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Shares to move sideways on profit taking, BSP

THE MARKET is expected to trade sideways this week as investors look forward to the start of the government’s coronavirus disease 2019 (COVID-19) vaccination program and following the central bank’s decision to keep interest rates at their current record lows.

The benchmark Philippine Stock Exchange index (PSEi) declined by 91.14 points to close at 6,991.01 on Thursday from its 7,019.18 close on Feb. 5. Financial markets were closed on Friday in observance of Chinese New Year.

The market’s average value turnover went up by 23.97% last week to 12.36 billion.

“The local index closed the week in the red after attempting to head higher through the week. The market’s strength early in the week was likely driven by global investor optimism on renewed recovery and vaccine prospects. However, this strength eventually faded as prices hit resistances, and investors took profits following the gains over the past two weeks,” China Bank Securities Corp. Research Head Rastine Mackie D. Mercado said in an e-mail on Thursday.

“Foreign funds also notably turned weekly net buyers [last] week following several weeks of net foreign selling. It will be important to monitor if this net foreign buying is sustained through the following weeks as this may signal a possible inflection point in foreign fund flows,” Mr. Mercado said.

Meanwhile, Summit Securities president Harry G. Liu said the market’s movement will depend on the economic outlook, which he said would hinge on the government’s COVID-19 inoculation program.

“We’re still trying to develop a reversal on the total market. Basically, I think the important fundamental is [for] the vaccination to be successful in the coming months so that the economy can go back to improvement,” Mr. Liu said by phone on Saturday. “So, I feel for the meantime, the market will still go on in medium- to long-term consolidation,” he added.

Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort said in an e-mail that the arrival of the first batch of COVID-19 vaccines this month will be a major catalyst for the market.

“For the coming days or weeks, any further measures to reopen the economy would help support better economic recovery prospects as well as investment valuations,” Mr. Ricafort said.

Meanwhile, the result of the Bangko Sentral ng Pilipinas’ (BSP) policy meeting last week might cause investors to pocket their recent gains. The BSP on Thursday kept benchmark interest rates at record lows to support the Philippine economy’s recovery from the coronavirus pandemic.

RCBC’s Mr. Ricafort placed the PSEi’s immediate resistance at the 7,100 level. Meanwhile, China Bank Securities’ Mr. Mercado sees the index moving between 6,900 and 7,130 this week.

“We expect the PSEi to trade sideways in the coming week as investors shift their focus to the government’s vaccine rollout. Moreover, we may see some reactive moves on Monday following the BSP’s policy meeting,” Mr. Mercado added. — K.G. Valmonte

Local COVID-19 infections nearing 550,000

THE Department of Health (DoH) reported 1,928 coronavirus cases on Sunday, bringing the total to 549,176.

The death toll rose to 11,515 after eight more patients died, while recoveries increased by 10,967 to 511,743, it said in a bulletin.

There were 25,918 active cases, 86% of which were mild, 7.2% did not show symptoms, 3% were critical, 2.9% were severe and 0.91% were moderate.

More than 7.8 million Filipinos have been tested for the coronavirus as of Feb. 12, according to DoH’s tracker website.

The coronavirus has sickened about 109.1 million and killed more than 2.4 million people worldwide, according to the Worldometers website, citing various sources including data from the World Health Organization (WHO).

About 81.2 million people have recovered, it said.

It added that active cases stood at 25.4 million, less 1% of which or 98,708 were either serious or critical.

The United States had the most infections at 28.2 million, followed by India with 10.9 million and Brazil with 9.8 million. The US also had the most deaths at 496,063, Brazil had 238,647 and India had 173,771.

The DoH on Friday reported 19 more cases infected with a more contagious coronavirus strain, bringing the total in the Philippines to 44.

Of the 19 cases, three came from the Davao region — a 10 year-old boy, a 54 year-old woman, and a 33 year-old male. They had no known links to each other and had mild symptoms.

Two came from the Calabarzon region — a 20 year-old young woman who was swabbed and had an unknown exposure on Dec. 22. The other was a 76 year-old woman who was exposed to a patient on Jan. 21 and had mild symptoms.

