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Japan debt rater keeps investment-grade score of the Philippines

A JAPAN-BASED debt watcher has affirmed its credit rating for the Philippines, with the view that “aggressive” infrastructure spending plans under the Duterte administration will ensure solid growth over the medium term.

Rating and Investment (R&I) Information, Inc. kept its “BBB” rating with a “stable” outlook for the Philippines, vouching for the country’s ability to pay its debts.

A growing stream of investments — largely driven by the “Build, Build, Build” program of the Duterte administration that will see some P8.44 trillion spent on public infrastructure until 2022 — will help sustain rapid overall economic expansion, adding to buoyant household spending that has been a staple growth driver.

“The Philippines’ economy is expected to post solid growth, driven by aggressive infrastructure investment under the Rodrigo Duterte administration. Anticipated widening of the fiscal deficit and another current account deficit will unlikely be a major disturbing factor,” R&I said in a statement on Monday.

“The Duterte administration has the strongest enthusiasm for larger infrastructure investment among recent administrations and is working to improve efficiency in spending.”

The latest rating action keeps the Philippines one notch above minimum investment grade, matching those given by the three biggest international rating agencies.

Last week, Fitch Ratings upgraded the Philippines’ long-term issuer rating to “BBB” amid optimism that the tax reform program and public spending plans will keep the economy growing at above six percent annually.

R&I said a wider fiscal deficit at three percent of gross domestic product (GDP) will not cause a “significant” deterioration” in the country’s debt burden and overall fiscal discipline, as there remains much room to accommodate even bigger spending.

President Rodrigo R. Duterte yesterday signed the first package of the Tax Reform for Acceleration and Inclusion, which will reduce personal income tax rates but will also raise fresh revenues via higher levies on fuel, cars, sugar-sweetened drinks, coal, cigarettes, investment products, and cosmetic procedures, to name a few.

The additional revenue streams are seen to support the P8.44-trillion infrastructure spending plan laid out until 2022, which involves the construction of 75 flagship projects designed to improve logistics and the ease of doing business here.

Robust foreign direct investments and rosy economic prospects also allay funding concerns, R&I said, and the current account deficit expected this year merely reflects increased imports rather than collapsing fiscal health for the Philippines.

“[I]t is essential to sustain the momentum of investment from inside and outside the country by improving the business environment through continued reforms,” the debt watcher added.

At the same time, R&I noted that tax reform as well as a recovery in global oil prices could push inflation upward, leaving more work for the Bangko Sentral ng Pilipinas to keep overall price increases under control amid the upbeat growth momentum.

Philippine GDP expanded by 6.7% in 2017’s first three quarters, well within the government’s 6.5-7.5% growth goal for the entire year. This has been accompanied by inflation that averaged 3.2% from January to November, settling comfortably within the central bank’s 2-4% target range.

R&I also dismissed fears over political risks, saying that initial tensions between the Philippines and the United States — especially after Mr. Duterte declared his “separation” from the United States in a speech to businessmen in Beijing in October last year — have dissipated, as the President has shifted to a “more realistic and pragmatic stance” since then.

“R&I believes that the risk of diplomatic relations dampening the economy has diminished after being elevated following his inauguration,” the credit rater said, citing currently warm ties between US President Donald J. Trump and Mr. Duterte. — Melissa Luz T. Lopez

Meralco creates unit to set up charging stations for e-vehicles

By Victor V. Saulon, Sub-Editor

MANILA ELECTRIC Co. (Meralco) has created a new subsidiary that will be engaged in owning, maintaining and operating a network of charging stations for electric vehicles, the company told the stock exchange on Tuesday.

“We see opportunity in the development of e-vehicles moving forward. At the same time, it’s also pro-environment. So we wanted to also contribute, of course, to the reduction in [carbon] emissions,” William S. Pamintuan, Meralco’s lead lawyer, told reporters on Tuesday.

“It is common knowledge that transport is the number one emitter of carbon emission in the country right now,” he added.

In its disclosure, Meralco said the new subsidiary’s network will also serve batteries and vehicles using electric energy and other alternative energy sources. It has yet to decide a name for the entity. The move has been approved by its board of directors.

Mr. Pamintuan said the new unit will tap “new opportunities,” including stimulating demand for electricity as e-vehicles are additional consumers of electricity.

“So hopefully it will also drive increased consumption moving forward and increased demand,” he said.

