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StanChart sees up to 75 basis points worth of Bangko Sentral cuts this year

Bangko Sentral ng Pilipinas main office in Manila. — BW FILE PHOTO

THE Bangko Sentral ng Pilipinas (BSP) could cut rates by up to 75 basis points (bps) this year, Standard Chartered Bank (StanChart) said.

“We do think that the BSP can actually start to cut rates. I’m looking at 75 bps in rate cuts this year with the BSP cutting by 25 bps starting in August,” Standard Chartered economist and FX analyst Jonathan Koh said in a webinar on Thursday.

BSP Governor Eli M. Remolona, Jr. said this week that the central bank is a “little bit less likely” to cut rates at its rate-setting meeting on Aug. 15 amid “slightly worse than expected” inflation in July.

Headline inflation accelerated to 4.4% in July from 3.7% in June. This was the strongest inflation reading in nine months and also ended seven straight months of inflation settling within the central bank’s 2-4% target range.

However, Mr. Koh said he still expects the BSP to cut rates despite the spike in July inflation, which was likely “driven by supply side issues and base effects rather than demand inflation.”

“I think the risk is that they delay the cut by one meeting or one month, given that they basically alluded that they could even do an off-cycle. But I think I’m still keeping to my view that the BSP will cut next week,” he said.

“If you really look at the underlying details of the second-quarter GDP growth, and if you look at what core inflation is suggesting as well, it’s really suggesting that growth momentum is soft and that the pass-through to core inflation from higher supply is also not there.”

The economy grew 6.3% in the second quarter, gaining momentum from the revised 5.8% growth posted in the first quarter and the year-earlier 4.3%, the Philippine Statistics Authority reported on Thursday.

The second-quarter reading was the strongest since the 6.4% growth logged in the first quarter of 2023.

“That seems strong but underlying details actually suggest that the growth momentum may actually be softer than what headline is actually suggesting,” Mr. Koh said.

Standard Chartered expects GDP to average 6% this year, at the low end of the government’s 6-7% growth target for the full year.

Mr. Koh said that growth should continue to improve in the remainder of the year, with an expected policy easing set to support the economy.

“That should help in terms of the investment front… and we are already seeing, for example, loan growth kind of bottoming as well. That’s a bit of a positive signal. Rate cuts will help to fuel that loan growth a bit more on the business front.”

Mr. Koh said improving labor market conditions will also boost growth.

“Even as consumer spending has slowed, the labor market is actually resilient. What we are seeing is also a pick-up in high-quality employment,” he said. “Those factors should kind of mean that growth in the second half of the year should actually improve.”

Meanwhile, Standard Chartered revised its inflation forecast to 3.1% for 2024 from 3.5% previously.

In the first seven months, headline inflation averaged 3.7%, above the central bank’s 3.3% full-year forecast.

Mr. Koh said this was mainly due to expectations of lower rice prices after tariffs were cut on rice imports.

President Ferdinand R. Marcos, Jr. in June signed an executive order which slashed tariffs on rice imports to 15% from 35% previously, until 2028.

However, Mr. Koh cited upside risks to the inflation outlook from elevated food prices due to supply shocks and geopolitical risks that could push oil prices higher. 

“Those could have a bit of upside risk to inflation, but I think at the end of the year we are still looking at inflation moderating significantly,” he added. — Luisa Maria Jacinta C. Jocson

Stronger security of tenure seen as key after job quality worsens

PHILSTAR FILE PHOTO

By John Victor D. Ordoñez, Reporter

CONGRESS must promote higher-value work in response to the deterioration of the main job-quality indicator, while also strengthening security of tenure, labor advocates said.

“The government should seriously consider the passage of security of tenure bills pending before Congress in order to arrest widespread contractualization of labor that resulted in the proliferation of short-term employment contracts and precarious jobs,” Partido Manggagawa Chairman and former legislator Renato B. Magtubo said via Viber.

The underemployment rate, which measures the share of jobholders seeking more work or longer hours, increased to 12.1% in June from 9.9% in May, the Philippine Statistics Authority said on Wednesday.