Eight others were returning Filipinos from overseas aged 28 to 53 years and tested at different laboratories. Six of them had been isolated, while two had recovered, DoH said.

The agency said more six cases were still being verified if they were locals or returning migrant Filipinos.

“Case investigation and contact tracing shall also immediately be initiated by the DOH through the Centers for Health Development and regional epidemiology and surveillance units, in close coordination with concerned local government units and health offices, local epidemiology and surveillance units, and law enforcement,” it said.

ENTERTAINMENT
Meanwhile, Philippine cinemas would be allowed to operate with up to half their capacity in areas under a general lockdown, according to the Trade department.

Movie theaters can fill half their seats in these areas and up to 75% of seats in areas under a modified general quarantine, Trade Secretary Ramon M. Lopez told reporters in a mobile message on Sunday.

The government recently allowed cinemas and other leisure establishments such as arcades, cultural centers, theme parks and tourist attractions to resume operations in areas under a general community quarantine (GCQ).

Movie industry revenues shrank to P1.3 billion last year from the usual P13 billion after cinemas shut during the lockdown, Mr. Lopez said.

He added that about 300,000 workers rely on the industry, which include film production, distribution and movie theaters.

Metro Manila mayors have expressed reservations about the decision, saying local government leaders had not been consulted.

Metro Manila Council Chairman and Parañaque City Mayor Edwin D. Olivarez said the council might appeal against the reopening of cinemas, noting that they are enclosed spaces.

People who stay in an enclosed space for at least an hour with people with coronavirus symptoms could be at higher risk of infection, according to the World Health Organization.

The presidential palace earlier said the Philippines was expected to start inoculating Filipinos against the coronavirus this month as it takes delivery of vaccine orders.

The government expects to vaccinate as many as 70 million citizens against the coronavirus by yearend, vaccine czar Carlito A. Galvez, Jr. said this month.

The country will get about 10 million doses of vaccines under a global initiative for equal access this quarter, including 117,000 doses from Pfizer, Inc. that might arrive this month, he said.

The government seeks to inoculate 70 to 80 million Filipino adults to achieve herd immunity, he added. The vaccine doesn’t need to be given to all Filipinos based on herd immunity, when a large portion of the population becomes immune to the disease, making its spread unlikely. — Vann Marlo M. Villegas and Jenina P. Ibañez

International court urged to try Duterte for mass murders

THE FAMILIES of suspected pushers killed in the government’s war on drugs have asked the International Criminal Court (ICC) to admit more evidence about President Rodrigo R. Duterte’s alleged crimes against humanity.

In a 10-page motion dated Jan. 21 but released only at the weekend, seven people and human rights group Rise Up for Life and for Rights cited a United Nations High Commissioner for Human Rights report in June 2020 that “clearly detailed widespread, unrelenting human rights abuses and violations related to the war on drugs.”

At least 8,663 people have been killed based on official figures — 73 of them children — although some estimates put the toll at 27,000, the plaintiffs said in their pleading, a copy of which was e-mailed by their lawyers.

“The killings have continued in the midst of the pandemic crisis,” they said, citing Amnesty International.

Given the failure of local agencies to ensure accountability, “there is a need for independent, impartial, credible investigations into all allegations of serious violations of human rights and international humanitarian law.”

Presidential spokesman Harry L. Roque, Jr. did not immediately reply to two mobile phone messages seeking comments.

The ICC was set up in 2002 to probe and prosecute genocide, crimes against humanity and war crimes when local courts failed to do so. The Philippine Senate in 2011 ratified the court’s founding document.

Local government units (LGUs) have now adopted the tactics used in the war on drugs to control the spread of the COVID-19 virus, the plaintiffs said.

“The police, basing their assessment only through hearsay by neighbors, will conduct house-to-house searches for people who might have been infected with the novel coronavirus and then forcibly relocate them to government-run isolation facilities,” they added.

They also accused Mr. Duterte of impeding justice when he threatened outgoing ICC Prosecutor Fatou Bensouda with arrest if she tried to investigate him in the Philippines.

