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Gross borrowings jump by 77% in May

BW FILE PHOTO

THE NATIONAL GOVERNMENT’S (NG) gross borrowings surged in May amid a rise in external debt due to the dollar bond issuance, data from the Bureau of the Treasury (BTr) showed.

The NG’s gross borrowings jumped by 76.7% to P259.334 billion in May from P146.783 billion in the same month a year ago.

Month on month, borrowings nearly tripled from P89.202 billion in April. 

This as gross external debt skyrocketed (751%) to P127.613 billion during the month from P14.991 billion a year earlier.

This was composed of P115.247 billion in global bonds and P12.366 billion in new project loans. There were no program loans during the month.

Meanwhile, gross domestic debt slipped by 0.05% to P131.721 billion in May from P131.792 billion in the same month a year ago.

This consisted of P121.721 billion in fixed-rate Treasury bonds and P10 billion in Treasury bills.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said that the spike in borrowings was due to the dollar bond issuance during the month.

In May, the government raised $2-billion issuance of the dual-tranche 10- and 25-year fixed-rate dollar bonds, its first global bond sale of the year.

“Higher interest rates and weaker peso exchange rates also increased the debt servicing costs of the NG that required more borrowings,” Mr. Ricafort said.

The Monetary Board has kept its benchmark rate at 6.5%, its highest in over 17 years.  The central bank raised borrowing costs by 450 basis points (bps) from May 2022 to October 2023.

In May, the peso sank to P58-per-dollar level for the first time since November 2022.

For the first five months, the NG’s gross borrowings rose by 16.1% to P1.42 trillion from P1.22 trillion in the same period in 2023.

Gross domestic borrowings jumped by 32.9% to P1.17 trillion as of end-May from P880.905 billion in the year prior.

On the other hand, gross external debt declined by 26.8% to P251.712 billion as of end-May from P343.874 billion.

“Going forward, possible Fed rate cuts in 2024 and 2025 that could be matched locally would help ease the NG’s interest expense,” Mr. Ricafort said.

Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. has signaled that the central bank can begin its policy easing cycle by August.

The BSP could cut by up to 25 bps in the third quarter and another 25 bps in the fourth quarter, he said.

This would be ahead of the US Federal Reserve, which is widely expected to begin easing by December.

The government’s borrowing program is set at P2.57 trillion this year. — Luisa Maria Jacinta C. Jocson

PHL can still exit ‘gray list’ by October — analysts

THE LOGO of the Financial Action Task Force (FATF) is seen at the OECD headquarters in Paris, France, Oct. 18, 2019. — REUTERS

THE PHILIPPINES may still be able to exit the “gray list” of the Financial Action Task Force (FATF) by October if it implements the necessary reforms, according to analysts.

This after the FATF kept the Philippines on the “gray list” of jurisdictions subjected to increased monitoring for “dirty money” risks. The Philippines has been on the list for three years or since June 2021.

The Anti-Money Laundering Council (AMLC) in a statement on Friday said that the country has “moved closer to exiting the FATF gray list.”

“We welcome FATF’s recognition of the country’s progress in strengthening its position in the global fight against financial crimes, even as we remain focused on addressing remaining action plan items,” AMLC Executive Director Matthew M. David said.

AMLC said it will continue to work on implementing its action plan to address remaining deficiencies.

Earlier this year, President Ferdinand R. Marcos, Jr. directed all concerned agencies to work on efforts to exit the list by October.

The FATF on Friday said that the Philippines has taken “significant steps towards improving its anti-money laundering and counter financing of terrorism (AML/CFT) regime.”

FATF President T. Raja Kumar at a press briefing on Friday said that the country has “continued to demonstrate steady progress,” citing increased money laundering investigations and prosecutions.

“We actually had a senior person from the Philippines present at the FATF Plenary demonstrating the Philippines’ strong political commitment to essentially continue its progress on this front,” he said.

Mr. Kumar said the country should “quickly address” the remaining items on its action plan. “The Philippines has actually taken action on 15 of the 18 action items that it needed to act on.”  

The remaining items that need to be implemented include “demonstrating that supervisors are using AML/CFT controls to mitigate risks associated with casino junkets; applying cross-border measures to all main sea/airports including detection of false declarations of currency and confiscation action in line with risk; and demonstrating an increase in the prosecution of TF cases in line with risk.”

