Books on The Philippines
Philippine peso (PHP)
Update No: 009 - (01/10/04)
She was thoughtful and grave - but the orders she gave
Were enough to bewilder her crew.
When she cried "Steer to starboard but keep her head larboard!"
What on earth was the helmsman to do!
As we noted last month, the incoming government of President
Macapagal-Arroyo has correctly identified the twin problems of fiscal deficit
and burgeoning public debt as the most urgent issues requiring the attention of
government. Yet while it has recognized the daunting problem it faces in
restoring the country to economic health, it has not so far articulated a clear
road-map as to how it is going to reach its goal; at least not a road map on
which there is a clear consensus.
While the government is to be commended for keeping intact its economic team, it
has lost a number of key players through resignation and/or replacement and some
new appointments are puzzling to say the least. Vacillation again seems to be
the order of the day with too many decisions reflecting a need to appease rather
than define a clear path with decisive leadership. The administration, Congress,
the business community and, at time, the legislature - which holds dear the
concept of the right of judicial review - all appear to have different ideas as
to what is best for the country.
In recent days we have seen Fitch Ratings come out with fresh mutterings about a
possible downgrade of the sovereign debt rating for the Philippines unless those
in control of the country can start to pull in the same direction. Next has come
the Asian Development Bank with its revised Country Outlook for the period to
the end of 2005 with similar warnings that the global environment would not get
any more hospitable than it is right now. The bank also warned that the
Philippines is wasting precious time in getting its act together.
In the second half of September we have seen the exit from government and from
government corporations of some key people - and people who are highly regarded
in business circles. We have seen the appointment of a 77-year-old former movie
actor and lacklustre congressman to a key government position as head of the
Public Estates Authority and we have seen a leading light in a Catholic
charismatic movement who is better known for his skills as a pianist rather than
anything else placed in charge of a major transportation agency.
True, a number of good people who were active in government before the election
have had their portfolios confirmed subsequently - especially those on the
economic team and that has to be good news. But other appointments are making
many people wonder out loud whether the president is still campaigning? She does
not need to do so. The election is over and she won handsomely. The opposition
is in disarray. So why the need to dispense favours? Where is the bold action we
were expecting to see from a president who trounced her opposition so decisively
in the election?
Many are starting to fear that the Philippines can say goodbye to any thought
that this government was going to build a meritocracy. Actions and words seem at
times to be poles apart. Reconciliation appears to be the order of the day. That
is fine, and an admirable Filipino trait but too often, reconciliation appears
to be synonymous with appeasement. We have seen the President of the country
rush to defend the leaders of the Oakwood mutiny following a rather disingenuous
apology for their actions last year - an apology which left a number of people
perplexed as to their motive but which one official commended for their
"360 degree turn." Well, we are still working that one out (think
Health Secretary Manuel Dayrit came out reaffirming that the Department of
Health has no intention of touching the P100 million (£970,000) allocated for
condoms or other contraceptives and has chosen "to abdicate its role [in
family planning] to the private sector and local government units." Figure
that one too out if you can! Since 2001, the Health Department has received
allocations totaling no less than Php800 million (£7.8 million) for
contraceptives and has not spent a penny of it. Instead, according to some
reports, the money has gone to a private Catholic organisation devoted to
building "family values". So much for the separation of church and
state and, yes right, let the local government units handle population issues
but don't give them any budget for it. Leading luminaries of the Catholic Church
have come out yet again defending both Mr. Dayrit and the high population growth
rate in the Philippines by saying that it was not population growth that was the
cause of poverty in the Philippines but economic mismanagement. Tell that to the
millions born in this country each year without a fighting chance at a decent
That statement was not surprising, but left many people breathless if not
agitated. Make no mistake about it; poverty is on the increase in this country!
According to studies at the Asian Institute of Management and supported by AC
Nielsen, back in the nineteen seventies the middle class ("C" class in
marketing terminology) accounted for 29 percent of the population while the poor
("D" and "E" classes) made up 60 percent of the total. In
the more recent studies undertaken, the poor now comprise 90 percent of the
community. Studies by MasterCard International confirm that the Philippines is
growing its middle class at one of the slowest rates in Asia - less than 2
percent per year. Indeed, with a reversal of government policy on contraceptive
and reproductive health planning, in all likelihood the assumed 2.36 percent
population growth rate that is the basis of current projections may turn out yet
to be an under-estimate.
We are not done yet. With the problems of the National Power Corporation
threatening to bring the national debt burden to breaking point, the government
is intend to sell of the major portion of the company's generating and
transmission assets by the end of next year. As a first step it is all set to
raffle of the Masinloc Power Plant - one of the jewels in the Napocor crown -
next month and is looking for further foreign investment into the country's
power sector. What do we see? Should any foreign power corporation win the bid,
the terms of bidding for Masinloc have been set to allow any Filipino company to
match the winning bid of a foreign company and automatically gain the contract.
