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From the Front Page: Trade deficit, halted inflation, ease of business

The BSP voted to keep benchmark interest rates unchanged on Thursday, keeping the range at a nine-year-high 4.25% to 5.25%. Inflation is expected to trek a “lower path” over the next two years, prompting the BSP to steady benchmark rates. BSP Assistant Governor Dakila projects inflation to dip below four percent by the end of Q1 2019.
This decision comes after five consecutive tightening moves by the monetary board, bringing inflation up a total of 175 basis points. Analysts attribute the deceleration to price pressures from food and oil “finally dissipating”. After 10 straight months of accelerating, headline inflation has taken a turn and is likely to head back to target by next year,” said BPI lead economist Emilio S. Neri, Jr.
Meanwhile, Congress adjourned this week for its Dec. 15 to Jan. 13 holiday break, putting discussions on the second tax reform package on hold. While talks will resume come Jan. 14, the Finance Department fears the looming midterm elections may distract from the Senate Ways and Means committee discussions on cutting corporate income tax rates and fiscal incentives.
Preliminary data from the Philippines Statistics Authority showed October trade at a $4.212 billion deficit, a new record high, up from September’s $3.723 billion and October 2017’s $2.585 billion. Cumulatively, the balance of trade yielded a $33.918-billion deficit, bigger than the $20.128-billion gap recorded in last year’s comparable 10 months.
The Trade Department leads a host of state agencies calling for the repeal or amendment of a suite of laws, in a bid to further ease the burden on small businesses and to improve public services. These include the Bulk Sales Law (made obsolete by technological developments) and the Bonded Warehouse Act (made redundant by new government measures to ensure food sufficiency and stable prices).

Wider trade gap seen in 2018, 2019 — BSP

By Melissa Luz T. Lopez, Senior Reporter
THE central bank expects external trade to balloon to a wider deficit this year and in 2019 as imports are seen to surge faster and as global growth tapers off.
The Bangko Sentral ng Pilipinas (BSP) published their latest balance of payments (BoP) projections on Friday, where they expect a bigger trade gap to persist alongside increased investment inflows.
The BoP measures the country’s transactions with the rest of the world at a given time. A deficit means more funds fled the economy than what went in, while a surplus shows that more money entered the Philippines.
The central bank now expects a $5.5-billion BoP deficit this year, more than triple the $1.5-billion forecast given back in May. The BoP tally now stands at a $5.594 billion deficit as of end-October.
This will also surge from a $900-million shortfall posted in 2017, equivalent to 0.3% of gross domestic product.
The BoP deficit will narrow to $3.5 billion in 2019, according to Dennis D. Lapid, director of BSP’s Department of Economic Research.
“One of the key developments that has happened since May is that… we were hearing a lot of trade tensions. Some of those trade tensions have materialized,” Mr. Lapid said during a press briefing.
“We’re also seeing global growth and global trade activity for goods and services, that has had a dampening effect.”
IMPORTS SURGING
Driving the wider gap in external payments is a growing trade deficit, with the current account expected to expand to a $6.4-billion shortfall in 2018, representing a steadily rising import bill.
The latest forecasts show that imports will grow by another 10% this year from an 18% increase in 2017. In contrast, exports will remain in a slump and pick up by just 1%, following a 21.4% jump posted last year.
These imports reflect additional raw material and capital goods, which are seen to support domestic economic activity.
The trade gap will account for 1.9% of GDP, the widest since 2001.
The current account — which measures fund flows drawn from goods and services trading — will broaden further to an $8.4 billion shortfall next year and will account for 2.3% of GDP, also the biggest share in 17 years.
However, Assistant Governor Francisco G. Dakila, Jr. said that these figures are not directly comparable given the different states of the economy.
“We’re not seeing any widening of the current account to unsustainable levels,” Mr. Dakila said. “Looking forward, we’ve already seen a normalization in prices of oil, so this is going to moderate the imports of mineral fuels.”
The current account is now at a $6.47 billion deficit from January-September.
The Philippines has been seeing current account surpluses until a reversal in 2015, although authorities said this simply reflected increased domestic economic activity given heavy importations for the local infrastructure drive.
By 2019, the central bank sees a better exports picture as growth is seen to pick up by 10%, together with an 11% growth in imports.
DOLLAR INFLOWS
The central bank also expects more foreign direct investments (FDI) to enter the Philippines, helping offset softer increases in service inflows.
Cash remittances are expected to grow by 3% this year and in 2019, softer than a 4% increase initially expected.
Travel receipts are seen to grow faster at 13% until next year, up from 10% previously. On the other hand, business process outsourcing revenues will soften to an 8% increase from an earlier 10% estimate.
FDIs are seen to post a banner year at $10.4 billion this year from $10.1 billion in 2017. This will be followed by $10.2 billion in 2019.