Lawrence S. Fernandez, Meralco vice-president and head of utility economics, said the company was looking at putting up the charging stations within the distribution utility’s franchise area — largely Metro Manila.

“The target will first be public utility vehicles, so e-trikes, e-jeeps, e-shuttles,” he said, adding that the next opportunity would possibly be private e-vehicles.

Part of the plan is to create an e-vehicle ecosystem, he said.

“It’s a developing market… In other countries, they’ve shown that there’s already a trend to shift away from internal combustion engines to e-vehicles. We think that they also might be a market for that in the Philippines, especially e-vehicles,” he said.

Mr. Fernandez said the pilot charging station to be put up by Meralco accepts both European and Japanese standards, currently the accepted benchmark for the industry worldwide.

Meralco’s move comes as another group in the energy sector has made headway in creating an e-vehicle ecosystem.

The rival — QEV Philippines Electromobility Solutions and Consulting Group, Inc. — said in October that it was looking to install 100 fast chargers in SM malls and another 100 in Shell stations, in line with its target of putting up 200 charging stations by 2022.

QEV Philippines said it was aiming to complete the first 50 within the first half of 2018. It is also focused on building an ecosystem of electric chargers and electric vehicles, and bringing them together to develop a market.

At present, separate companies put up the charging stations and the electric vehicles, but not an ecosystem where both can thrive, she said. QEV Philippines’ parent, QEV Capital Pte. Ltd., is doing the same initiative globally.

QEV Philippines is the joint venture between Filipino businessman Enrique M. Aboitiz and his Spanish business partner Enrique Bañuelos.

On Tuesday, shares in Meralco rose 0.74% to close at P326.60 each.

Meralco’s controlling stakeholder, Beacon Electric Asset Holdings, Inc., is partly owned by PLDT, Inc.

Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has interest in BusinessWorld through the Philippine Star Group, which it controls.

Gov’t rejects all bids for T-bonds

THE GOVERNMENT once again rejected all bids for the reissued five-year Treasury bonds (T-bond) on offer at its auction yesterday as it saw weaker demand amid tight liquidity in the market.

The Bureau of the Treasury did not award its offer of five-year papers, which was met with demand worth P10.054 billion, just over half of the P20 billion it planned to borrow.

Had the government proceeded with an award, the five-year bonds, which have a remaining life of four years and one month, could have fetched an average rate of 4.681%, well above its 4% coupon rate and also higher than the 4.55% average quoted when these papers were last sold.

Still, yesterday’s average would have been lower than the 4.7099% yield on the five-year papers in the secondary market before the auction, as well as the tenor’s 4.7174% rate at the closing of the fixed-income exchange.

The four-year papers — the bonds’ closest liquid tenor — were also quoted at a higher rate of 4.8393% at noon and at the market’s close.

Yesterday’s auction — the last for this year — was the fourth consecutive time the Treasury totally rejected banks’ bids following its successful five-year retail Treasury bonds (RTB) offering last month. The government raised P255.4 billion from the RTBs, which carry a 4.625% coupon rate.

After the auction, National Treasurer Rosalia V. De Leon told reporters that the government’s rejection of bids was due to “tight liquidity” following the successful retail bond offering.

“You see the rates and again, I guess it’s tight liquidity because we’ve seen undersubscription. The banks also think [that] we are not in need of the cash after the good harvest brought by the RTB,” Ms. De Leon said, also citing the “wide pickup in the repo (repurchase) market” as one the factors.

Ms. De Leon added that demand thinned as lenders were “not in the mood” to offer as the year ends.

“[Maybe, some banks] are not in the mood anymore because we’re already closing the books and they feel [that] even if they submit a very high offer, obviously we’re in a good position to reject,” she said.

The National Treasurer said the US Federal Reserve’s interest rate hike last week also caused banks to ask for higher yields.

“Because the Fed is looking at three to four rate hikes [next year], I think the market is still looking at increasing [their rates],” she noted when asked for an outlook.

Meanwhile, traders interviewed said they expected the Treasury to reject the bids because the rates was “too high.”

A trader said: “[I] didn’t expect them to sell this bond at a higher rate since they’re already done for the year [due to the RTB].”

As for the government’s borrowing plan for next year, Ms. De Leon said this will be released before 2017 ends.