Filipino companies, it seems, can sit on their hands and do nothing, let
foreigners do all the due diligence and then come in and scoop the pool. For a
country that is crying out for foreign investment, what signal does that send?
By the government's own yardstick, at current rates of growth, the Philippines
needs to achieve a seven percent increase in GDP annually to make any
significant inroad into the poverty trap. This will require new investment of
the order of Php400 billion a year or 8 percent of GDP (other growth drivers
remaining unchanged). The Philippines cannot hope to raise this sort of
investment capital internally and will be reliant for much of it from the
international business community. Even if it derives 50 percent of this amount
from the domestic market it will still need to attract around $3.6 billion a
To put these figures into context: This past week San Miguel Corporation, one of
the major local companies tracked by international investors, has announced
plans to invest Php15 billion over the next two years - Php7.5 billion a year.
San Miguel is one of the largest companies in the Philippines and this will be
its largest single investment in its 114-year history. Yet this investment
represents less than 2 percent of what is needed. Even if there were 52 such
companies making one such investment a week for the next several years, even
still the target would not be met.
What are the other drivers of growth? Well for a start there is external trade
which, if lucky, may see export growth at around 10 percent this year. For the
Asian region as a whole merchandise exports are projected to rise by 18 percent
this year, so while the figure for the Philippines looks impressive if compared
to past performance, when compared against its neighbours, the figure is a
In such circumstances, one might expect that all stops would be pulled out to
avert the catastrophe that appears to be well above the horizon and which
threatens to overwhelm the country within the next two to three years. No, this
country is not Argentina but it is the Philippines and if the poor get any
poorer then who knows what might happen? Instead of dealing with the issues in
serious fashion, governance appears to be once again playing to the masses
instead of single-mindedly getting on with the job. While the government is
doing plenty that is right, the danger is that the good will be lost in the
Government raises the growth target for 2004
The government now believes that economic growth this year will be even
higher than its earlier forecast of a range between 4.9 and 5.8 percent. Instead
it is punting on an outcome of around 6.1 percent for the year as a whole.
The upbeat forecast was given last week by Socioeconomic Planning Secretary
Romulo L. Neri, who said that the stronger than expected growth in the first
half year would likely continue into the second half even with the slowdown in
government spending. But while the government has raised its growth target, it
has also conceded that higher oil prices remain a major problem. The government
expects three major sectors - services, industry and agriculture - to provide
the engines of growth.
"Jobless growth" is how some have described it. Private analysts have
pointed out that recent strong growth performance has been influenced by
non-recurring factors such as the opening of the Malampaya gas field in 2003,
which provided a one-time boost to the mining and industry sectors. Despite
this, the construction sector, usually taken a benchmark industry for
determining growth quality, fell by 8.5 percent last year.
In the second quarter of this year the services sector contributed 3.2 percent
to the total of 5.8 percent - or 55 percent. This was dominated by the
communications sub-sector, which accounted for 16 percent of total services. The
surge in SMS and multimedia texting services contributed a full half a
percentage point to the overall growth figure for that quarter. Similarly,
growth in the first half year was boosted by new construction work, which posted
a 13.7 percent increase in the second quarter, and which is generally regarded
as being election-related spending since the surge came from the public sector.
Whether such activity can be continued into the second half of the year is
doubtful. Motor vehicle purchases - another indicator of consumer's willingness
to spend - are also falling.
Government debt reaches PhP5.9 trillion
With all the seemingly endless debate as to the correct course of action to
follow to solve the country's fiscal crisis, legislators still seem to be
looking for a painless solution when there is of course none to be had.
Questions have now arisen as to whether the Congress will be able to approve the
government's 2005 budget or whether, as happened last year, the government will
have to re-enact the current (2004) budget. At one point this appeared a
possible outcome because of a failure by the administration to provide a proper
accounting of the financial position of government including its contingent
liabilities. Although Congress has now gone on a one-month recess, the
Appropriations Committee will continue working in the interim. This outcome was
made possible following submission of a preliminary inventory of the contingent
liabilities of government by the Department of Finance.
In making a statement in response to the request of the Committee in late
September, Finance Undersecretary Laura Pascua quantified the problem facing the
government. She said that as of end-2003, the combined debts of the national
government and the public sector stood at Php5.9 trillion (US$102 billion at
current rates of exchange) while contingent liabilities of government amounted
to Php1.093 trillion of which about half is "almost certain" to become
actual debt of the national government. This figure could go even higher if the
government guarantees on Napocor contracts and obligations to independent power
producers are included in the total.
It appears that no single government agency holds a record of all outstanding
liabilities and that there is no "early warning system" in place to
consider - and head off - impending defaults. By best estimates of the
Department of Finance, the figure of Php5.9 trillion represents a best estimate
of total outstanding public sector debt as of end 2003 of which Php4 trillion is
debt of the national government and the balance is debt of the government
agencies. Total contingent liabilities could range from Php2.3 trillion to a
high of Php3.1 trillion.