Data from Moody’s showed that from 2018 to 2023, the Philippines was among the top five countries in Southeast Asia with money laundering activity events added over the five-year period.

The number of money laundering events added in the Philippines increased by 45% from 2022 to 2023.

“The achievability of ‘exiting the list’ by October will depend on the course of action to be taken by the government,” Antonio A. Ligon, a law and business professor at De La Salle University in Manila, said in a Viber message.

Filomeno S. Sta. Ana III, coordinator of Action for Economic Reforms, said that the October deadline is achievable, but the government must step up to implement the needed reforms.

“We have been on the gray list for years because the government has refused to take bold action… just do it. Implement the FATF recommendations,” he said via Facebook Messenger chat.

Mr. Ligon said that the Philippines’ inclusion in the gray list is a serious matter as it affects the country’s reputation.

“The government’s sincere effort to be out of the list should be supported by relevant sectors so it will improve our financial standing in the global community,” he added.

The FATF Plenary, which is the organization’s decision-making body, usually meets in February, June and October.

In 2002, the FATF blacklisted the Philippines for having no legal anti-money laundering framework. It was removed from the blacklist in 2003 after the passage of the Anti-Money Laundering Act. — Luisa Maria Jacinta C. Jocson

Energy firms to see moderate Q2 growth — analysts

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ENERGY COMPANIES are expected to see moderate growth in the second quarter, driven by the increase in domestic demand and investments in renewable energy, according to analysts.

The economic recovery is seen to “stimulate industrial and commercial energy consumption, further supporting revenue growth,” Regina Capital Development Corp. Head of Sales Luis A. Limlingan said in a Viber message last week.

“Looking ahead, the energy sector is poised to continue its growth trajectory, particularly as companies adapt to the evolving landscape and embrace renewable energy solutions,” Seedbox Securities, Inc. Equity Trader Jayniel Carl S. Manuel said in a phone message.

Mr. Manuel said that the sector’s shift towards renewable energy “offers a promising path for sustainable growth and resilience” amid challenges brought by economic pressures such as interest rates and inflation.

Many listed energy companies posted favorable income results for the first quarter, citing gains from their energy sales and power generation businesses.

Those that reported lower earnings attributed decline to lower power prices.

Manila Electric Co. saw its attributable net income increase by nearly 19% to P9.6 billion from P8.07 billion last year, driven by energy sales and growth in other business segments.

Ayala-led ACEN Corp. reported a 34% increase in its first-quarter attributable net income to P2.72 billion from P2.03 billion previously, driven by contributions from its newly operational solar and wind farms.

Aboitiz Power Corp. posted an attributable net income of P7.86 billion, 4.4% higher than last year’s P7.53 billion, on the back of higher generation portfolio margins.

Meanwhile, Lopez-led First Gen Corp.’s attributable net income declined by 11.7% to $78.82 million from $89.23 million, mainly driven by weaker power prices and higher expenses.

Semirara Mining and Power Corp. recorded a 28% decline in its consolidated net income to P6.54 billion from P9.03 billion due to weak coal and power selling price. 

Mr. Limlingan said that energy companies may face challenges from high inflation and elevated interest rates, coupled with peso depreciation, which impact companies with US dollar-denominated debts or those reliant on imported materials.

He said, however, that companies with diversified energy portfolios and significant investments in renewable energy “are better equipped to leverage regulatory incentives and sustain growth.”

“Basically, energy companies are navigating a dynamic and challenging environment, but those that successfully integrate renewable energy and innovative technologies are likely to thrive in the coming years,” Mr. Manuel said. — Sheldeen Joy Talavera

Arthaland nears deal for two acquisitions

LISTED property developer Arthaland Corp. said it is nearing a deal to acquire two properties for development over a 10 to 15-year period.

“We’ve made significant gains in steps to close and finalize the acquisition of these properties,” Arthaland Executive Vice-President Christopher G. Narciso said during the company’s annual stockholders’ meeting on Friday last week.

“One is a 3.6-hectare property, which we refer to as Project Olive, situated by the entry of one of the most premium central business districts in Metro Manila; another one is a five-hectare property… situated in the heart of a very prime metro city in Southern Philippines,” he added.

Mr. Narciso also said that Arthaland is in talks to acquire more properties across Metro Manila to boost the company’s project pipeline.

