By Elijah Joseph C. Tubayan
Reporter

MALACAÑANG has zeroed in on eight sectors and activities in its bid to further ease limits to foreign participation and ownership, according to Memorandum Order No. 16 signed by Executive Secretary Salvador C. Medialdea on Nov. 21 and released to journalists on Thursday.

“To raise the Philippines’ level of competitiveness… the NEDA Board and its member agencies are hereby directed to take immediate steps to lift or ease existing restrictions on foreign participation in the following investment areas or activities,” the order read, enumerating private recruitment; practice of professions where allowing foreign participation will redound to public benefit; contracts for construction and repair of locally funded public works; public services “except activities and systems that are recognized as public utilities such as transmission and distribution of electricity, water pipeline distribution system and sewerage pipeline system”; culture, production, milling, processing and trading — except retailing — of rice and corn and acquiring these grains “and by-products”; teaching at higher education levels; as well as retail trade and domestic trade enterprises.

The same order directed departments forming part of the National Economic and Development Authority (NEDA) Board “to earnestly support, in a coordinated manner” legislation needed to eliminate or relax these restrictions “including pending legislation seeking to clarify the definition of public utilities.”

It also directed members of the NEDA Board, which President Rodrigo R. Duterte heads, “to immediately advise” him on “those restrictions which may already be lifted or eased without need for legislation” in order to provide inputs for the already delayed 11^th Regular Foreign Investment Negative List (FINL). The 10^th FINL — under Executive Order No. (EO) 184 issued in June 2015 and which largely retained restrictions of EO 98 of Oct. 29, 2012 — is supposed to lapse this year.

Sought for comment, John D. Forbes, senior adviser of the American Chamber of Commerce of the Philippines, said: “We welcome the initiative of President Duterte in instructing the NEDA Board and member agencies to liberalize eight areas where foreign firms and professions are restricted from investing in the economic future of the country.”

“When fully implemented, we expect billions of dollars to be invested, creating tens of thousands of jobs as the result of the new opportunities,” Mr. Forbes said in a mobile phone message.

The government is trying to ease such investment restrictions without going through time-consuming, tedious amendment of the Constitution. It supports, for instance, House Bill No. 4389 — filed by former president and now Pampanga second-district Rep. Gloria M. Arroyo — to redefine public services under Commonwealth Act No. 146 of 1936 in order to open telecommunications to majority foreign ownership. Presidential Spokesperson Harry L. Roque, Jr. has said Mr. Duterte had broached to visiting China Premier Li Kequiang earlier this month the possibility of bringing in a Chinese telecommunication carrier to compete with PLDT, Inc. and Globe Telecom, Inc.

Socioeconomic Planning Secretary Ernesto M. Pernia has also voiced the need to attract foreign professors and researchers — by offering them permanent positions in universities — to improve standard of education as well as research and development.

For the Asian Development Bank (ADB), the Philippines may be “the most-developed” public-private partnership (PPP) market among its developing member countries, but “the current limit of 40% of foreign ownership in the PPP project company in infrastructure projects where the operation requires a public utility franchise” remains a “challenge”.

“This may restrict competition and, in some ways, can inhibit Philippine infrastructure development,” ADB said in its maiden annual Public-Private Partnership Monitor launched on Thursday which covered Bangladesh, China, India, Indonesia, Kazakhstan, Papua New Guinea, the Philippines, Thailand and Vietnam.

“The PPP Monitor identifies the country among the first in Asia to institutionalize private sector participation in infrastructure by enacting the BOT (build-operate-transfer) law in 1990,” it said of the Philippines, adding that it joined India and Thailand in having “the most developed financial markets with long loan repayments (above 10 years) available in local currency and a wide array of financing options including project bond financing.”

There are 119 PPP projects rolled out cumulatively worth some $56.9 billion in the Philippines: 77 in energy, 27 in transportation, six in water, seven in information and communications technology, and two in social infrastructure. In 2016, there were 62 state projects with foreign participation, 52% of which were through PPP. But Philippine infrastructure spending has been among Asia’s lowest, averaging just 2.2% of gross domestic product from 2011 to 2014, ADB noted.

The report cited other PPP challenges as coordinating several authorities for decision making; procurement delays; changes in project structure and funding source during tender; inefficient, time-consuming dispute resolution; costly court processes; uncertainty in regulatory approval of toll rate and tariff increases, auctioning off projects with unresolved right-of-way issues, as well as the fact projects have largely been dominated by a few conglomerates.

ADDITIONAL INCREASES in interest rates and any change in policy in the United States, as well as China’s slowing growth, can be expected to have “modest” impact on the Philippines compared to other Southeast Asian economies, and will likely be manifested in investments and cross-border lending, the International Monetary Fund (IMF) said.