The figure of Php1.093 trillion in known liabilities includes reported
contingent liabilities of the (national) government-owned corporations and
government financial institutions, guaranty institutions and proponents of BOT
projects. The figure excludes a total of Php112.77 billion in national
government loans that have been re-lent to government agencies as these debts
remain with the agency concerned until such time as they become defaulters.
The highest contingent liabilities are those of the National Power Corporation
($7.569 billion), the Development Bank of the Philippines ($2.158 billion), Land
Bank of the Philippines (Php687 million), National Food Authority ($449 million)
and the Metropolitan Waterworks and Sewerage System ($242 million).
Guaranty institutions that have contracted the major portion of the
PhP51.5-billion contingent liability include the Home Guaranty Corporation
(PhP43.27 billion), Trade and Investment Development Corporation (PhP7.745
billion) and Quedan and Rural Credit Guarantee Corp. (PhP488 million).
Local interest rates maintained
Despite the actions of the US Federal Reserve which in the second half of
September increased its benchmark federal funds rate by 25 basis points to 1.75
percent, the Central Bank of the Philippineshas decided to maintain local rates
at their current levels for the time being.
The central bank has not touched its benchmark rates since a cut of 25 basis
points in July 2003 that matched a similar move by the Federal Reserve. The
local central bank overnight borrowing rate is currently 6.75 percent and its
lending rate is 9 percent. The bank's last policy move was in February this
year, when it increased liquidity reserves of local lenders to 10 percent from 8
percent to protect the peso.
As of 28 September 2004, the exchange rate of the peso to the US dollar had
fallen to 56.450 - an all time low against the dollar Against the British Pound
the rate stood at 102.0843 and against the Euro the rate was 69.3765. The fall
was, in large measure, due to reports that the price of crude-oil futures on the
NYLEX market slid below $48 a barrel for the first time.
With fresh reports that at the start of trading in New York during the final
week of September, crude-oil futures hit $49.74 a barrel and with U.S.
commercial oil inventories well below the levels of last year, there is every
expectation that the price of oil may rise above the $50 per barrel mark in the
near future. This will undoubtedly place further pressure on the peso and market
analysts now see a possibility of the peso falling below the 57.0 level before
the end of the year.
Toyota top ranked for dealer service
Toyota ranks highest in customer satisfaction with automotive dealer service
in the Philippines, according to the JD Power Asia Pacific 2004 Philippines
Customer Satisfaction Index (CSI) study.
The annual study, now in its fourth year, identifies seven factors that measure
customer satisfaction with dealership service in the Philippines. In order of
importance, they are: problems experienced, service quality, user-friendly
service, service delivery, service advisor, service initiation, and in-service
Toyota moves up one position to rank highest in 2004, with an index score of 828
out of a maximum of 1,000 points. Toyota posts industry-leading scores on
service delivery, user-friendly service and problems experienced, which together
account for more than 50% overall satisfaction.
Honda follows Toyota in the ranking with a CSI score of 826 points and leads the
industry on in-service experience and service quality.
With a CSI score of 821, Nissan improves six index points over 2003 to rank
third, and is the only make to record a year-over-year improvement. Nissan's
improved performance stems from industry-best performances on the initial stages
of dealer service: service initiation and service advisor.
The industry average score declines by six index points over 2003 - dropping
from 826 to 820. This decline is the result of lower satisfaction levels with
six out of the seven factors.
Service initiation is the only factor to post an improvement (+21 points over
2003), indicating that customers are more satisfied with the dealer's ability to
schedule service visits and their promptness in initiating the service process.
This study finds that the percentage of customers who report the time taken to
service their vehicles as better than expected declines 6% against 2003,
reflecting higher customer expectations on the time to service the vehicle.
Customers who report better than expected service times record CSI scores 53
points above the industry average. In contrast, customers who report worse than
expected service times record CSI scores 119 points below average.
"Vehicle owners in the Philippines are becoming increasingly
time-sensitive, thus it is imperative that dealers manage the service visit in
the most efficient and time-effective manner," a JD Power spokesman said.
The study also reveals that about one in five customers (18%) defect to
aftermarket facilities. Although the key reason for defection is price, dealers
can minimise defection rates by providing a service experience that exceeds
their customers' expectations. Only 12% of the most satisfied customers (CSI
scores higher than 900 points) defect to aftermarket facilities. In contrast,
more than double (25%) the most dissatisfied customers (CSI scores below 760)
defect to aftermarket facilities.
The 2004 Philippines study is based on evaluations from more than 1,200 new
vehicle owners surveyed at 12 to 18 months of ownership and includes customers
who purchased their personal use passenger cars and light trucks between October
2002 and June 2003.
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