“Current efforts of government related to jobs generation would amount to nothing unless we develop a comprehensive industrial policy backed by substantial public investment and by a state willing to actively intervene in the market,” Josua T. Mata, Sentro ng mga Nagkakaisa at Progresibong Manggagawa secretary-general, said via Viber.

The unemployment rate fell to 3.1% in June from 4.1% a month earlier and 4.5% a year earlier. The June reading was the lowest since April 2005.

In a statement, Senator Emmanuel Joel J. Villanueva said the underemployment indicator highlights the need to address the gap between worker skills and employer needs, and proposed fast-tracking a bill promoting enterprise-based learning.

The Senate approved the measure on second reading on Tuesday.

“The Enterprise-Based Education and Training Framework Act will complement the Trabaho Para sa Bayan Act, which we also principally authored and sponsored, in synergizing the government’s efforts in solving employment issues,” Mr. Villanueva said.

Last year, President Ferdinand R. Marcos, Jr. signed the Trabaho Para sa Bayan Act, which sets up an inter-agency council to draft an employment roadmap to improve the quality of jobs available.

He said his government aims to create at least three million new jobs through upskilling and reskilling programs.

In a July 2023 report, the Asian Development Bank said the Philippines should use education technology to bridge the skills gap or risk job losses due to rapid technological advances.

“The issue extends beyond merely having a skills gap; it involves our economy’s inability to advance beyond producing low-value added products,” Mr. Mata said, commenting on the enterprise-based learning bill.

“We need a comprehensive plan that would allow us to leapfrog to an economy producing higher value-added products.”

PHL tourist arrivals hit 3.62M as of Aug. 7

REUTERS

THE Department of Tourism (DoT) said visitor arrivals totaled 3.62 million as of Aug. 7, indicating that the department is behind the pace on its target of 7.7 million international visitors this year.

The DoT described the 7.7 million goal as a “moving target,” noting the difficulties encountered by the Philippines in attracting visitors from China.

“We recognize the challenges that persist, especially from the arrivals from the Chinese market, so it is a moving target, I would say, taking into account the realities that we face,” Tourism Secretary Christina G. Frasco said in a statement.

“Even so, we are working as hard as we can to make sure that, not only the (target) arrivals but, more important, the visitor receipts target is achieved,” she said.

The DoT said inbound visitors as of Aug. 7 consisted of 92.1% foreigners, and 7.9% overseas Filipinos.

The Aug. 7 total was 47% of the target set for the year.

South Korea was still the top source market for visitors, accounting for 960,809 or 26.3% of the total, followed by the US with 590,81 or 16.2%, and China 223,954 or 6.2%.

Rounding out the top five were Japan, which accounted for 221,430 or 6.1%, of the visitors, and Australia, with 152,835 or 4.2%.

The other top source markets are Taiwan, Canada, the UK, Singapore, and Malaysia.

In the first seven months, the Philippines booked P323.68 billion in visitor receipts, up 13.2% a year earlier.

  “We continue our very heavy promotions in terms of our top source markets so that we will be able to increase tourist arrivals from these areas, and as I have mentioned, these include South Korea, the United States, Canada, Australia, Japan, and including Europe,” Ms. Frasco added. — Justine Irish D. Tabile

Energy regulator urges quick action on its request for expanded powers

THE GOVERNMENT should act expeditiously on strengthening the powers of the Energy Regulatory Commission (ERC), via amendments to the law that liberalized the power industry if it wants power prices to fall, the ERC said.

ERC Chairperson and Chief Executive Officer Monalisa C. Dimalanta said President Ferdinand R. Marcos, Jr. and Congress must act with urgency on the ERC’s request. It said the new powers will help it better police the power market and bring prices down.

“With the support of the executive certifying as urgent the amendment of EPIRA (Electric Power Industry Reform Act) to support… reforms in the ERC, we (are) also urging Congress to support us in implementing these urgent structural reforms so that we can be more effective in our regulatory functions,” she said at a budget briefing in the House of Representatives.