“You cannot exercise any proceedings here without basis,” he said at that time. “That is illegal and I will arrest you.”

“The ICC prosecutor should immediately initiate an investigation in relation to these offenses against the administration of justice,” the plaintiffs said.

“Respondent Duterte should be held accountable for his blatant attempt to pervert the course of justice by intimidating and retaliating against the officials of the court,” they added.

The group said the threat against ICC and Ms. Bensouda violated the Rome Statute, which prohibits “impeding, intimidating or corruptly influencing an official of the court for the purpose of forcing or persuading the official not to perform, or to perform improperly, his or her duties.”

The Philippines in 2019 withdrew from the ICC after it opened a preliminary probe of the Duterte government for alleged human rights violations in connection with his drug war that has killed thousands.

Mr. Duterte had said the ICC does not have jurisdiction over him, noting that the Rome Statute was never published in the country’s official journal. — Kyle Aristophere T. Atienza

Suspicious reports surged after updated terror law — AMLC

SUSPICIOUS transaction reports related to terrorist financing surged in the past quarter after an updated Philippine law against terror took effect, according to the Anti-Money Laundering Council (AMLC).

The reports submitted by financial institutions to the agency also surged almost 14 times last year to 7,230 from 524 in 2018, it said in a study.

The study supported previous findings that the Philippines is a destination country for illicit flows as the bulk of remittance-related suspicious transaction reports in terms of value were funds going into the country, the AMLC said.

International remittances accounted for 91% of the total remittance-related suspicious transaction reports.

It said it expects financial institutions to file more reports after the government tagged more local threat groups as domestic terrorists in December.

Nearly half of the filed reports related to terrorism and terrorism-financing were remittances — P579.31 million international inward remittances and P29.92 million within and sent elsewhere.

Meanwhile, the value of domestic inward and outward remittances cited in suspicious transaction reports stood at P19.49 million and P8.93 million, respectively.

The AMLC said majority of the reports involved less than P5,000, which showed that terrorism financing used structured small amounts of frequent transactions with no specific patterns.

A fifth of the transactions had values ranging above P100,000 to P500,000, while 17% were P10,000 and more but lower than P100,000. — Luz Wendy T. Noble

Nationwide round-up (02/14/21)

Tax exemption sought for donated COVID-19 vaccines, other supplies

A SENATOR is seeking to exempt donated vaccines and other medical supplies used for the coronavirus response from donor’s tax. Senator Juan Edgardo M. Angara filed Senate Bill No. 2046, which proposes the tax holiday to be in effect starting this year to 2023. “In order to bolster the supply of vaccines, this bill makes it easier to accept donations of critical products, essential goods, equipment or supplies needed to contain and mitigate COVID-19 (coronavirus disease 2019), including the vaccines, by exempting these from donor’s tax for a definite period, subject to certain conditionalities,” Mr. Angara said in his explanatory note. The measure covers raw materials for personal protective equipment (PPE), all drugs, vaccines medical devices for treatment, equipment for waste management and other supplies as well as equipment as determined by the Department of Health (DoH) and the Department of Trade and Industry (DTI). The donated material “shall not be intended for commercial use and shall be for free distribution to or use for the containment or mitigation of COVID-19,” the bill states. The donations will be subject to post audit by the Bureau of Internal Revenue or the Bureau of Customs, rules of deductibility under the National Internal Revenue Code and applicable rules and issuances of the BIR, it read. — Vann Marlo M. Villegas

Expanded list of foreigners allowed entry takes effect Feb. 16

IMPLEMENTATION of the expanded list of foreigners who are allowed to enter the country will start Tuesday, February 16, according to Immigration Commissioner Jaime H. Morente. Under Resolution No. 98 issued by the national task force handling the coronavirus response, foreign nationals with valid working visas, student visas, Special Visa for Employment Generation, and Special Investors Residence Visa are now allowed entry. Holders of Special Resident and Retirees Visa and temporary visitor’s visa are also allowed to enter provided they present an entry exemption document from the Department of Foreign Affairs (DFA). Mr. Morente also clarified that “those whose visas were issued after March 20 (2020) would still need to present an exemption.” An earlier resolution by the task force already opened the country’s border for those traveling with a Filipino or former Filipino spouse, while nationals of visa-free countries under Executive Order 408 are allowed a visa-free entry, or the “balikbayan privilege,” explained BI Port Operations Division Chief Candy N. Tan. Protocols such as pre-booked accommodation in an accredited quarantine hotel or facility remain in effect. — Bianca Angelica D. Añago