“Apart from these multi-hectare properties, we are also currently negotiating various properties in and around Metro Manila for dual tower projects and single tower projects,” he said.

“We will disclose additional information on these opportunities at the appropriate time,” he added.

Meanwhile, Arthaland Vice-Chairman and President Jaime C. González said the company is focusing more on residential projects instead of office projects as it monitors the impact of remote work on office space demand.

“We are focusing on residential projects because we need to understand the full impact of work-from-home and hybrid programs that many companies are implementing, driven mostly by the young employees, as well as the impact of artificial intelligence in what might result in a change in the way work is being performed,” he said.

“Until we fully understand this impact, we are being very careful in implementing projects involving office space,” he added.

For the first quarter, Arthaland’s net income dropped by 13.3% to P123.15 million from P142.08 million a year ago.

Arthaland shares were last traded on June 28, closing at P0.485 per share. — Revin Mikhael D. Ochave

CPG expands portfolio with mid-rise residential projects

CENTURY PROPERTIES Group, Inc. (CPG) said it continues to drive its growth with upcoming launches in the mid-rise residential segment and new housing projects.

CPG President and Chief Executive Officer Jose Marco R. Antonio announced during the company’s virtual annual stockholders’ meeting on Friday that five new projects under its PHirst housing brand will be launched this year.

“Under our PHirst brand, we will be launching five new projects in 2024, covering 85 hectares with over 8,000 units worth P18 billion of fresh Inventory,” he said. 

“Three of these developments will be in Calabarzon while the other two will be in Central Luzon,” he added.

Mr. Antonio said that CPG also has upcoming mid-rise projects within its Azure North development in San Fernando, Pampanga, with an inventory worth P16.2 billion.

“The upcoming projects within the Azure North estate will include six mid-rise towers that can potentially contribute an inventory valued at P16.2 billion,” he said.

“The first mid-rise building to be launched this year will consist of 374 units, with an estimated sales value of P2.8 billion and a capital expenditure of P1.2 billion,” he added.

Azure North is a resort-inspired estate that has a man-made beach with a white sand beach lagoon and a wave pool, as well as an exclusive clubhouse.

PHirst Park Homes, Inc. President Ricky M. Celis said the PHirst brand is poised to launch 35 new projects over the next five years with an estimated value of P110 billion.

He added that the company is focusing its expansion efforts on Visayas and Mindanao.

“This will bring in 50,000 units worth P110 billion and 490 hectares of new stock covering price points ranging from P850,000 to P8 million, involving a combination of the signature stand-alone horizontal development model and the master-planned township format,” he said.

For the first quarter, CPG recorded a P409.53-million attributable net income, more than double the P174.02 million a year ago. Revenue rose by 7.2% to P3.58 billion led by the contribution of the PHirst brand.

CPG shares were last traded on June 28, closing unchanged at P0.335 apiece. — Revin Mikhael D. Ochave

Paris Haute Couture

DIOR — DIOR.COM

Chanel goes to the opera while Dior nods to sports with jersey fabrics

PARIS — Chanel held its haute couture show at the Paris Palais Garnier Opera house on Tuesday last week, displaying a lineup of sparkly evening wear that ranged from trim, embellished tweed ensembles to voluminous, silk taffeta capes. (See the show here: https://tinyurl.com/3ue83bm8 )

Models emerged from the tiny doors of the historic building’s private boxes and marched down the corridors, where the audience was seated on plush, red chairs under a low, mirrored ceiling.

They paraded jackets covered with bows, bustier dresses with cinched waists and fitted coats; sandals were open-toed, with short, crystal-coated heels with a ring of pearls.

A traditional bride closed the show, in a floor-sweeping gown with long, puffy sleeves and a train that trailed behind.

The show was held as the French luxury house enters a transition period and gears up for design reset, following the surprise announcement early in June of the departure of longtime creative director Virginie Viard, who had worked alongside Karl Lagerfeld for decades before succeeding him after his death in 2019.

Ms. Viard’s departure has kicked off a flurry of speculation about who will next take the industry’s most coveted designer job.

Tuesday’s venue also marked a departure for Chanel, which traditionally holds its shows at the French capital’s soaring glass and steel Grand Palais building, and, as it undergoes renovations, a temporary replacement structure under the Eiffel Tower.