“Our commitment is we’ll issue the issuance program for the next six months… We’re building on the six tenors, and then every quarter, we’ll release the volume,” Ms. De Leon said.

The government borrows from both local and external sources to tap market liquidity in order to finance its budget deficit capped at 3% of gross domestic product, or about P482.1 billion.

For this year, the government had set a P727.64-billion borrowing plan, 80% of which or P582.11 billion was to be sourced from local lenders through Treasury bills and bonds. The P145.53-billion balance, meanwhile, was to be borrowed from external creditors. — K.A.N. Vidal

Federal Reserve’s dots have lost the plot as economists puzzle over outlook

THE FEDERAL RESERVE published a fresh set of economic forecasts last week covering the next three years. Economists have been trying to make sense of the 2018 outlook ever since.

Here’s the conundrum. Fed officials raised their forecast for growth by four tenths of a percentage point for next year, to 2.5%. That’s comfortably above the 1.8% rate they estimate the economy can sustain in the long run.

The unemployment rate falls just two tenths more under that robust forecast to average 3.9% in the fourth quarter of 2018 — well under their estimate of full employment. Inflation moves up to just under 2%.

For all that, they kept their interest-rate projections for 2018 steady at three increases, presented in a dot-plot chart, to finish the year in a range of 2% to 2.25%. Put another way, the economy will run a lot hotter than the committee forecast in September, but the rate-hike path stays the same.

“The revisions to the forecast were inconsistent with the lack of revisions to the dots,” said Torsten Slok, chief international economist at Deutsche Bank AG in New York. “The number of dots should have gone up.”

Jerome Powell, nominated by President Donald Trump to replace Fed Chair Janet Yellen when her terms ends Feb. 3, discussed various “challenges” created by the dot plot in a February 2016 speech, including the fact that they are anonymous and quickly become stale.

If confirmed by the Senate, he’ll have a chance to do something about it under any review of the central bank’s communication strategy he decides to undertake. Meanwhile, economists are tossing explanations at the 2018 forecast to see if they can get something to stick. Here’s a look at some theories and where they might fall apart.

POSITIVE SUPPLY SIDE SHOCK
The economy can grow faster without much inflation if productivity suddenly picks up. The Republican tax plan currently being hammered out in Congress does create incentives for investment.

Caveat: It can take years for new investments to percolate through to higher productivity. If Fed officials really thought the economy was on the cusp of a supply boom, they would have raised their longer-run growth estimate. They didn’t. In her press conference, Yellen said she was uncertain about the tax plan’s supply-side benefits.

INFLATION PERSISTENCE
It may be that more Fed officials view inflation as less responsive now to low rates of unemployment. This was Yellen’s answer in her press conference: “You might think, well, shouldn’t I see more?” she said, referring to rate hikes, after cautioning that the projections are a mash-up of 16 different outlooks and not a consensus forecast.

“Well, okay, growth is a little stronger. The unemployment rate runs a little bit lower, that would perhaps push in the direction of slightly tighter monetary policy,” she said. “Counterbalancing that is that inflation has run lower than we expect, and, you know, it could take a longer period of a very strong labor market in order to achieve the inflation objective.

Caveat: Fed officials did see inflation excluding food and energy rising to 1.9% at the end of next year, in effect reversing a soft spot that began in February. In other words, persistence fades at lower rates of unemployment. If officials believe it takes lower unemployment to get inflation moving, their estimate of the long-run sustainable unemployment rate should have moved lower from 4.6%. It didn’t.

POLITICS
Goldman Sachs Group Inc. economists suggest Fed officials want to avoid showing an aggressive policy response on the eve of a vote on the Republican tax bill. “We think the monetary policy projections may be lagging the economic projections, perhaps in part due to political sensitivity,” they said in a note to clients on Dec. 13.

Bloomberg Economics chief US economist Carl Riccadonna also thinks there was some political sensitivity that kept the committee from showing four hikes for next year. “The Fed is eager to avoid political meddling,” he said.

Caveat: The Fed is in a period of transition. Powell is expected to take the helm in February, at which point Trump will have three vacancies to fill on the Board of Governors in Washington, including the influential post of vice chairman.

Credibility is essential in times like this, and nobody expects Powell to squander what the Fed has built up over nearly four decades.

Nevertheless, economists said the Fed is in show-me mode now with the tax package and inflation, while ready to move to faster hikes if necessary.