Water rates to go up in January

By Arra B. Francia, Reporter
CUSTOMERS served by Metro Manila’s two water concessionaires will notice a slight increase in their bills starting Jan. 1, after the Metropolitan Waterworks and Sewerage System (MWSS) approved rate adjustments based on inflation and the movement of the peso against the US dollar.
MWSS Chief Regulator Patrick Lester N. Ty said on Friday that its board of trustees has approved a net upward adjustment of 64 centavos per cubic meter (cu.m.) for east zone concessionaire Manila Water Company, Inc., and a P1.48 per cu.m. hike for west zone concessionaire Maynilad Water Services, Inc.
“(These adjustments) were approved by the board of trustees yesterday (Thursday night) and will be published on Dec. 16 and to be effective Jan. 1, 2019,” Mr. Ty said in a press conference in Quezon City on Friday. MWSS reviews water rates every quarter.
Manila Water takes into account an upward of adjustment of P1.54 per cu.m for inflation, and a decrease of 90 centavos for foreign currency differential adjustment (FCDA).
This indicates a P3.34 increase in the water bills of customers with a monthly billed volume of 10 cu.m. or less; P7.39 for those with 20 cu.m., and P15.01 for those with 30 cu.m.
Meanwhile, the increase for Maynilad is based on a P1.95 per cu.m. increase due to inflation, tempered by 47-centavo decrease for FCDA.
Customers with a monthly billed volume of 10 cu.m. or less will pay an additional P5.30. Those using 20 cu.m. will pay P20.08 more, while those using 30 cu.m. will pay P41.02 more.
Mr. Ty noted that the adjustment due to inflation is based on the 5.7% inflation print recorded last July.
“Based on the concession agreement, it’s the inflation rate as of July. That will be the one used for the purposes of any adjustment in Jan. 1 the following year,” he explained.
The FCDA is a mechanism used by the MWSS and the service concessionaires to provide them a “no gain, no loss” principle. Concessionaires pay foreign currency-denominated concession fees to the MWSS, in addition to loans used to finance service improvement projects.
“Any foreign loan exposure they have will result to an FCDA adjustment. So for example any movement in the peso versus the Japanese yen or US dollars and the euro will result in an adjustment. If the peso is appreciating, then that means the FCDA will result in a negative adjustment. If the peso is depreciating, it will result in an upward adjustment,” Mr. Ty explained.
The chief regulator also noted that the FCDA could post a downward adjustment should the peso continue to appreciate against the US dollar.

No special session for 2019 budget — Palace

MALACAÑANG on Friday said President Rodrigo R. Duterte will no longer call for a special session for Congress to finish its deliberations on the proposed 2019 budget.
“I would like to confirm the announcement that the President will not be calling for a special session,” Presidential Spokesperson Salvador S. Panelo said in a televised press briefing on Friday, Dec. 14.
He said Senate members informed the President through Budget Secretary Benjamin E. Diokno “that it’s physically impossible for them to hold a session because it ended yesterday (Dec. 13).”
“I suppose there’s so many activities that will involve the attention, the presence of all members of Congress. So in deference to that, the President is not calling [for a] special session,” he explained.
For his part, Mr. Diokno said in a statement: “The Senators appear exhausted. They requested a break. Congress will resume on Jan 14.”
“Hopefully, the legislators will be fully reinvigorated by then and will act swiftly for the enactment of the 2019 budget. The sooner Congress act on the new budget, the lower the negative impact of a reenacted one on the economy. Since the capital spending is not re-enacted public capital formation will suffer leading to loss of jobs and deeper poverty,” he also said.
Under the 1987 Constitution, the President can call on Congress to convene in special session at any time.
Mr. Diokno has warned that a reenacted 2018 budget, as called for if Congress fails to pass budget legislation for 2019, will delay the implementation of new projects in light of the public works ban accompanying the May elections.
The Senate is planning to insert provisions in the General Appropriations Bill or to pass a joint resolution that will remove the election ban on public works for 2019 to address the concerns of the executive branch. — A.L. Balinbin

Malacañang calls lawmakers’ treatment of Diokno ‘unparliamentary’