Solons give contrasting timetable for charter amendments

DEBATES on the proposed economic amendments in the 1987 Constitution will be pushed to next week, according to one lawmaker, but another said the resolution is set to be heard by Monday, Feb. 15. AKO BICOL Party-list Rep. Alfredo A. Garbin, Jr., chair of the House of Representatives committee on constitutional amendments, said sponsorship and debates will begin next Monday, Feb. 22. “It’s already referred for the plenary sponsorship and plenary debates will start on Feb 22,” he said in a mobile message to BusinessWorld. The resolution will insert the phrase “unless otherwise provided by law” to specific provisions in the constitution concerning economic matters. The measure was approved last February 2. On the other hand, Marikina 2nd District Rep. Stella Luz A. Quimbo said in a statement the measure is due to be heard on the 15th. Ms. Quimbo stressed the need to work on the proposed amendments fast, adding that revising certain provisions in the constitution to allow more foreign equity will help boost the economy while it recovers from the economic impact of the coronavirus pandemic. “We need to act now. We need to introduce flexibility into the economic provisions of our Constitution so that the Legislature has leg room to steer the economy according to the demands of the time,” she said. — Gillian M. Cortez

Voter registration schedule adjusted to Tue-Sat

VOTER registration starting this week will be adjusted to Tuesday to Saturday, from 8 a.m. to 5 p.m., the Commission on Elections (Comelec) announced on Sunday. “All Offices of the Election Officer (OEO) nationwide will be open to receive applications for voter registration from Tuesdays to Saturdays, including holidays, from 8:00 A.M. to 5:00 P.M. The new schedule will be implemented beginning February 15, 2021,” the poll body said in a statement. Comelec offices will be closed Mondays for disinfection. Comelec is targeting four million new voter registrations by end-September. Over a million have so far registered since the start of the registration period last year. A national and local election is scheduled May 2022. — Gillian M. Cortez

Labor groups push for gov’t ratification of ILO convention vs harassment, violence

TWO labor groups on Sunday called on the government to ratify an International Labor Organization (ILO) convention that prevents harassment and violence in the workplace and other related venues as they commemorated the 26th year since the enactment the Philippine’s Republic Act 7877 or the Anti-Sexual Harassment Act. In a statement, the Associated Labor Unions and Building and Wood Workers International said the government’s ratification of ILO Convention 190 will help in promoting and realizing “the right of everyone to a world of work free from violence and harassment.” ILO’s Violence and Harassment Convention, 2019 (No. 190) was first adopted by the organization in 2019. Only six countries have so far ratified the convention. The convention covers protection against inappropriate and violent actions that arise from the workplace; places during work related trips, training, and other similar activities; work-related communication; in employer-provided accommodations; and during commuting to and from work. — Gillian M. Cortez

Regional Updates (02/14/21)

Panglao preparing for diving fiesta in May as travel bubble opened to mainland Bohol

PANGLAO is gearing up for its 2nd Panglao International Dive Fiesta on May 4-9, with health protocols and other procedures being firmed up to ensure the safety of participants, other guests, and the island’s residents. Mayor Leonila P. Montero, who presides over the inter-agency task force (IATF) on coronavirus, said one of the adjustments being undertaken is the transfer of the handling of arriving guests to the Municipal Tourism Office from the Public Employment Office. Meanwhile, tourists in Panglao are now allowed to go out of the island bubble to mainland Bohol subject to guidelines issued by Governor Arthur C. Yap. Under Executive order No. 7, Panglao guests can go to mainland sites “after yielding a negative RT-PCR test result five days upon arrival in Panglao.” Salive RT-PCR test and rapid antigen test are accepted for long-staying tourists. Guests are also required to coordinate with the Panglao municipal government to ensure that inter-island movements are properly recorded. All those going to Bohol, including Panglao, must pre-register through www.tourism.bohol.gov.ph.