“If we saw of a series of inflation prints where inflation was moving higher, even just up to their target, we would see them be more aggressive on their rates,” said Robert Martin, an executive director at UBS Securities in New York and a former Fed economist. — Bloomberg

Villar group opens new retail hub in Las Piñas

By Arra B. Francia, Reporter

TYCOON Manuel B. Villar, Jr. unveiled a hub for its retail establishments in Las Piñas, amid efforts to strengthen his property business outside Metro Manila.

All Value Holdings Corp. (AVHC), the retail arm of the Villar group, opened the Global South Complex which houses branches of All Home, All Day Supermarket, Bake My Day and Coffee Project.

Mr. Villar, who serves as All Value’s chairman, said the expansion of its retail developments will follow that of its residential business through Vista Land and Lifescapes, Inc., which is currently present in 128 cities and municipalities primarily outside Metro Manila.

“They will be looking for these things (retail establishments). That is why the group started going into this, malls, cinemas, ganitong community…bumabalik na (outside Metro Manila),” Mr. Villar told reporters on Tuesday.

The 20,000-square meter (sq.m.) complex is dominated by All Home, the company’s home building, furnishing and improvement store. The Las Piñas branch is the brand’s largest so far, bringing the All Home footprint to 150,000 sq.m. nationwide.

“The (All Home) brand continues to expand its product scope by offering more than just building and construction materials from local and international brands,” All Value said.

The complex also includes an All Day Supermarket, its 12th location in the country. The supermarket includes a “paluto” section, where customers can pick meat and seafood items to be cooked on the spot.

“All Day now also features an imported goods section, International Food Stop, which serves up the world’s best and brings them even closer to home,” the company said.

The Villar group has also opened the 21st location for its coffee chain called Coffee Project.

“The idea behind this is mas peaceful, pwede ka magtagal…maganda ambiance ng store. I feel that all developments should have a good coffee shop — it could serve as an office as well,” Mr. Villar said.

Mr. Villar noted each Coffee Project location requires around P10 million to P15 million to build.

Completing the lineup of store openings is Bake My Day, the company’s seventh in the country.

“Bake My Day, a new concept bakery, provides more than 50 variants of baked goods at every location at any given time,” the company said.

AVHC is part of Mr. Villar’s group of companies. The businessman also has investments in residential projects through listed firm Vista Land and Lifescapes, Inc., mall operations through Starmall, Inc., and deathcare through Golden Haven, Inc.

Voyager Innovations looks for partnerships

PLDT, Inc.’s digital innovations unit Voyager Innovations, Inc. hopes to get partners by the first half of 2018, in order to take its business overseas.

Asked about plans for Voyager next year, PLDT Chairman, President and CEO Manuel V. Pangilinan on Tuesday said: “to get partners, so we can push the various thrusts of Voyager, that this is a cash business, a capital-hungry company.”

He added Voyager will “most probably” get more than one partner, a combination of strategic and non-strategic partners.

“Hopefully, first half of next year,” Mr. Pangilinan told reporters on sidelines of the launch of Voyager’s DigiHub.

On a possible partnership with a Chinese company, the PLDT chairman was tightlipped, saying discussions so far are “confidential.”

At the same time, Mr. Pangilinan reiterated Voyager’s intention of expanding overseas, particularly the Southeast Asian market.

“At the end of the day, even if we’re able to cover the Philippine market, it’s still a small market so I think we need to scale, in larger market, to progress, at least the ASEAN market, because that’s a larger market. That means as you push, more cash are needed, to cover expenses,” he told reporters.

Voyager Innovations President and CEO Orlando B. Vea previously said the company is targeting emerging markets, particularly in Asia, where it sees a strong demand for its services.

OUTSOURCING
Meanwhile, PLDT is targeting to sign deals with Huawei Technologies Co. Ltd. by year-end, and with Amdocs by the first quarter of next year, on the outsourcing of its information technology (IT) services.

“(Talks are) progressing very well, they’re asymmetric in progress. Hopefully, we could sign something with Huawei before the year-end. Amdocs probably first quarter next year,” Mr. Pangilinan said.

The number of PLDT personnel to be affected is yet to be determined. “Wala pa [none yet], that’s not yet been quantified. I think we’ll know in the next week or so. I don’t think it will be a major number,” he said.