A measure amending the power law is among the priority bills set by the Legislative Executive Development Advisory Council for the 19th Congress. House bills seeking to amend the EPIRA remain pending with the House energy committee.

Congress needs to look into expanding the offices responsible for handling regulatory concerns, Ms. Dimalanta told BusinessWorld. “We only have one service that deals with CAPEX (Capital Expenditures), PSAs (Power Service Agreements), Rate Resets, Over-Under, and UCME (universal charge for missionary electrification).”

“Our structure really needs to be addressed,” she said. “Most of our backlog is really in regulatory operations.”

The government needs to segregate the regulatory scope of ERC’s operations to help it better perform its mandate, she added.

Ms. Dimalanta also recommended streamlining the process to allow freer entry of electric supply. “It’s really about streamlining the process so that more supply can come in,” she said, thereby making power cheaper. — Kenneth Christiane L. Basilio

May building permit approvals decline

PHILSTAR FILE PHOTO

APPROVED building permits fell 15.4% in May, a turnaround from the year-earlier 8% growth, the Philippine Statistics Authority (PSA) said in a report.

Citing preliminary data, building projects covered by the permits numbered 12,888 in May, down from 15,234 a year earlier.

In May, building projects covered 3.15 million square meters of floor area, down 13.5% year on year.

Construction projects that received approval were valued at P39.32 billion, down 6.5% from a year earlier.

Permits for residential projects, accounting for 63.4% of the total, fell 20.1% to 8,165.

These projects were valued at P20.14 billion, compared with P18.77 billion a year earlier.

Single homes accounted for 87.1% of the residential category, with approved permits declining 23.3% to 7,112.

Permits for apartment buildings totaled 958, up 14.9% from May 2023, while permits for duplex or quadruplex homes tallied 79, down 19.4%.

Nonresidential projects fell 7.7% year on year to 3,017 permits, accounting for 23.4% of the total.

Nonresidential permits were valued at P15.04 billion, declining 28.3% from a year earlier.

Approved commercial construction applications made up 67.8% of all nonresidential projects, and were down 10.2% at 2,045. 

Institutional building permits rose 8.3% to 547, while industrial permits fell 7.7% to 240.

Approved agricultural projects in May 2024 fell 18.2% to 108 while other nonresidential projects fell 18.1% to 77.

Alteration and repair permits totaled 1,063, down 8% from a year earlier. They were valued at P3.61 billion.

On the other hand, permits for additions, or construction that increases the height or area of an existing building, grew 7.9% to 643 approvals.

Calabarzon (Cavite, Laguna, Batangas, Rizal, and Quezon) had the most approved construction projects, accounting for 25.9% of the total with 3,341 permits, followed by Central Luzon (1,846 permits), and Central Visayas (1,445 permits).

The PSA said construction statistics are compiled from the copies of original application forms of approved building permits as well as from demolition and fencing permits collected monthly by the agency’s field personnel from the offices of local building officials nationwide. — Abigail Marie P. Yraola

PHL motor vehicle output up 14.6% in June

REUTERS

MOTOR VEHICLE output in the Philippines grew 14.6% in June to 10,288 units, posting the second-strongest growth in the region, the ASEAN Automotive Federation (AAF) said.

In a report on Thursday, the AAF said June production exceeded the year-earlier total of 8,978 units.

It said the Philippine auto industry outperformed the region’s 16.7% decline.

Myanmar posted output growth of 60.7% to 225 units in June.

The rest of the region posted declines led by Thailand with -20.1% to 116,289. Also declining in output were Indonesia (-16.9%), Malaysia (-14.2%), and Vietnam (-12.1%).

In the first half, the Philippine auto industry also posted the second-strongest growth rate in the region with 13.4% year on year to 64,333 units.

Myanmar posted 366.4% growth during the half to 1,068 units.

Third was Malaysia with 8.1% to 392,052 units.

Posting output declines were Indonesia (-20%), Thailand (-17.4%), and Vietnam (-9.3%).

Regionwide, production declined 12.7% year on year to 1.85 million during the half.

The Philippines was also the second strongest in output growth of motorcycles and scooters, even with a 2.6% decline to 108,346 units.