CHRISTIAN DIOR
Christian Dior designer Maria Grazia Chiuri nodded to sports with an haute couture runway show in Paris on Monday that featured jersey fabrics worked into draped, asymmetric gowns. (See the show here: https://tinyurl.com/7bhh9y59)

Models in flat, gladiator sandals marched past colorful mosaics — towering portraits of athletes in action, drawn from artwork by American artist Faith Ringgold — and paraded flowing dresses, racer-backed tops and embroidered bodysuits.

The fall/winter 2024-2025 haute couture outing from the LVMH-owned label came as France gears up to host the summer Olympics, and follows a week of men’s fashion shows.

Vogue took over the epicenter of French luxury, the Place Vendome, on Sunday last week with its Vogue World fashion event, a show that mixed fashion, sports and celebrity with performances from hundreds of athletes.

Construction of Olympics venue sites has pushed some fashion shows to the outskirts of the French capital’s city center, but the Dior show last Monday was held in a traditional venue — a tent in the Rodin Museum garden.

The Paris haute couture shows ran to June 27, with labels including Chanel, Thom Browne, Kering-owned Balenciaga and Jean Paul Gaultier on the schedule. — Reuters

Youth Co:Lab Summit 2024 gathers young social entrepreneurs in call for inclusive entrepreneurship

Centered on the theme of inclusive entrepreneurship, over 200 participants from 20 countries and territories gathered in the Philippines at Youth Co:Lab Summit 2024 by the United Nations Development Programme and Citi Foundation, organized together with the Asian Development Bank (ADB), and the Department of Trade and Industry (DTI) Philippines, to celebrate and highlight the critical role of young entrepreneurs from diverse backgrounds in driving sustainable and equitable economic development and in advancing the implementation of the United Nations Sustainable Development Goals (SDGs).

Held at the ADB Headquarters in Manila, Philippines, the summit serves as a platform to champion inclusivity in entrepreneurship, promote youth-driven climate initiatives, and harness digital skills where young social entrepreneurs present their inclusive solutions, female-centric initiatives, support for underserved communities and innovative climate responses to build inclusive and just societies.

“Through our Pathways to Progress job skills-building initiative, the Citi Foundation has been a longtime supporter of organizations working around the globe to address the persistent issue of youth unemployment,” said Florencia Spangaro, chief operating officer of the Citi Foundation. “With its focus on inclusive entrepreneurship, this year’s Youth Co:Lab Summit is a celebration of the next generation of diverse entrepreneurs and innovators who are committed to leaving a positive mark on their communities.”

The summit provided a regional space for young social entrepreneurs across the Asia-Pacific region to foster knowledge and idea exchanges through networking and collaboration, inspire and engage youth to take action, discuss emerging trends in the youth entrepreneurship ecosystem, advocate for policies to enhance its resilience and inaugurate collaborative initiatives for inclusive youth entrepreneurship.

“Through Youth Co:Lab, we empower and enable young social entrepreneurs who themselves are the personification of diversity and inclusion, to overcome adversity, challenge the status quo, create jobs and innovate for a more inclusive tomorrow,” said Philippines Citi Country Officer and Banking Head Paul Favila. “We owe the success of Youth Co:Lab to young social entrepreneurs who are at the front and center of this movement; who have demonstrated passion, resilience and grit over the journey; and who are breaking barriers, bringing fresh ideas to life, and addressing global pressing issues.”

“Amidst persisting impacts of climate change to social inequality, where the most vulnerable bear the brunt — young people are harnessing the power of social entrepreneurship by offering creative solutions to address critical issues in their communities. At UNDP, we are committed to empowering youth as catalysts for transformative change, advancing Diversity, Equity, and Inclusion (DEI) principles, aligning with the goal of Leaving No One Behind,” said Dr. Selva Ramachandran, Resident Representative of UNDP Philippines.

The two-day summit, from June 27 to June 28, saw participants from diverse backgrounds, including young social entrepreneurs, government delegates, private sector partners, investors, and other youth community partners joining virtually.

Youth Co:Lab Summit 2024 was also held in partnership with the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), International Labour Organization (ILO), Aspen Network of Development Entrepreneurs (ANDE), CVC Capital Partners, Commonwealth Secretariat (CWS), EY, The Islamic Development Bank (IsDB), Spark Project, and StartupUp Quezon City and the Local Economic Investment Promotions Office of the Local Government of Quezon City.