CEBU ALSO OPEN
The neighboring province of Cebu also announced last week that it is reopening to tourists “from anywhere in the country.” The province was among the first in the country to allow tourism activities to resume for residents. “So it could be to go visit some relatives here, for business, or more importantly, for tourism,” Governor Gwendolyn F. Garcia said during a meeting with the coronavirus disease 2019 (COVID-19) task force on Feb. 11. The provincial government said visitors staying solely in resorts and hotels will only need to show their pre-booked reservations while those going to tourism sites will have to pre-register through www.discover.cebu.gov.ph. Cebu province’s guidelines do not cover the independent cities of Cebu, Lapu-Lapu, and Mandaue. — MSJ 

Davao City universities tapped as vaccination venues

PRIVATE and state-owned universities in Davao City are opening their campuses as coronavirus disease 2019 (COVID-19) vaccination sites in addition to designated public elementary schools, according to City Health Officer Ashley G. Lopez. During the simulation exercise held Friday, Mr. Lopez said among those that have signed up as venues include the University of Mindanao, Ateneo de Davao University, and the University of the Southeastern Philippines. He added that discussions are ongoing with the University of Immaculate Concepcion. The city government is targeting to have at least one vaccination site in each of the 11 administrative districts. Mr. Lopez also said the simulation held at Mabini Elementary School, which included a going through the inoculation process, went well. “In terms of the flow, it was smooth because they have a good set up from the gym for the orientation and screening, then registration, counseling to vaccination process,” he said in a mix of Filipino and English. The exercise included the transport of COVID-19 vaccines that require up to -80 celsius temperature from the Southern Philippines Medical Center and the Los Amigos Molecular Laboratory. Meanwhile, former city health officer Joy J. Villafuerte, who was recently designated to lead the vaccination program, said there is a need to strengthen the information campaign on the importance of getting vaccinated. “The vaccine is already coming. We set up facilities. The city has put a lot of programs. We need to push it more to ensure that more people will get vaccinated and we do not waste our efforts,” she said in a mix of Filipino and English. The local government is targeting to innoculate around 1.2 million individuals out of the over 1.6 million population. — Maya M. Padillo

Bill filed to strengthen Laguna Lake agency

A senator filed a bill to strengthen the powers of Laguna Lake Development Authority (LLDA) for the rehabilitation of Laguna de Bay. Senator Richard J. Gordon filed Senate Bill No. 2047, which will repeal Republic Act No. 4850 or the Laguna Lake Development Authority Act of 1966. Mr. Gordon said under the existing law, the authority exercises policy and planning, regulatory and development functions but does not have control over all projects affecting the Laguna de Bay area. There are also overlapping and conflicting mandates and programs of several agencies and local governments. Among the current problems faced by the LLDA involve solid waste management, sanitation, congestion of shore lands, and decline in water quality, among others. “This bill seeks to expedite the restoration and rehabilitation of Laguna Lake and improve its water quality so it can be used as a major domestic water source for Metro Manila and nearby provinces,” Mr. Gordon said in the explanatory note. “The proposed measure also aims to strengthen the policy-making and regulatory powers of the LLDA, in order that it can realize the vision of a self-sufficient and highly dynamic integrated water management authority, with competent and professional personnel who take the lead towards the sustainable development of the Laguna de Bay,” he added. The Laguna Lake area covers the provinces of Laguna and Rizal, cities of Pasay, Caloocan, Quezon, Makati, Manila, Mandaluyong, San Juan, Pasig, Marikina, Muntinlupa, Tagaytay, Tanauan, Taguig and Lipa, as well as some towns in Cavite, Quezon, Batangas, and the town of Pateros. — Vann Marlo M. Villegas

PHL FDI ‘growth’ in 2020 reflects different UNCTAD methodology

By Jenina P. Ibañez, Reporter

THE Philippines’ foreign direct investment (FDI) performance in 2020 has become the subject of contention after the United Nations Conference on Trade and Development (UNCTAD) projected that the country “bucked the trend” in Southeast Asia with a gain of 29% to $6.4 billion.