The regional average was a 5.1% decline to 861,173 units in June. The leader with 1.9% growth was Indonesia with 554,037 units.

Thailand posted a 24.4% decline in production, while Malaysia output growth was -7.4%.

In the first half, motorcycle and scooter production in the Philippines dropped 4% year on year to 652,374 units, the second-strongest growth performance in the region, after Indonesia, where output fell 1.7% to 3.41 million.

Malaysia and Thailand posted output growth rates of -15.2% and -11.8%, respectively.

The four countries produced around 5.32 million motorcycles and scooters in the first half, down 4.8% from the same period last year. — Justine Irish D. Tabile

Film Dev’t Council signs on to support young creatives

JOSE JAVIER REYES — INSTAGRAM.COM/DIREKJOEY

THE Department of Trade and Industry (DTI) said it partnered with the Film Development Council of the Philippines (FDCP) to support the winners of the Young Creatives Challenge (YC2), which is intended to promote young talent in creative fields.

“Through the Malikhaing Pinoy Program, we are committed to fostering the next generation of Filipino creatives,” Trade Undersecretary Rafaelita M. Aldaba said.

“The YC2 is a testament to our dedication to nurturing talent and providing them with the necessary support to thrive in the global arena,” she added.

Under the partnership, the FDCP will help produce the entries of the top 10 winners in the YC2’s screenwriting category, which the FDCP will solely fund.

According to Ms. Aldaba, the DTI will co-fund production of the films of the winners in the succeeding YC2 rounds. 

Meanwhile, the FDCP will also provide the top 3 winners with P1.7 million worth of support, including workshops, mentorships, resources, and networking opportunities.

FDCP Chairman and Chief Executive Officer Jose Javier Reyes said that the initiative can help give the next generation an environment that fosters their improvement.

“For the very first time, our government is recognizing the importance of creative industries, and because of that, the challenge has become more magnified,” Mr. Reyes said.

The DTI said that season 2 of the YC2 will take place in September in collaboration with the office of Senator Maria Imelda Josefa Remedios R. Marcos. — Justine Irish D. Tabile

Debt-to-GDP ratio creeps up to 60.9% in Q2 from Q1’s 60.1%

A Philippines peso note is seen in this picture illustration on June 2, 2017. — REUTERS

THE National Government’s (NG) debt as a share of gross domestic product (GDP) was 60.9% in the second quarter, down from 61% a year earlier but rebounding from the 60.1% posted a quarter earlier, the Bureau of the Treasury (BTr) said on Thursday.

The government set a debt-to-GDP ratio target this year of 60.6%. It aims to bring this down to 56% by 2028.

The threshold considered by multilateral lenders to be manageable for developing economies is 60%.

At the end of June, the NG’s outstanding debt rose 0.9% from a month earlier to a record P15.48 trillion due to the impact of a weaker peso.

The deficit as a share of GDP was 5.3% in the three months to June, picking up from 4.46% a quarter earlier and 4.8% a year earlier. The reading remained below the government’s 5.6% deficit ceiling set for this year.

In the first half, the deficit-to-GDP ratio averaged 4.9%, the BTr said.

The NG’s budget deficit narrowed 7.24% year on year to P209.1 billion in June.

In the first six months, the budget gap widened 11.2% to P613.9 billion. In the first quarter, the deficit widened 0.65% to P272.6 billion. — Beatriz Marie D. Cruz

Farmers cite delays in RCEF seed distribution

PHILIPPINE STAR/MICHAEL VARCAS

FARMERS said on Thursday that seed distribution financed by the Rice Competitiveness Enhancement Fund (RCEF) is often delayed, and called for the fund to also support the development of better-quality seed.

In a statement, the Federation of Free Farmers (FFF) said that recipients of the rice seed subsidy program have also reported mismatches between available seed stocks and their preferred varieties.

“If we focus only on the distribution of free seed, the whole program will collapse once funding from RCEF is phased out. All our efforts to promote and sustain the use of quality seed will go to waste,” FFF National Manager Raul Q. Montemayor said.