PLDT is looking to outsource the bulk of its back-office operations, in an effort to reduce costs as part of its turnaround strategy. With this move, Mr. Pangilinan previously said the company can realize savings of as much as P7 billion over the next few years.

The company will also be looking at outsourcing personnel from the infrastructure side of the business, said Mr. Pangilinan.

“I think once we put this to bed, there might be some discussions on portions of our infrastructure which can be outsourced, we don’t know yet, so we want to put to bed Huawei and Amdocs first,” he said.

DIGIHUB
Voyager on Tuesday launched DigiHub, an office space at its Launchpad headquarters in Mandaluyong City that entrepreneurs can use.

This is part of the extension of Voyager’s digital transformation (DX) program to help equip micro, small, and medium enterprises (MSMEs) in the Philippines to become more competitive with the growing digital economy.

“Through DigiHub, Voyager aims to foster collaboration, accelerate learning and catalyze best practices among industry leaders, big enterprises and MSMEs,” Voyager said in a statement.

DigiHub is expected to be fully operational by first quarter next year, in cooperation with industry and trade partners.

Under the program, Voyager offers packages for MSMEs that includes its platforms and solutions, as well as digital loans from FINTQ’s Lendr partners such as First Circle, JK Capital, Development Bank of the Philippines, Esquire Financing, Asialink, Algo Leasing and Finance, and soon Radiowealth Financing.

Lendr will soon launch an “alternative credit scoring algorithm” for MSMEs, which can minimize “5-6” lending.

Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a stake in BusinessWorld through the Philippine Star Group, which it controls. — Patrizia Paola C. Marcelo

Peso strengthens on tax bill signing

THE PESO closed stronger against the dollar on Tuesday following the signing of the government’s tax reform bill into law.

The local currency closed the session at P50.39 versus the greenback yesterday, gaining nine centavos from the P50.48-per-dollar finish seen on Monday.

The peso opened the session stronger at P50.43 against the greenback. Its lowest point for the session was registered at P50.53, while it reached an intraday high of P50.38 versus the dollar, just a centavo above yesterday’s close.

Dollars traded soared to $604.7 million from the $467.15 million that changed hands in the previous session.

Two traders attributed the peso’s ascent to the enactment of the government’s first tax reform package yesterday afternoon.

“The peso appreciated today after the President’s ratification of the local tax reform bill,” a trader said in an e-mail on Tuesday.

On Tuesday, President Rodrigo R. Duterte signed the Tax Reform for Acceleration and Inclusion (TRAIN) bill into law, which is expected to add P130 billion to the government’s coffers while reducing tax rates of lower income earners.

In the first of the five tax reform packages, workers with an annual salary of P250,000 and below will be exempted from paying income tax, receiving bigger take-home pays.

However, commodities such as fuel, tobacco, sweetened beverages and automobiles will have heftier taxes.

The revenues generated from the tax adjustment will help fund the government’s infrastructure push and social services.

Meanwhile, UnionBank of the Philippines Chief Economist Ruben Carlo O. Asuncion also noted the higher forecast of Philippine economic growth for 2018 given by HSBC Ltd.

“[Aside from the TRAIN bill,] HSBC has actually raised their forecast of Philippine growth for 2018,” Mr. Asuncion said over the phone.

In its quarterly report, HSBC raised its growth forecasts for the Philippines for this year and the next to 6.7%, higher than the 6.5% the global lender previously projected.

This is in line with the updated projection given by the World Bank last week, which also sees the country’s gross domestic product growing 6.7% for 2017 and 2018.

For today, two traders see the peso moving from P50.30 to P50.55, with one saying the local unit may land at the lower end of the range as its climb might be tempered by the positive developments in the American tax reform bill.

“Peso is seen to slightly depreciate [today] amid increasing bets by local traders that the US tax reform bill will get [President Donald J.] Trump’s signature within the week,” a trader said.

Most emerging Asian currencies crawled  higher on Tuesday, with the dollar holding steady ahead of a congressional vote on US tax cuts, while the Thai baht softened on expectations interest rates would be kept near record lows.

The dollar index, which tracks the US currency against a basket of six major rivals, was flat at 93.699, as some traders questioned the overall impact of the tax overhaul on the US economy.