Youth Co:Lab, co-created by UNDP and the Citi Foundation in 2017, is the largest youth movement for empowerment, social entrepreneurship, equality, and social inclusion in Asia-Pacific and has supported young people in 28 countries and territories. Since its inception, activities supported by Youth Co:Lab have reached 280,300 participants across the Asia-Pacific region.

Former AboitizPower CEO to lead Meralco’s power unit

EMMANUEL “MANNY” V. RUBIO

MERALCO PowerGen Corp. (MGen), the power generation investment arm of Manila Electric Co. (Meralco), has appointed Emmanuel “Manny” V. Rubio as its president and chief executive officer (CEO), effective July 1.

Mr. Rubio, formerly president and CEO of Aboitiz Power Corp. (AboitizPower), is expected to bring “a wealth of experience and expertise to MGen,” the company said in a statement on Sunday.

“Rubio’s career in the power industry is distinguished by a proven track record of exceptional leadership and success through the various executive positions he held in AboitizPower and its subsidiaries over the past years,” MGen said.

The company said Mr. Rubio is expected to oversee “the success of the company’s plans and strategies that are well aligned with the government’s pursuit to achieve energy security and global sustainability goals.”

“Manny Rubio will play a very important role as MGen actively pursues growth prospects that will bring long-term value not just to the company, but also to the projects’ host communities and our country,” Meralco Chairman and CEO Manuel V. Pangilinan said.

“We are excited to have him on board as we look forward for his fresh perspectives and innovative ideas that will steer the power generation company towards becoming a reliable partner of the government in achieving inclusive and sustainable economic growth,” he added.

Mr. Rubio succeeds Jaime T. Azurin as member of MGen Board of Directors, which is also chaired by Mr. Pangilinan. Mr. Azurin will remain as president of Global Business Power Corp., a wholly owned subsidiary of MGen.

The company said his leadership will help achieve its goal to expand its presence in the renewable energy space with additional 1,500-megawatt (MW) capacity. It will also help the company realize its significant investments including the planned integrated liquefied natural gas (LNG) facility that is currently in the pipeline.

In March, MGen and Therma NatGas Power, Inc., the wholly owned subsidiary of AboitizPower through Therma Power, Inc., formed a joint venture company to pursue their investment in two gas power plants of San Miguel Global Power Holdings Corp. (SMGP).

The two companies signed an investment agreement to acquire equity interest in Chromite Gas Holdings, which will invest in the 1,278-MW Ilijan power plant and a new 1,320-MW combined cycle power facility that is currently under construction.

Together with SMGP, the joint venture company will also invest in LNG import and regasification terminal owned by Linseed Field Corp., a unit of Atlantic Gulf & Pacific Co.

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 an interest in BusinessWorld through the Philippine Star Group, which it controls. — Sheldeen Joy Talavera

Adidas is sambaing all over Nike’s high tops

ADIDAS.COM.PH

By Andrea Felsted

NIKE, INC. on Thursday lowered its sales outlook for the current fiscal year, blaming a slump in demand for its top-selling sneakers, such as the Air Force 1 and Air Jordan 1. It’s no coincidence that these styles have fallen out of favor with fashionistas, who are instead choosing Adidas AG’s low-rise models, led by the Samba.

This sartorial shift looks like it is really starting to hurt Nike. It’s unusual for the market leader to be so on the back foot.

Nike Chief Executive Officer (CEO) John Donahoe is trying to spark a revival with a suite of new products. But these are primarily focused on performance: Helping runners run faster, footballers kick harder, and yoga enthusiasts stretch more comfortably. Nike and Adidas are also fashion brands; their most successful periods come when their products are riding a wave of popularity.

Until last year, Nike’s chunky styles, including the Dunk produced in near-infinite colorways, were ubiquitous. Now, Adidas’ sleeker models, also including the Handball Spezial, SL 72, and Gazelle, adorn the feet of fitsters.

As well as improving Nike’s performance offering — where it’s also under pressure from rivals including Swiss upstart On Holding AG — Mr. Donahoe needs to find some new hits in the more fashion-oriented lifestyle category if he is to wrestle back momentum from Adidas.

Underlining the reversal in the two companies’ fortunes, Nike said that after enjoying double-digit growth over the past few years, sales in its lifestyle business fell across men’s and women’s products and its Jordan brand in the three months to May 31. This dragged down its online sales, which declined 10% in the quarter. The weak demand for its previous high-fliers has continued in April, May, and June, a period for which Adidas is expected to report solid growth.