RCEF, which receives P10 billion a year from rice import tariffs, sets aside P3 billion of this total for the propagation and distribution of inbred rice seed, overseen by the Philippine Rice Research Institute (PhilRice).

PhilRice distributes an average of 3.3 million 20-kilo bags of certified seed to about 1.5 million farmers each year.

“Aside from quality seed, farmers also need support for irrigation, fertilizer, credit, farm machinery, crop insurance, marketing assistance and other key interventions which may not all be covered by RCEF,” Mr. Montemayor added.

He said RCEF should not be seen as a stand-alone program but rather as “part of a comprehensive and integrated support system for rice farmers.”

RCEF is a component of the Rice Tariffication Law of 2019, which liberalized rice imports but charged importers a tariff on their shipments. The tariff was initially set at 35% for Southeast Asian grain, but has since been reduced to 15% on grain from all sources.

Citing the Philippine Statistics Authority, the FFF said that the average yield for rice has not hit five metric tons per hectare, the level at which demand for imports might recede.

“Domestic output has not kept in step with the growth in population, and the country has become increasingly reliant on rice imports,” it added.

The 35% import tariff set by the Rice Tariffication Law, or Republic Act No. 11203, was cut to 15% by Executive Order No. 62, with the government citing the need to contain inflation stemming from high rice prices. — Adrian H. Halili

PHL ODA portfolio hits $37B in 2023, up 15% 

The South Commuter Railway is part of the 147-km North-South Commuter Railway network. — BW FILE PHOTO

THE PHILIPPINES’ active official development assistance (ODA) portfolio grew 15% to $37.29 billion in 2023 due to increased funding support for infrastructure and post-pandemic growth, the National Economic and Development Authority (NEDA) said.

In a report, NEDA said that ODA engagements include 113 active loans and 325 active grants.

Active loans last year rose 16.11% to $35.07 billion, while active grants grew 1.01% to $2.22 billion.

ODA was provided by 46 development partners and implemented by 132 agencies, NEDA said.

The Philippines receives assistance from foreign partners to help fund major infrastructure and social development needs which it cannot bankroll on its own.

Last year, the Philippines signed 30 new loan agreements amounting to $12.08 billion, including $6 billion for 13 program loans and $6.08 billion for 17 project loans.

The new program loans were meant to help restore the economy to its pre-pandemic growth track, NEDA said.

New project loans supported works like the North-South Commuter Railway System, the upgrade of the Metro Rail Transit Line 3, and the Davao Public Transport Modernization Project.

The Philippines also received 57 new grants valued at $240.53 million.

“The new grant assistance was provided by partners such as Canada, the US Agency for International Development, and Korea International Cooperation Agency,” NEDA Undersecretary Joseph J. Capuno said at a briefing.

For the first time in years, the Indian government provided around $500 million last year to assist local government units build up an internal project development capacity, NEDA added.

Japan remained the country’s top source of ODA last year with a total portfolio of $12.07 billion, accounting for 32.36% of the total.

This was followed by the Asian Development Bank at $11.43 billion (30.65% of the total), World Bank at $8.19 billion (21.95%), and the Asian Infrastructure Investment Bank at $1.7 billion (4.57%).

Other ODA sources include the China Export-Import Bank ($1.16 billion or 3.12% of the total) and other institutions ($2.74 billion or 7.34%).

Infrastructure received the largest share of ODA this year valued at $20.36 billion (54.59% of the total). This was followed by governance and institutional development at $6.88 billion (18.46%).

Agriculture, agrarian reform, and natural resources received ODA amounting to $4.16 billion (11.16%), social reform and community development got $5.59 billion (15%), and industry, trade and tourism received $290 million (0.79%).

The National Capital Region received the most ODA at $4.5 billion (42.25%), followed by Mindanao ($2.69 billion or 25.21%), Luzon ($1.93 billion or 18.13%), and the Visayas ($1.53 billion or 14.41%).