Global markets have been buffeted in recent weeks by shifting expectations about Mr. Trump’s ability to push through his signature policy. — Karl Angelo N. Vidal with Reuters

Business confidence rising in Asia amid integration prospects

By Victor V. Saulon,
Sub-Editor

BUSINESS OPTIMISM has hit a two-year high in Asia Pacific, reflecting a buoyant mood across the region that is largely driven by positive prospects for increased trade, P&A Grant Thornton said in a report.

In the Philippines, the professional services firm said executives cited the three top opportunities in the country over the next five years as increased economic cooperation within the Association of Southeast Asian Nations (ASEAN); upgrading local infrastructure; and automation of simple business processes.

“Philippine businesses are increasingly optimistic about the national economy and plan to hire additional staff based upon an improving trade picture and increasing revenue expectations,” said Marivic Españo, P&A Grant Thornton chairperson and chief executive officer, in a statement to introduce the report.

Executives from other countries also cited increased ASEAN economic cooperation as a top opportunity in the region.

P&A Grant Thornton said 33% of business leaders across the Asia Pacific named economic integration as the biggest growth opportunity.

It said companies in other countries — including Australia, China and Japan — are particularly buoyant about this trend, “indicating that the ASEAN Economic Community is delivering tangible benefits inside and outside Southeast Asia.”

“Automation of simple business processes is cited the country’s and the region’s third-largest growth opportunity,” it said.

“Automation involves freeing up workers for higher value-added tasks. As firms invest in technology-led solutions for lower-skilled roles, there is confidence that this should allow for great efficiencies,” it added.

But P&A Grant Thornton cited a warning from the World Economic Forum’s Global Competitiveness Index that many economies are ill-prepared for automation.

Across the region, the firm said levels of business optimism across had hit a net 41% in the third quarter of 2017, the highest since the second quarter of 2015.

In China, optimism reached a three-year high of 52%, while in Japan it has increased 23 percentage points compared to a year ago.

The positivity across the region also had a positive effect on employment as 40% of Asia-Pacific businesses expect to hire more people over the next 12 months.

“As you would expect across such a large area, there are multiple contributing factors driving positive sentiment,” said Rodger Flynn, Grant Thornton regional head for Asia Pacific.

“The powerhouse that is the Chinese economy is becoming much more outward-looking, reflected both in its One Belt One Road initiative and the movement of lower skilled jobs to neighboring countries. This outlook is having a positive trickle-down effect across the region,” he added.

“At the same time, our research shows there are signs that the ASEAN Economic Community, established in 2015, is boosting business growth opportunities. And the Trans Pacific Partnership, considered a non-starter following the change of administration in the USA, is still seen by many businesses leaders across Asia Pacific as an opportunity to strengthen trade ties and boost exports,” Mr. Flynn said.

Davao region council sees infra projects 11.5% growth

DAVAO CITY — The Davao Regional Development Council (RDC) is banking on big-ticket infrastructure projects in the next five years as a catalyst to achieving economic growth of 11.5% by 2022.

Davao del Norte Gov. Antonio Rafael G. del Rosario, who chairs the RDC, said the target for gross regional domestic product growth is achievable if all the key infrastructure projects are implemented within the timetable.

Mr. del Rosario noted that the target is not out of reach as the region recorded a 9.4% growth rate in 2016.

“We managed to hit about 9% and it is not impossible to achieve a double-digit figure. It is easy to attain it, especially if Congress approves the budget for the projects for the region,” Mr. del Rosario said last week during a council forum where key projects were highlighted.

The economic growth target is included in the Davao Region Development Program 2017-2022.

One key component of the program is the Mindanao Railway System (MRS), particularly the first phase covering a 102-kilometer stretch running from Digos City, Davao del Sur to Tagum City, Davao del Norte with Davao City in between.

An initial P6.58 billion has been allocated out of the total estimated cost of P35.257 billion. The MRS phase 1 is targeted to be operational by 2022.

Other projects that the RDC is pushing are the bridge that will link Davao City and the Island Garden City of Samal, upgrade of the Davao International Airport, Davao wharf, and a new bypass road in Davao City.

ADB LOAN
Meanwhile, Secretary Datu Abul Khayr Alonto, chair of the Mindanao Development Authority (MinDA), lauded the Asian Development Bank’s (ADB) infrastructure assistance program to spur connectivity projects in Mindanao, particularly the $380-million (about P19 billion) loan for road projects in the Zamboanga Peninsula Region.

“This reaffirms ADB’s commitment to help strengthen the Mindanao Development Corridors and promote economic growth in Mindanao,” Mr. Alonto said in a statement released Tuesday, Dec. 19.