MALACAÑANG on Friday slammed lawmakers at the House of Representatives for their “unparliamentary behavior” towards Budget Secretary Benjamin E. Diokno.
The House conducted its Question Hour last Tuesday, Dec. 11, subjecting the Budget chief to questioning over the alleged realignment of funds in the proposed budget.
Last Wednesday, the House adopted a resolution urging President Rodrigo R. Duterte to reconsider the appointment of Mr. Diokno over alleged irregularities in the proposed budget.
In a televised press briefing on Friday, Mr. Panelo said some Cabinet members have expressed their opinions on how Mr. Diokno was treated by some congressmen during the Question Hour.
“I will read to you certain salient points. From [Finance] Secretary Carlos (G.) Dominguez: ‘To use a congressional process to bombard Secretary Diokno with preconceived questions and answers in aid not of legislation but of persecution and excoriating him with baseless allegations is a mockery of standard democratic procedures. The fact that the resolution was swiftly approved and submitted the day after indicates that these series of acts was politically motivated and reeks of power play and ill purposes.’”
He added: “From [Transportation] Secretary [Arthur P.] Tugade: ‘We have witnessed the disrespect and utter lack of courtesy displayed by members of the House of Representatives toward the Department of Budget and Management Secretary Benjamin Diokno. The congressional resolution urging a reconsideration of the DBM Secretary’s appointment is a sheer violation of the separation of powers on the basis of seemingly biased and hastily called Question Hour.’”
Mr. Panelo said that Malacañang “accordingly hopes that there would be no repeat of the recent incident in the House of Representatives involving our Department of Budget and Management (DBM) Secretary Benjamin Diokno.”
He also said that “this unparliamentary behavior has no place in the hallowed grounds of Congress, where members are referred to as ‘Honorable’ as they represent their districts or sectors.”
“There is no honor in browbeating a fellow worker and officer in government. We will not allow a similar incident from taking place,” Mr. Panelo stressed. — Arjay L. Balinbin

Software for Comelec’s election management system ready

ONE software program to be used by the Commission on Elections (Comelec) for next year’s midterm elections has already been completed, in time before the release of the list of candidates this month.
On Friday, the poll body livestreamed the presentation to stakeholders and media of American voting software company Pro V&V on how the software will be assembled and executed for the upcoming 2019 elections.
The trusted build or the software program to be used to convert the source code for all equipment to be used in the 2019 elections is already done. This system is crucial for automated elections, whose components include election management system (EMS), vote counting machine (VMS), and the counting and canvassing machine (CCM).
The trusted build finished is for the EMS only. In automated elections, the EMS is used to organize preparations and materials needed for elections.
Comelec Spokesperson James B. Jimenez said that rather than make the software programs for all three components of the automated elections simultaneously, they went ahead with the EMS because the poll body will be printing the ballots very soon.
“Kapag narelease namin ang list of candidates, ready na tayo to start designing the ballots (When we release the list of candidates, we are already ready to start designing the ballots)and after the designing of ballots, ready natin imprenta ang balota (we are ready to print the ballots).”
For his part, Comelec Comissioner Marlon S. Casquejo told reporters the trusted build for the VCM and CCM will be expected in early January.
“Our timeline says we have to make that data before the end of December which is why we decided to have the EMS first.”
Comelec is set to release the names of candidates for the local and national elections next week, later than its earlier target of Dec. 15.
“This will allow pending issues related to several candidacies to be settled, without negatively impacting the final contents of the 2019 ballot,” Mr. Jimenez said in a statement to reporters on Friday. — GMC

Faeldon vows to resign if son’s drug links are proven

BUREAU of Corrections (BuCor) Director General Nicanor E. Faeldon promised to step down from his post, if it is proven that his son is involved in illegal drug activities.
“What I can assure everybody is if my son is involved in any way(…), I will resign immediately and hunt him down,” the BuCor chief said in an interview with ANC on Friday, after his son Nicanor Faeldon Jr. was arrested in Naga City during a drug raid.
Mr. Faeldon resigned as Customs chief in August 2017 following the controversy over the P6.4 billion-worth of illegal drugs that entered the country in May 2017.
Mr. Faeldon said he will not interfere in the Naga police’s investigation involving his son.
“I commend the Naga City Police Authorities on their efforts to curb if not totally eliminate illegal drugs. I will not lift a finger to influence their on-going investigation and arrest SOP,” the BuCor Chief said in a statement on Friday.
Justice Undersecretary Markk L. Perete said Mr. Faeldon offered to go on leave while the police are conducting the investigation.
“As to the BuCor Chief’s offer to go on leave, the Department will have to study the matter, taking into consideration a number of facts, among which are: the Chief has just been recently appointed, and the independence and integrity of the investigation on the matter is not likely to be affected by his stay in the BuCor,” he said.
Mr. Faeldon was formally appointed as BuCor Director-General last month. — G. M. Cortez