The largest ODA-funded projects last year were the NSCR Malolos Tutuban, Clark Extension, and Tutuban Laguna ($8.37 billion combined), Metro Manila Subway Project Phase I ($2.42 billion), Bataan-Cavite Interlink Bridge ($650 million), Panay-Guimaras-Negros Island Bridges Project ($56.61 million), PNR South Long Hail Project ($219.78 million), Cebu-Mactan Bridge and Coastal Road Construction Project ($807.03 million), and the Davao Public Transport Modernization Project ($1.07 billion).

Last year, disbursement of ODA loans rose 27% to $15.8 billion, NEDA said. — Beatriz Marie D. Cruz

Marcos group seals alliance with Nacionalista amid Duterte threat

PRESIDENT Ferdinand R. Marcos, Jr. and Nacionalista Party Chairman Manuel B. Villar at their alliance signing ceremonies in Taguig City. In front are Partido Federal ng Pilipinas President Reynaldo S. Tamayo and Senator Mark A. Villar. — PPA POOL

By Kyle Aristophere T. Atienza, Reporter

THE POLITICAL party of Philippine billionaire Manuel “Manny” B. Villar has allied itself with the Partido Federal ng Pilipinas (PFP) of President Ferdinand R. Marcos, Jr. ahead of the filing of candidacies for the 2025 midterm elections.

Mr. Villar, who ranked third in Forbes magazine’s billionaire list, said in a speech at a signing event the Marcos government has made “impressive accomplishments in the short time that it has been in power.”

“You may disagree with him and his policies, but you cannot question his patriotism,” the Nacionalista Party president said.

“That is why we welcomed the President’s announcement that the Partido Federal ng Pilipinas will seek alliances with the country’s national political parties in order to forge a common vision for the country.”

Mr. Marcos ran for senator under Nacionalista, the oldest political party in the Philippines, in 2010, when Mr. Villar lost to Benigno S.C. Aquino III in a landslide win.

Mr. Marcos ran as an independent vice-presidential candidate in 2016 after Nacionalista chose not to endorse him. The party helped his father, the late dictator Ferdinand E. Marcos, win in the 1965 presidential election.

“I should also mention here that his father, the late President Ferdinand E. Marcos, was a Nacionalista,” Mr. Villar said. “I have always enjoyed our conversations about the issues facing our country because when he talks, I am convinced that he is motivated by patriotism and his desire to improve the lives of our people.”

His daughter House Deputy Speaker Camille Lydia A. Villar and Senator Pilar Juliana “Pia” S. Cayetano are among Nacionalista’s Senate bets for the midterm polls, party spokesman and Surigao del Norte Rep. Robert Ace S. Barbers told reporters on the sidelines of the event.

The Partido Federal also forged an alliance Lakas-CMD, the Nationalist People’s Coalition and the National Unity Party.

Anthony Borja, a political science professor at De La Salle University, said ordinary Filipinos would likely judge the grand coalition “through lenses highlighting both individual and notorious personalities in it as well as projected and tangible outputs.”

“From a psycho-political perspective, the resonance of the ‘Unity-Bagong Pilipinas’ narrative can facilitate the electoral success of this grand manifestation of coalition building in a weak political party system,” he said in a Facebook Messenger chat.

Mr. Borja said the President’s push for unity is “limited by perceived outputs and the current notoriety of specific personalities in the coalition whose reputations can either benefit or smear the administration’s grand coalition.”

‘CHAMPION OF THE MASSES’
The alliance signing happened amid growing tensions between the Marcoses and the family of Vice-President Sara Duterte-Carpio, who on Wednesday criticized the government, including the House of Representatives, for its inaction in the face of health, security and infrastructure problems.

“The Philippines today is governed by those who have no loyalty to their sworn duty,” she said in a statement in Filipino.

Ms. Duterte-Carpio resigned as Education secretary in June.

“Both political families of the Marcoses and Dutertes are more of the same,” Party-list Rep. and House Deputy Minority Leader France L. Castro said in a statement. “They are the same breed that exploits and oppresses the Filipino people for their own gains.”

“We Filipinos definitely deserve better and it will not come from the Dutertes or Marcoses. It will come from the ranks of the masses themselves who espouse the politics of change and true service to the people,” she added.