Nike wants to pull back on its best sellers — one of the reasons why it expects revenue to fall by a mid-single digit percentage in the year to May 2025 — to make room for new models. But this now has more urgency.

While Adidas is leading the low-rise retro trend, Nike isn’t being totally left behind. Mr. Donahoe recognizes the need to revitalize the more style-oriented selection; Nike’s Cortez sneaker is gaining traction, with the company recently reissuing several models such as an all-white leather version favored by The Bear star Jeremy Allen White, and the red, white, and blue Forrest Gump model.

Meanwhile, the Killshot and the Field General are selling well, and Nike plans to ramp them up. It aims to almost triple its retro running business by the end of this fiscal year, compared with the start of fiscal 2024.

This demonstrates that Nike can still be agile, but it needs to go further. Its product archives, which Mr. Donahoe described as a unique asset, offer opportunities. He also recognizes that the company needs to be faster to market, accelerating the design and production process to help it respond more quickly to changing consumer tastes.   

And while there are green shoots elsewhere, including enthusiasm around the futuristic new iteration of the Air Max sneaker, developing new hit products won’t be instantaneous. It could take a year or so to bring in bestsellers like the Air Force 1.

Meanwhile, Adidas CEO Bjorn Gulden shows no sign of letting up. The product-obsessed former professional footballer is already trying to anticipate what will follow the Samba, and delaying some launches to prevent the market over-heating. He’s trying to make the clothes that athletes wear more fashionable, and the summer of sport is a perfect platform to showcase these.

It’s little wonder that Nike shares, which fell as much as 18% on Friday to post their biggest decline since 2001, have underperformed Adidas this year.

Still, fashion is notoriously fickle. The Nike Dunk blew up quickly five years ago. Adidas’ Yeezy collaboration with Kanye West imploded after the musician known as Ye’s antisemitic comments in 2022.

For Nike to get back in the game, it needs not only to perform well on the field, but to look good doing it.

BLOOMBERG OPINION

Sustainable farm tech seen raising agri competitiveness

REUTERS

By Beatriz Marie D. Cruz, Reporter

THE GOVERNMENT must make it easier to trade agricultural commodities within the region while introducing sustainable farming practices to raise the competitiveness of its farms, according to the Asian Development Bank (ADB).

“I think this is something related to how we can balance the process. We, of course, need to be aware about the interests of the local farmer organizations, but same time, this is also related to the consumer side,” Qingfeng Zhang, senior director of the ADB’s Agriculture, Food, Nature, and Rural Development Sector Office, told BusinessWorld.

He cited the need for stronger regional and international cooperation through joint ventures to “scale the adoption of new technology, enhance it, reduce the cost. Then your competitiveness will increase.”

President Ferdinand R. Marcos, Jr. has ordered the reduction of rice import tariffs to 15% from the current 35% until 2028, in the face of opposition from farmers’ groups. 

“When we reduce the import tariff, we also need to increase competitiveness of producers,” Mr. Zhang said. “And in the end, we can manage inflation and the rice (price) spike.”

Continued upticks in global rice prices will pose upside risk to Philippine inflation, Mr. Zhang said, noting the impact of export bans imposed by rice producing countries, climate change, and Russia’s withdrawal from the Black Sea Grain Initiative.

Rice accounts for 8.9 percentage points (ppts) of the consumer price index (CPI) basket, while food overall makes up 34.78 ppts of the CPI, according to the Philippine Statistics Authority.

“This type of trend will continue for some time before we see some change. We always say that we need to learn from the 2008 food crisis,” Mr. Zhang said.

“We should encourage open trade. Otherwise, we are going to see this continued disruption and rice price increases,” he added.

Competitiveness in Philippine agriculture has been hindered by climate risk, land disputes, and slow modernization.

Regional cooperation should not only facilitate better trade, but also help promote low-carbon and climate-resilient agriculture, he said.

“That means we’re not only just looking at production itself; we also need to look at the farm-to-fork food system,” he said.

Low-carbon and climate-resilient farming practices include water-saving technology in rice production, social protection measures for vulnerable farmers, digital methods to cut fuel waste, and the decarbonization of transport systems, cold storage warehouses and other facilities, Mr. Zhang said.

