36.9 billion before falling back to $36.7 billion in
August and September following some devaluation in gold reserves, the peso defense
notwithstanding. The latest GIR level can cover 5.8 months of imports of goods and
payments of services, and income and is also equivalent to 4 times the country’s shortterm
external debt.
Financial markets
Domestic financial markets have been resilient despite the turbulence in the
international financial markets. With the exception of a handful of banks, the banking
system as a whole was mildly affected by the financial turmoil. At any rate, the
Philippine banking system remained adequately capitalized as of June 2008 with a capital
adequacy ratio (CAR) of 15.5 percent on a consolidated basis.7 Total assets increased to
over P5 trillion with a notable increase in cash—seen as a buffer to market volatility.
Investments, however, declined with lower investments in government securities because
of lower issuance of government bonds and the higher risk weights that below investment
grade foreign currency denominated government securities will carry under Basel II.
Non-performing loans have fallen to below 5 percent in end-2007 and continue to drop
towards its pre-crisis level of about 3 percent.
The impact of the global financial turmoil on the Philippines has been seen
mainly in the decline in stock market and asset prices, a rise in the spreads on its
international bonds, and some depreciation of the peso. Following the strong
appreciation of the peso in 2007, the currency depreciated by about 18 percent year to
date against the US dollar. However, the depreciation masks some of the pressures on the
exchange rate as the authorities have also been intervening in the foreign exchange
markets—notably in the swap markets—to support the peso. Stock market prices have
declined by 45 percent since the end of 2007; a decline that is comparable to other East
Asian economies. The October auction of the benchmark T-bill saw rates jump by 150
basis points from the last auction in July (the July auction saw a 200 basis points increase
in rates). Borrowing spreads, which had fallen below 200 basis points last year, jumped
to over 800 basis points in October.
As in other countries in the region, the Philippines has implemented
measures to deal the pressures in the domestic financial markets. In particular, the
Philippines has approved a circuit breaker rule to halt trading in the stock market if the
benchmark index drops by 10 percent from the previous day and is considering
quadrupling the deposit insurance threshold combined with a capital injection (of P45
billion) into the deposit guarantee fund. On its part, the central bank has allowed a change
in accounting rules to enable banks to avoid mark-to-market losses on their government
bond holdings, eased its rules on the 100 percent asset cover of bank’s foreign currency
deposit units, and opened an inter-bank dollar-denominated borrowing and lending
facility to manage liquidity constraints of banks. The Bankers Association of the
Philippines has also come out with self-restraining measures to help the central bank
manage the shock to the domestic financial system.
For emerging markets like the Philippines, there are several potential
channels of vulnerability through which they could be affected by the current
turbulence in the global financial markets: a) Direct exposure to sub-prime related
distressed credit products of the US and Europe, or to other structured credit and other
related derivatives, or direct exposure to troubled US or European banks; b) Exposure to
increased investor risk aversion leading foreign investors to move to cash and safer fixed
income positions. Countries that are especially vulnerable include those with: high
external debt burdens, high foreign participation in local debt and equity markets and
more generally large current account deficits; c) Fundamental factors associated with
external financing needs—whether reflecting sovereigns with large and rising external
financing needs, banks with large (short-term) external funding needs or corporations
reliant on external funding for refinancing debt coming due or to fund planned growth
and possible repercussions on the domestic economy arising from these; d) Exposure to a
slowdown in global economic growth—developing countries with high-income country
trade orientation and or reliance on workers’ remittances inflows are particularly

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