PNP on high alert for possible attacks by Reds

THE Philippine National Police (PNP) is on high alert for any possible attacks by communist rebels in response to the third extension of martial law in Mindanao.
“Philippine National Police maneuver forces have been put on high alert mode for any possible tactical engagement with CPP/NPA terrorist elements that have been ordered to escalate attacks on government and prized civilian targets,” PNP chief Director General Oscar D. Albayalde in a statement late Thursday.
Mr. Albayalde said strike forces were already deployed to 10 provinces in Eastern Visayas, Negros Island, and Bicol region.
“The latest order of Joma Sison of the Communist Party of the Philippines (CPP) to its armed wing New People’s Army (NPA) exposed anew the culture of lies, deception and violence of the aging underground movement in its 50-year rebellion to wrest power from government,” said Mr. Albayalde.
The PNP chief added that the communist rebels will use the extension of martial law in Mindanao as an excuse for “further hostilities against the government.”
“The CPP/NPA has found a convenient excuse in the Congressional approval of the martial law extension in Mindanao as reason to stage further hostilities against government and civilian targets even as it earlier declared a farce 5-day Yuletide ceasefire to trick government into reciprocating the CPP/NPA sham gesture of goodwill,” stated Mr. Albayalde.
Mr. Albayalde also said the government is open to welcome rebels who want to surrender. — V.A.C. Ferreras

ADB approves $408-million assistance package for Marawi rehab

THE Asian Development Bank (ADB) approved on Friday a $408-million financial assistance package for the rehabilitation and rebuilding of Marawi City.
The Emergency Assistance for Reconstruction and Recovery of Marawi package includes a $300-million loan for programs and activities under the government’s Bangon Marawi Comprehensive Rehabilitation and Recovery Program which covers local governance and peacebuilding, housing and settlement, business and livelihood, and social services.
Another loan worth $100 million will help the Department of Public Works and Highways in the reconstruction of damaged infrastructure into climate resilient and accessible structures.
ADB will also provide $8-million worth of grants to restore and rehabilitate water supply systems in 19 barangays or villages. A portion of this will be also used for the construction of local health units, procurement of mobile medical clinics, employment and livelihood programs, and primary education in internally displaced people communities.
“In my interaction with residents of Marawi, they expressed their desire for a better future for their children. We hope that through this new ADB loan and grants package, we can help transform Marawi into a thriving economic center in southern Philippines, where people live in peace and prosperity,” ADB Vice-President Stephen Groff was quoted as saying in the statement.
Mr. Groff and some staffers of ADB went to Marawi City last November to meet with the locals and check the situation of the city a year after terrorists attacked it, ADB said.
“With the government’s recovery plan in place, it’s essential that we quickly implement and roll out the programs. It’s important to focus on helping young Maranaos regain a sense of normalcy in a safe learning environment, which they are longing for,” said ADB Country Director for the Philippines Kelly Bird.
ADB’s support to Marawi’s rebuilding is aligned with its new Country Partnership Strategy, under which up to $1 billion in development assistance is set to be prepared from 2018 to 2021 to address poverty and income inequality in Mindanao. — V.A.C. Ferreras

DICT seeks mandatory unlocking of devices for postpaid users

THE DEPARTMENT of Information and Communications Technology (DICT) is seeking to implement a policy requiring telecommunications companies to unlock mobile devices after a lock-in period.
Memorandum Order No. 004 signed by the DICT on Friday ordered the National Telecommunications Commission (NTC) to come up with a memorandum circular that would require a mandatory unlocking of mobile phones and devices for subscribers.
“The Department issues this Memorandum Order to govern the issuance by the NTC of the appropriate rules and regulations, i.e. a Memorandum Circular, in order to effect the Policy contained in this Order,” it said.
The order said telcos who have subscribers with devices acquired through a lock-in period should be allowed to shift to any service provider after it completes the terms of its subscription agreement, “to provide the user or subscriber greater freedom and flexibility.”
Reigning telcos Globe Telecom, Inc. and PLDT, Inc.’s wireless brands Smart Communications, Inc. both offer subscription agreements to its customers where mobile phones and devices may be acquired free of charge or through a subsidy in exchange of a lock-in period with the provider.
As of the third quarter of 2018, Globe has a total postpaid subscriber base of 2.5 million users, while PLDT has 1.4 million in Smart and 975,364 in Sun.
Prior to the DICT initiative, Senate Bill No. 1643 or the proposed Network Freedom Act has been filed in Senate by Senator Sherwin T. Gatchalian. The bill also seeks to allow mobile subscribers greater freedom to switch networks any time.
While the bill initially wanted to prohibit the lock-in period entirely, Mr. Gatchalian said last month the policy may spare telcos a nine-month lock-in period for its subscribers before they may allow them to change networks.
Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a majority stake in BusinessWorld through the Philippine Star Group, which it controls. — Denise A. Valdez