The UNCTAD estimate diverges sharply from the official statistics put out by the Bangko Sentral ng Pilipinas (BSP), which reported FDI to have fallen 10.8% to $5.8 billion as of the first 11 months of 2020.

“The discrepancy is so large that I find it difficult to believe. One is negative; the other is positive,” George N. Manzano, University of Asia and the Pacific economist and former tariff commissioner, said in a phone interview.

An UNCTAD official, Astrit Sulstarova, who heads the UN agency’s FDI and Trends Data section, said in an e-mail that the difference is down to how funds flows are measured, with the central bank basing its FDI assessment on “assets and liabilities” moving in and out of the country, and UNCTAD using a “directional” approach.

This means that a Philippine-resident firm’s lending to its foreign affiliate, for example, would be classified as an asset in favor of the Philippines under one approach and an outward flow from the Philippines in another.

Under the central bank’s accounting, equity and lending of Philippine-resident firms in foreign affiliates would be considered assets for the Philippines. According to a paper from the Organisation for Economic Co-operation and Development, this accounting approach takes the view that “those investments are claims they have on assets in foreign countries.”

On the other hand, UNCTAD’s directional method would classify equity and lending of Philippine-resident firms to their foreign affiliates as outward flows, not assets.

The approaches are different because the BSP has been using a newer version of an international investment manual since 2013, a bank representative said in a mobile message.

UNCTAD uses the older version of the manual, Mr. Manzano said, to consistently assess data across various countries using the same methodology.

Although domestic economists believe both methodologies are sound, they are inclined to believe that FDI to the Philippines fell last year.

A definitive investigation into the divergence of the results from the two organizations, Mr. Manzano said, would require a detailed accounting of all FDI data added and subtracted under each method.

“I tend to believe BSP’s negative more than the positive,” he said. “I don’t have any evidence. Just like a hunch — if I had to make a bet, I’d bet in BSP because how can foreign direct investment increase when everyone’s locked down?”

Asian Institute of Management Economist John Paolo R. Rivera said he prefers information from the BSP, which he believes more credibly reflects the country’s economic situation.

“Intuitively speaking, I would surmise that FDIs in the Philippines declined, consistent with the data from BSP. It is a pandemic and most businesses (both foreign and local) are holding on to cash because we do not know when everything will normalize,” he said in an e-mail.

Countries that were relatively quicker to contain the pandemic, he said, secure more FDI from investors directing money to a foreseeably stable economy.

Ser Percival K. Peña-Reyes, an economist at Ateneo de Manila University, said in an e-mail that he is inclined to follow BSP data, the official source from which international groups like UNCTAD base their own studies.

BSP measures both the influx of new FDI and the reinvestment of existing capital or intercompany lending. The latter, or the decline in FDI created by previous investment in the country, he noted, pulled down the overall FDI total in the Philippines last year.

“The Philippines should also work to ensure that it keeps its existing FDI,” he said.

The decline in investment generated by existing FDI, he added, “might indicate a decline in foreign investors’ confidence in our COVID-19 crisis management, which, of course, would have implications on our growth prospects.”

Although the Philippines did not post the largest contraction in Southeast Asia in the first nine months last year, Mr. Peña-Reyes said, Thailand and Vietnam returned positive growth rates, which he attributed to the economic confidence brought on by their management of the crisis.

“I think our dismal economic performance and our poor handling of the COVID-19 crisis will make it difficult for us to attract FDI. Our main concern should be how to restore confidence in our economy,” he said.

Marikina River dredging to start Feb. 17 — DENR

THE Department of Environment and Natural Resources (DENR) announced over the weekend that the Task Force Build Back Better (TF BBB) will begin dredging the Marikina River on Feb. 17.

In a statement Saturday, the DENR said an initial dredging activity will take place on a stretch of the river near Marcos Highway in barangay Kalumpang, Marikina City, while bamboo planting will take place where the riverbank traverses the Industrial Valley Complex, also in Marikina.