On Thursday, Manila Rep. Joel R. Chua said Ms. Duterte-Carpio should not be given a “free pass” in budget hearings for her office.

“The Office of the Vice President’s (VP) budget must be scrutinized,” he said in a statement. “No more and never again shall the VP not be held to the same level of scrutiny as other public officials during budget hearings.”

Budget Secretary Amenah F. Pangandaman said the Office of the Vice President’s proposed P2.037-billion budget for 2025 is 8% higher than this year, adding that it did not request for confidential and intelligence funds.

House lawmakers in October stripped Ms. Duterte-Carpio of her confidential and intelligence funds for 2024, transferring these to security agencies.

“The Vice President is misrepresenting herself as a champion of the masses using empty words and generalizations,” Mr. Chua said. “All the while having nothing real and concrete to show for in terms of true results as Vice President and as Education secretary.”

“The resonance of VP Sara Duterte’s criticism of the government will be based on whether the spectating public can excuse her withdrawal from the Cabinet and exit from her previous duty as Education secretary,” Mr. Borja said.

“Those who are more likely to excuse these actions are those who are both supportive of the Dutertes and critical of the Marcos administration,” he added.

He said her criticisms could also resonate with those who remain critical of the Marcos government, “but they need not throw their support behind the Duterte opposition.”

War games with US, Canada and Australia unlikely to deter China

PHILSTAR FILE PHOTO

WAR GAMES among the Philippines, United States, Canada and Australia would probably annoy Beijing but are unlikely to deter Chinese aggression in the South China Sea, according to a security analyst.

“The war games will irk but will not deter China from its current activities,” Rommel C. Banlaoi, chairman of the Philippine Institute for Peace, Violence and Terrorism Research, said in a Viber message. “China knows how to deal with countries ganging up on her.”

He said engaging with China through dialogue would be a more effective way to ease tensions in the waterway.

Manilla, Washington, Ottawa and Canberra held their first joint military exercises in the South China Sea on Aug. 7 and 8 amid Beijing’s increased military buildup in the waterway.

The United States, a treaty ally of the Philippines, has held similar exercises with other countries in the disputed waters, having carried out drills with Manila and Tokyo in June.

The Chinese Embassy in Manila did not immediately reply to a Viber message seeking comment.

In a statement on Wednesday, the defense and military chiefs of the four countries vowed to uphold the right to freedom of navigation and overflight in the South China Sea.

“The activity will be conducted in a manner that is consistent with international law and with due regard to the safety of navigation and the rights and interests of other states,” they said.

Naval and air force units would operate together within the Philippines’ 200 nautical-mile exclusive economic zone (EEZ) to improve cooperation and interoperability, they added.

The Philippines will also hold a joint coast guard exercise with Hanoi on Aug. 9.

The Philippines and Vietnam have filed separate claims with the United Nations to an extended continental shelf to recognize their entitlements beyond their 200 nautical-mile exclusive economic zone in the South China Sea.

China claims almost the entire South China Sea, including parts claimed by the Philippines, Brunei, Malaysia, Taiwan and Vietnam.

Portions of the waterway, where $3 trillion worth of trade passes yearly, are believed to be rich in oil and natural gas deposits, as well as fish stocks.

A United Nations-backed tribunal in 2016 voided China’s claim over the waterway for being illegal. Beijing has ignored the ruling.

Beijing’s Foreign Ministry has said Manila and its allies ganging up on China would only destabilize peace in the region and worsen tensions.

US Secretary of State Antony Blinken and US Defense Secretary Lloyd Austin III announced $500 million (P28.84 billion) in military funding for the Philippines after their 2 + 2 ministerial dialogue with Philippine Foreign Affairs Secretary Enrique A. Manalo and Defense Secretary Gilberto Eduardo C. Teodoro, Jr. in Manila last week.

Philippine President Ferdinand R. Marcos, Jr. said in his third address before Congress that his government would continue to find ways to de-escalate tensions in the South China Sea “without compromising our position and our principles. — John Victor D. Ordoñez

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