ADB announced last week that the institution’s Board of Directors has approved the $380-million loan under the Improving Growth Corridors in Mindanao Road Sector Project.

“This is really all about bringing progress closer to the people, through connectivity infrastructure and we could not be more grateful to have ADB’s usual support,” Mr. Alonto said.

The MinDA head noted that the transport and logistics studies of ADB served as critical inputs in firming up the strategic priorities for the Mindanao Development Corridors, which is intended to improve infrastructure, establish connectivity, and spur the development of growth clusters within the island-region.

The corridors approach divides the island economy of Mindanao into four: the Northern Mindanao Development Corridor, Southern Mindanao Development Corridor, the Western Mindanao Development Corridor, and the Bangsamoro Development Corridor.

MinDA said the ADB is also supporting the new sub-regional framework of the Brunei, Indonesia, Malaysia, Philippines-East ASEAN Growth Area (BIMP-EAGA) Vision 2025.

The road map covers $23 billion worth of priority infrastructure projects for the sub-grouping within the Association of Southeast Asian Nations.

ADB, which serves as the regional development advisor of BIMP-EAGA, provides technical assistance and support to projects particularly on transport, power, environment, economic corridors, and green cities. — Carmelito Q. Francisco

PHL withdraws bid for second MCC aid package

THE PHILIPPINES has withdrawn its application for a second aid package from the US-based agency Millennium Challenge Corporation (MCC), Malacañang announced on Tuesday, Dec. 19.

“It was deemed that for the time being, we will withdraw our application for the second cycle and we will focus instead on the rebuilding of Marawi,” Presidential Spokesperson Harry L. Roque, Jr., said, referring to the Mindanao city that was under siege by terrorists for practically half this year.

“Although we have invited the US government’s continued support and assistance for the reconstruction of Marawi,” Mr. Roque also said.

The Philippines’ graft-fighting efforts are also on the spotlight after it fell short of the “control of corruption” target on the MCC’s scorecard.

The MCC, as it describes itself on its Web site, is an independent US foreign aid agency created by the US Congress in 2004.

MCC on its Web site also said it “forms partnerships with poor countries that show they are committed to good governance, economic freedom, and investing in their citizens.”

The first MCC grant to the Philippines, amounting to $434 million, was allotted for infrastructure projects and took effect for the period of May 2011 until May 2016.

In December 2015, the MCC agreed to fund a second five-year development grant for the Philippines, amounting to $433 million, but deferred this in December last year.

Yet last August, the MCC upheld the eligibility of the Philippines to secure a fresh grant, after initially deferring a vote on its re-selection for help amid concern about the staggering death toll in President Rodrigo R. Duterte’s ferocious war on drugs.

Mr. Roque said the Philippines’ withdrawal from the grant is “not at all” connected with these and other issues.

“It was really just that Marawi happened. We did not expect it and it’s going to be very costly rebuilding. This is temporary. We will apply again some other time,” Mr. Roque said.

“We are confident that the US government fully understands the decision to reallocate our funding priority for this year and that this will not, in any way, adversely impact our eligibility for another round of compact assistance in the future because it calls for counterpart financing as well,” he added.

Mr. Duterte has been known to be sensitive to criticisms of his antidrug campaign, particularly by western countries and organizations that also provide assistance to the Philippines.

This year, his government rejected about 250 million euros ($295 million) in European Union grants. — reports by Rosemarie A. Zamora and Reuters

Accuser denies pressuring Chief Justice

LAWYER LORENZO G. Gadon, the complainant in the impeachment petition against Chief Justice Maria Lourdes P.A. Sereno, said he can never pressure Congress to subpoena Ms. Sereno to appear before the hearing currently being held by the House impeachment committee.

“How can someone like me, a private citizen, pressure Congress? I’m only one as against — how many? Forty members of the justice committee and 297 Congress members? Masyado lang silang dramatic (They are just being too dramatic),” Mr. Gadon said in a phone interview on Tuesday, Dec. 19.

This comes after a spokesperson of the Chief Justice issued a statement asserting “Atty. Gadon’s plan to pressure the House justice committee to subpoena Chief Justice Sereno.”