Better rural roads and flood risk facilities, restoration of wetlands and grasslands, would also help make agriculture competitive and resilient, he added.

The environmental cost of current food systems worldwide is estimated at $3 trillion annually, according to ADB.

Establishing a natural capital accounting system, which measures the stock of a country’s natural resources, would help bring in “more financing globally to support good agricultural practice,” Mr. Zhang said.

Mr. Marcos signed Republic Act No. 11995 or the Philippine Ecosystem and Natural Capital Accounting System last month.

Monetary easing and the inflationary pressure from rice supply shortfall

There was a small item of news in the Business Section of a broadsheet entitled: “Wanted: ‘sooner than later’ Bangko Sentral rate cuts.” The author states that this will finally bring some relief to consumers and corporates who had been under the weight of the restrictive monetary policy for more than two years now.

Monetary policy is not the instrument to slow down supply-driven inflation. Most central banks have elected to address supply-driven inflation by curving market demand. The correct strategy is to expand market supply fiscally the way the Biden “Inflation Reduction Program” proposes to address the chip scarcity. But this is very long-term and by then we could all be dead. The only short-term response is by raising imports and tariff reduction.

The author noted correctly that one missing piece in the post-COVID Philippine growth story was investment. We are keeping investment at bay by high interest rates. The investment activity has remained predictably at the depressed post-COVID levels while consumption and government spending have been slowly returning to trend and been helped nudged towards the recovery levels by massive government borrowing to support market demand, resulting in inflation.

The continued reluctance of the Bangko Sentral ng Pilipinas (BSP) to lower the benchmark interest rate is due to the reluctance of the United States Federal Reserve Board (Fed) to ease monetary policy, plus the lingering inflationary pressure from the local rice shortage; though clearly, as the BSP governor observes, on the downward trajectory. Jumping the gun on the Fed easing will send foreign portfolio capital fleeing to the US dollar creating pressure on the forex reserve. The forex reserve is growing thanks to borrowing revenues. Furthermore, the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) 2, passed in 2021, lowered the corporate income tax (CIT) from 32% to 25% and was to boost private investment, but which has been presumably postponed in view of the high domestic interest rate. The Monetary Board left its overnight borrowing rate at a 17-year high of 6.5%.

This is not the first time that the rate breached P58 per dollar. In Oct. 22, 2022 it was, on average, P58.82/US$. The BSP governor hinted at monetary easing of as much as 50 basis points following the Fed easing of monetary policy. The BSP is reluctant to jump the gun on the Fed reluctance for fear of capital flight towards the dollar. We note that the investment rate in 2022 was indeed lower than regional counterpart investment rates although this state of affairs seems permanent. (See the table.)

 

Note that 2022 was a year after the 2021 tax cut which brought down the corporate income tax rate to 25% from 32%. This tax bonanza should have translated into additional private investment. Casual observation suggests it instead raised the declared dividend rates fueling consumption rather than investment, perhaps due to the high benchmark interest rate.

J.M. Keynes advocated government intervention towards a recovery of market demand which precipitated the quarrel between Keynes and his classical critics in the 1930s when he argued that the shortfall of market demand in a recession does not mend of itself without some help from the government. Indeed, Joseph Schumpeter argued in his 1939 business cycle volume that the Great Depression was due to the unfortunate confluence of short-, medium-, and long-term business cycles, which would unwind by itself. Keynes’ critics believed that supply creates its own demand — that excess supply is a temporary phenomenon and will soon be closed by market arbitrage in the short run; in the long-run; he was wont to observe, “In the long run, we are all dead.”

The Philippines’s monetary policy is structurally limited by institutional commitment to the inflation targeting. The so-called “impossible trilemma” leans on three pillars: the (1) floating exchange rate, (2) an open capital account, resulting in (3) ineffective fiscal policy — the well-known unholy trinity. After the collapse of the Gold Standard and divorce of a fixed gold-dollar exchange rate in the 1970s, central bankers were at a loss for a replacement rule, and price stability offered one way out: central banks were granted legal independence and tasked to safeguard the fixed target inflation. Market volatility could be tamed by keeping the interest rate high and, if inadequate, by allowing the forex reserves to respond.