“The widening of the Marikina River to its original width is but the start of the series of activities the Task Force has identified to address the perennial problem of flooding within the Marikina River Basin,” Environment Secretary Roy A. Cimatu, who chairs TF BBB, was quoted as saying.

He said bamboo is thought to prevent riverbank erosion and siltation, and was pursued in rehabilitating the Cagayan River, which was also the scene of extensive flooding in late 2020.

The DENR said it decided to dredge following reports that parts of the Marikina River were being unlawfully reclaimed, reducing the waterway’s ability to move excess rainwater during typhoons.

In a statement, Mr. Cimatu said that a number of structures were also found to be occupying easement areas, in violation of the Philippine Water Code or Presidential Decree No. 1067.

He said that the DENR’s National Capital Region office conducted aerial and ground surveys which “confirmed that there were encroachments in the river and in the designated legal easements.”

“We will have to show our political will here and sustain our efforts to rehabilitate Marikina River and other waterways. This is just a prelude to the bigger one,” Mr. Cimatu said, referring to the tasks that the TF BBB needed to undertake in a portion of the river that flows through Pasig.

The DENR said that the downstream portion of the river in the Pasig area had a narrower riverbank because of reclamation and the presence of illegal structures.

In November, Mr. Cimatu recommended the widening of the Marikina river to increase its flood carrying capacity after Marikina City and nearby areas were submerged during Typhoon Ulysses (international name: Vamco). — Angelica Y. Yang

Time seen running out as red tape hampers ‘Build, Build, Build’

PRESIDENT Rodrigo R. Duterte needs to move decisively in reducing bureaucratic hurdles to his signature “Build, Build, Build” program if he is to leave a substantial legacy of major building projects, analysts said.

“Only a handful” of projects reached the construction and implementation stage, according to Terry L. Ridon, convenor of infrastructure advocacy InfrawatchPH, said in an e-mail. “Most of which are even public-private partnerships (PPP) originated in previous administrations.”

In 2017, Mr. Duterte and his economic managers launched “Build, Build, Build” with an initial slate of 75 big-ticket projects intended to stimulate the economy and ultimately reduce poverty.

The list has since been upgraded to 104 big-ticket items, after three revisions to the list in four years.

More than halfway into the President’s term, however, “some had even been delayed, if not effectively shelved, due to changing policy directions of various agencies,” he said.

Mr. Ridon said one of the biggest stumbling blocks to completing the program was “red tape.”

“While we would not want shortcuts, particularly on social and environmental licenses, five years of permitting delay should give us pause on what really needs to be done to fast-track implementation,” he said.

Mr. Ridon said the government should “strictly implement timelines and enforce penalties for bureaucratic delay.”

“We have seen the streamlining of permits in (cellular) tower buildings. We should see the same in other infrastructure projects,” he said.

As the current government approaches its departure date in 2022, “emergency powers or any sort of measure that may seem to expand executive powers” will be difficult to legislate “due to public opinion looking forward to a peaceful transfer of power to a new administration,” Mr. Ridon said.

“The speed bump has been with the bureaucracy itself: the countless permits and regulatory setbacks have delayed most of our flagship projects.”

Mr. Duterte last year signed a law granting him special powers to fast-track the processing and issuance of government permits and licenses.

“Government needs to meet deadlines particularly because it faces the prospect of all these projects being shelved in the next administration, if funding priorities change from infrastructure to social services or coronavirus response,” Mr. Ridon said.

If construction does not commence within the next 16 months, the administration’s infrastructure program list “will remain a wishlist,” he said.

“There will certainly be another round of project review at that time, and infrastructure priorities may change.”

“There are institutional difficulties and other administrative hindrances that can derail big infra projects,” Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, Inc., said in an e-mail.

Of the P4.13-trillion spending program for “Build, Build, Build,” more than half or P2.26 trillion will be supported by loans and grants from overseas, while a total of P1.69 trillion will be supported by public-private funding.

“I think it is clear what works. PPP is a certified best practice all over the world, especially in emerging or developing economies,” Mr. Asuncion said. “Get it done by the private sector to address a public good and both interests will be met.”