Jollibee gains full control of Smashburger

JOLLIBEE Foods Corp. (JFC) has taken full control of American burger chain Smashburger, after acquiring the remaining 15% stake in the company’s parent for $10 million.
In a disclosure to the stock exchange on Friday, the homegrown food giant said its wholly-owned subsidiary Bee Good! Inc. (BGI) has purchased Smashburger Master LLC (Master)’s remaining stake from its parent, SJBF LLC. The transaction was paid in cash.
“We look forward to the development of Smashburger into a very strong brand and business in the United States,” JFC Chairman Tony Tan Caktiong said in a statement.
Following the takeover, JFC will infuse $80 million worth of capital into Smashburger by converting a loan of the same amount held by BGI into equity. This will support the brand’s expansion starting 2019.
“We look forward to replicating in Smashburger the significant brand and business development that JFC achieved in practically all its new and acquired businesses in the Philippines, China, Vietnam, and other countries through the introduction of JFC’s business methods,” JFC Chief Executive Officer Ernesto Tanmantiong said in a statement.
JFC started investing in Smashburger in 2015, initially acquiring 40% of the company at $100.25 million. It has steadily increased its stake in the firm over the years before finally gaining full ownership.
Smashburger operates a total of 351 stores across the US, Canada, Costa Rica, Egypt, and the United Kingdom, among other locations. It currently accounts for seven percent of JFC’s consolidated systemwide sales. — Arra B. Francia

Chinese firms, Steel Asia to build $4.4-B integrated steel complex

CHINESE firms HBIS Group Co., Ltd. and Huili Investment Fund Management Co., Ltd have partnered with Steel Asia Manufacturing Corp. to develop the $4.4-billion Philippine Iron and Steel Project in Misamis Oriental, which will be China’s largest industrial investment in the country so far.
The Department of Trade and Industry (DTI) said in a statement on Friday that the HBIS Group and Huili Fund signed a memorandum of understanding with Steel Asia and PHIVIDEC Industrial Authority for the integrated steel complex project.
HBIS Group is a state-owned company based in China’s Hebei province that produces appliance grade and automotive grade steel products. It is described as the second largest steelmaker in China and the third largest in the world.
Meanwhile, Huili Fund is a private equity firm headquartered in Beijing that invests in real estate, finance, and industries. The company signed a letter of intent with the Board of Investments (BOI) in 2017, signifying its willingness to partner with the Philippines and private sector entities.
Steel Asia is the local partner for the project. The company is currently expanding its services for more efficient production and to boost capacity.
The project will stand on a 305-hectare property inside the PHIVIDEC Industrial estate. This will allow the country to produce basic iron and steel products that can be further manufactured into metal sheets and bards, nails, staple wires, paper clips, and construction-grade products such as wire rod and wire mesh.
Imports of iron and steel were valued at $4.91 billion from January to October, making it the country’s fifth import by commodity group.
“This project is very important to our industrial development and will allow us pursue President Duterte’s vision of having a globally competitive integrated iron and steel industry, to support the growing economy, to alleviate poverty, and to create jobs for every Filipino,” Trade Secretary Ramon M. Lopez said in a statement.
The project will be developed in two phases, with the first phase to cost $3 billion, covering the production of 4.5 million tons of hot rolled coil (HRC) and 600,000 tons of slabs. The second phase will further increase the project’s steel manufacturing capacity to 8 million metric tons.
DTI expects the project to provide up to 65,000 in indirect job opportunities from the project.
“Boosting the manufacturing sector creates jobs and increases the production capacity to support the growing domestic demand and export requirements,” Mr. Lopez said.
The project is also seen to reduce the country’s trade deficit, since it will allow the country to generate up to P144.279 billion from total domestic and export sales of slabs and HRCs, according to the BOI.
“With this integrated steelmaking facility, the country will be able to capture, through this and succeeding phases of the project, large part of the value for the manufacture and assembly of appliances, automotive assembly, construction materials, shipbuilding, heavy equipment manufacturing, among others,” BOI Managing Head Ceferino Rodolfo said in a statement. — Arra B. Francia

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