This is what the BSP governor meant when he stated that the Philippines has enough reserves to withstand additional volatility to below P58 (now standing at P58.45/US dollar). Some economies decided that the traditional fixed exchange rate was too precious for growth to abandon and chose a hybrid, say, an intermediate exchange rate.

There was a need to endow monetary authorities with some independence to preserve price stability. But what is the goal of price stability? Price stability is defended as steps to a “balanced and sustainable growth” which will draw in investment and sustain growth. Most countries followed the lead of New Zealand which defined 2% inflation as its North Star. But 2% inflation as a North Star may be good for high-income economies but may have been suboptimal for lower income countries on a rapid growth pursuit.

When economic growth performance is the criterion, the evidence seemed to favor the fixed exchange rate. Frankel et al. (2019) found that growth performance tends to be negatively related to de facto flexible exchange rate regimes and tends to be positively related to either a de facto fixed exchange rate or “systematic managed floating” (an intermediate exchange rate regime) regimes, which enable “greater price stability… and stable investment and trade…” This is probably why so-called “currency manipulators” (a label that is given by the US Treasury or State Department to an economy characterized by persistent trade surplus and a refusal to allow the currency to appreciate) had better results than currency neutralizers. Vietnam was warned by the US State Department of currency manipulation when it refused to let the Vietnamese Dong appreciate despite an appreciation by rival countries and an emerging trade surplus in 2020. Many other considerations clearly affect the price of exports such as the cost of manufacturing in a country and its relative inflation rates.

The inflation we face today derives from the current rice shortage, which is outside the purview of monetary policy. Will easier money bring about an increased supply of rice in the market? No!

The Philippines farm sector, under the sway of the 1987 Comprehensive Agrarian Reform Law (CARL), is already under a permanent monetary squeeze. CARL prohibits ownership in excess of five hectares which disrupts the traditional loan-collateral nexus — banks would rather pay penalties for non-compliance with the agri-agra law than lend to high-risk small farmer-borrowers, mostly agrarian reform beneficiaries. Banks are obligated to meet prudential rules set by the BSP and would rather pay the associated penalties. The result is that small farms are effectively excluded from the formal financial sector and have to resort to exorbitant informal lending.

An easing of monetary policy will not raise the investment in food production. The only short-term solution is a tariff reduction. Over the long term, we need to abandon the many irrational hurdles imposed by the CARL on the farm sector and ease the way for large private capital.

 

Raul V. Fabella is a retired professor at the UP School of Economics, a member of the National Academy of Science and Technology, and an honorary professor at the Asian Institute of Management. He gets his dopamine fix from tending flowers with wife Teena, bicycling, and assiduously courting, if with little success, the guitar.

DALI Everyday Grocery operator widens net loss

DALI EVERYDAY GROCERY FACEBOOK PAGE

HARD DISCOUNT Philippines, Inc. (HDPI), the corporate entity behind the DALI discount grocery chain, reported a widened net loss in 2023 primarily due to increased operating expenses.

According to the company’s regulatory filing, HDPI recorded a net loss of P1.88 billion in 2023, marking a 110% increase from the P894.68-million loss in the previous year.

Despite the expanded net loss, HDPI achieved a revenue of P22.31 billion in 2023, a 141% surge compared to P9.27 billion in the prior year, driven by higher sales.

Operating expenses jumped by 255% to P3.01 billion in 2023 from P850.39 million in 2022, mainly attributed to increased expenditures on salaries, wages, and benefits.

As of the end of 2023, HDPI accumulated losses totaling P3.26 billion, resulting in a capital deficit of P1.29 billion for the same period.

It also disclosed that P4.67 billion worth of additional capital was infused by stockholders as of end-2023.

HDPI is a wholly owned subsidiary of HDPM Sin Pte. Ltd., a foreign company incorporated under Singaporean law. The ultimate parent of HDPI and HDPM Sin is Switzerland-founded Dali Discount AG.

“The company forecasts that profit margins will improve over the next five years resulting from the implementation of cost efficiency measures,” HDPI said.

“Management believes that with the planned increase in equity, the commitment of and continued financial support from the parent company and the projected improvement in net profit margin, the company will be able to generate sufficient cash flows from its operations to meet its obligations as and when they fall due,” it added.

In March, Singapore-based growth equity firm Venturi Partners announced a $25-million investment to fund the expansion of DALI.

DALI seeks to have up to 950 stores across the Philippines by yearend. — Revin Mikhael D. Ochave