“This is yet another ridiculous statement from Mr. Gadon, who has discarded the law and turned a blind eye to our Constitution in exchange for his vain political ambitions. As earlier pointed out by House Majority Leader Rodolfo Fariñas, the Chief Justice — being a respondent in an impeachment proceeding — cannot be compelled to testify before the House committee on justice. The Chief Justice is not a witness subject to a subpoena process,” lawyer Josalee S. Deinla said in the statement.

She also warned that Ms. Sereno’s being forced to attend the House hearing will lead to a constitutional crisis.

Mr. Gadon countered: “Ang liwa-liwanag nung mga interviews ko (I had been clear during my interviews) that I will request… I will suggest and request. Wala naman akong sinabing (I never said) ‘must,’ wala naman akong sinabing (I never said), ‘it’s mandatory,’ or something for them to be pressured.”

He added: “En banc resolution, unanimous decision nga na ’yung mga justices eh pwede mag-appear doon sa Congress eh. Siyam na nga ’yung mag-a-appear eh. Nag-appear na ’yung apat, mag-a-appear pa ’yung lima. So anong constitutional crisis are they talking about?”

(An en banc and unanimous decision has already allowed the justices to appear in Congress. Nine are already going to appear. Four had appeared, another five will appear. So what constitutional crisis are they talking about?)

Ms. Deinla said Ms. Sereno does not need to disprove the allegations by Mr. Gadon “considering that he has not even proved anything.”

“Mr. Gadon cannot brush aside our fundamental laws. He is the one who deserves to be arrested or held in contempt for committing multiple perjurious statements and for putting pressure on Congress to violate the constitutionally guaranteed rights of the Chief Justice,” Ms. Deinla also said in the statement. — Minde Nyl R. dela Cruz

Inflation impact of tax reform expected to be muted

By Melissa Luz T. Lopez,
Senior Reporter

THE FIRST TRANCHE of the tax reform plan is unlikely to have a substantial impact on overall inflation, analysts at a global research firm said.

The proposed law now awaits President Rodrigo R. Duterte’s signature, days ahead of its planned implementation by Jan. 1, 2018.

The tax package which Congress ratified on Dec. 13 consists of reduced personal income, estate and donors’ tax rates.

Foregone revenue will be offset by the removal of some exemptions to value-added tax; increased tax rates for fuel, automobiles, tobacco, coal, minerals, documentary stamps, foreign currency deposit units, capital gains for unlisted stock, and stock transactions; and new taxes for sugar-sweetened drinks and cosmetic enhancements.

These measures are expected to raise two-thirds of the P130 billion originally projected by the Department of Finance, while the balance will be sourced from another set of reforms on tax administration to be approved by Congress next year.

Capital Economics said the higher excise taxes could stoke inflation by 2018, although not at a level that would alarm the central bank.

“The increases in indirect taxes are likely to push up inflation. That said, the overall impact is likely to be relatively small given that the changes are set to be phased in over several years,” analysts at Capital Economics said in a report published yesterday.

Split into several tranches, the entire tax reform program is designed to shift the burden to those who can afford to pay more, while raising additional revenue that will help finance the government’s ambitious P8.44-trillion infrastructure development effort until 2022.

The Bangko Sentral ng Pilipinas (BSP) expects inflation to average 3.4% in 2018, slightly higher than the 3.2% expected this year but still within the 2-4% target band.

The central bank has acknowledged that the pace of price increases is likely to pick up next year, although BSP Deputy Governor Diwa C. Guinigundo said higher oil prices — which have a significant weighting in the consumer price basket — will “not be enough to upset inflation,” referring to an impact which would bring the headline number beyond 4%.

Higher duties to be imposed under the tax reform package will likewise have a “transitory” impact on consumer prices, the BSP official added.

Capital Economics said the enactment of the first tax reform package is a net plus for the Philippine economy, as it would support increased government spending over the coming years.

“The extra tax revenue, which are the equivalent of around 1% of GDP (gross domestic product), will be used to fund the administration’s ambitious infrastructure spending plans,” the report read. “These projects should increase capacity, reduce bottlenecks in the economy and actually ease inflationary pressures over the medium term.”

The building program seeks to substantially raise public spending on infrastructure, in the process improving connectivity and the ease of doing business in the Philippines while also fueling rapid economic growth.

In turn, increased infrastructure spending is expected to propel annual GDP growth to between seven and 8% from 2018 to 2022, cementing the Philippines’ position as one of the fastest-growing economies in Asia.

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