In a report, the IMF assessed the potential impact of these scenarios, which are considered the biggest external threats to the Philippine economy given the latter’s exposure to both markets.

“The Philippines’ trade and financial exposures to the United States and China are more moderate than the more open ASEAN neighbors, albeit with the role of China rising recently,” the multilateral lender said in a Nov. 10 report, referring to the Association of Southeast Asian Nations.

“Thus, the potential spillovers from policy shifts in the United States and lower growth in China are expected to be more modest in the Philippines, although historically US financial spillovers had a large impact, perhaps reflecting the shallower financial depth,” it added.

“Direct financial spillovers from the United States are significant, mainly through FDI (foreign direct investments) and cross border bank lending, while direct financial links with China are currently limited.”

Expectations of a fresh rate hike from the Fed next month grew stronger following the release of the minutes of its Oct. 31-Nov. 1 meeting, where some policy makers said they expect the need to raise interest rates in the “near term.” Fed officials saw the US economy remaining “poised for strong growth,” confirming expectations of sustained recovery, Reuters said in a report.

IMF noted that the US and China are the some of the biggest markets for Philippine goods and services, as well as major sources of remittances and tourists. The US, in particular, is the biggest source of revenues for business process outsourcing (BPO), “highlighting vulnerability to potential changes in US policies, particularly to the outsourcing sector.”

The BPO sector employs over a million Filipinos and fuels domestic consumption together with remittances from overseas Filipino workers. The Philippines’ BPO sector — initially feared to be a casualty of President Donald Trump’s “protectionist” slant — has yet to feel the repercussion of his avowed intention to bring home outsourced jobs.

The IMF also said a “faster-than-expected” policy tightening in the US could tighten global financial conditions and trigger capital outflows from emerging economies, causing “significant” drag on the latter.

Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla, Jr. has said that uncertainty over the pace of monetary policy tightening in the US and other advanced economies would likely trigger “bouts of volatility” in Philippine financial markets, even as monetary authorities are well-armed to weather headwinds. “We are ready to deploy the full array of our monetary policy toolkit in case of changes to deal with possible market volatility, as policy settings evolve and normalize in the US and other advanced economies,” Mr. Espenilla had said in a speech on Tuesday.

The Monetary Board kept key rates unchanged in its Nov. 9 meeting in the face of within-target inflation and firm domestic economic activity. The BSP has constantly said that it does not have to automatically match the Fed’s tightening. — Melissa Luz T. Lopez

MORE FOREIGN FUNDS left the country in October — marking the biggest outflow in almost a year — led by net outflows from the Philippine Stock Exchange (PSE) and peso-denominated government securities, the central bank reported yesterday.

Foreign portfolio investments posted a $563.42-million net outflow last month, a reversal from September’s $112.63-million and October 2016’s $59.87-million net inflows.

These funds are called “hot money” given the ease by which they enter and leave markets.

Last month saw the biggest net outflow since the $607.31 million that left in November 2016, according to central bank data.

October’s $1.385-billion gross inflows were up 6.8% from September’s $1.296 billion but were down 15% from the $1.633 billion that entered in October last year.

October’s total outflows, however, eclipsed gross inflows that month, as well as funds that went out in September and a year ago. Specifically, $1.948 billion left in October, about 64.5% more than September’s $1.184-billion total outflows and 23.8% more than the $1.573 billion that went out in October last year.

Last month’s total outbound funds were the biggest in over a year or since some $2.081 billion exited the country in September 2016.

The BSP attributed the year-on-year and month-on-month increase in gross outflows to “profit taking”, with the United States remaining the main destination of outflows, accounting for 75.5% of the total. Central bank data showed outflows spiking in September and October, which had seen successive record highs at the PSE that were followed by episodes of correction.

Around 89.8% of total investments went to PSE shares, particularly those of holding companies; property firms; mining; banks; as well as food, beverage and tobacco companies. These transactions yielded $513 million in net outflows.

A tenth of portfolio placements went to peso-denominated government debt papers (but whose transactions resulted in $47-million net outflows) while the balance was infused in other peso-denominated debt instruments ($1-million net inflows) and peso time deposits ($4-million net outflows).

Most of the investments in October came from the US, the United Kingdom, Norway, British Virgin Islands and Luxembourg

The October figure brought year-to-date hot money tally to an $812.17-million net outflow, a reversal from the $1.471-billion net inflows in 2016’s comparable 10 months. The central bank expects a $900-million net outflow for the entire 2017, a reversal from 2016’s net inflow.

Apart from domestic concerns — October saw the end of the five-month battle to retake Marawi City from Islamic State-inspired militants — external developments like expectations of additional interest rate hikes from the US Federal Reserve, global terrorist attacks and tensions in the Korean peninsula influenced investor sentiment. — Melissa Luz T. Lopez