He said the PPP should have been “greatly amplified and further endorsed” under the current administration. “There is no stopping any administration from doing other means aside from what is being done that has clearly worked.”

“A better motivation to meet the deadline would be for the sake of aiding the economic recovery,” Mr. Asuncion said.

Mr. Asuncion, meanwhile, said one possible change to ensure infrastructure continuity is to allow presidents to stand for reelection in two five-year terms.

“I think that a good 10 years of one administration would be enough to get big infra projects implemented to the advantage of the populace. Six years of one term is simply counterproductive,” he said. — Kyle Aristophere T. Atienza

Renewable energy program targets 55.8% share of power mix by 2040

THE Department of Energy has set new renewable energy (RE) targets in its latest version of the National Renewable Energy Program (NREP), with RE expected to account for more than half of the Philippines’ power mix by 2040, officials said.

“[The updated NREP proposes RE targets of] 55.8% by 2040, and 37.3% by 2030” in terms of overall share of power generated, Senator Sherwin T. Gatchalian, who chairs the Senate Committee on Energy, told BusinessWorld in a video call over the weekend.

Mr. Gatchalian said he learned about the new targets in a Friday briefing with officials overseeing the NREP, noting that the ultimate targets are subject to public consultation to be conducted “soon.”

The current NREP covering 2011 to 2030 hopes to bring the share of RE to 35% by the end of that period.

The NREP sets the road map for achieving the Philippines’ RE goals as required by the Renewable Energy Act of 2008.

The latest plan, Mr. Gatchalian said, looks at natural gas to play a big role in accelerating the development of renewables.

“The more RE that will be injected in our system, the more natural gas we need to balance it. Natural gas is quick-response, so it can compensate for the intermittency of RE. So in their modelling, in NREP, natural gas is a very important component of that plan,” the lawmaker said.

National Renewable Energy Board (NREB) Chairperson Monalisa C. Dimalanta confirmed the details in a mobile message Saturday. 

She said the planning team used a capacity planning software which set the current 35% RE target as a floor, which she called a “hard constraint” in preparing the new plan.

“The model showed us we could (exceed) 37% RE share by 2030,” she told BusinessWorld.

“The results also showed this increase in RE share is supported by higher flexibility in the system coming from natural gas plants all the way to 2030, with slight decline by 2040,” she added.

Ms. Dimalanta said that in order to bring RE’s share higher, the Philippines needs to aggressively ramp up its renewable portfolio standards program, which requires distribution utilities to source an agreed portion of their supply from eligible RE facilities.

The NREB recommends an increase in the minimum level of electricity contracted from RE developers to 2.5% from the current 1%.

She added that energy regulators are thinking of releasing the updated NREP during the first quarter, with a public consultation scheduled to be held this month. — Angelica Y. Yang

Tax relief from net operating losses: Useful or futile?

The prolonged community quarantines during the pandemic have caused a significant reduction in economic activity. Sectors and industries deemed non-essential experienced closures or resorted to reducing their staff, which resulted in low productivity. Various establishments were challenged with low demand for their products and services, ultimately leading to a decrease in net operating income — or worse — to net operating losses.

From a tax perspective, can businesses still recover their net operating losses arising from the effects of the pandemic?

To address the impact of COVID-19, the Senate and the House of Representatives enacted Republic Act (RA) No. 11494 or the Bayanihan to Recover as One Act (Bayanihan II) effective Sept. 15, 2020 with an original expiry date of Dec. 19, which has since been extended to mid-2021. Bayanihan II provides for COVID-19 response and recovery interventions and mechanisms to accelerate the recovery and to bolster the resiliency of the economy.

The extension of Bayanihan II to June 30 was signed on Dec. 29, in the form of RA 11519.

CARRY-OVER OF NET OPERATING LOSSES
Among the response and recovery interventions provided under Bayanihan II are the carry-over of net operating losses incurred by the business or enterprise for taxable years 2020 and 2021 as deductions from gross income (for purposes of computing net taxable income subject to regular corporate income tax) over the next five consecutive taxable years immediately following the year of such loss [Section 4 (bbbb) of the Bayanihan II].

One of the features of Bayanihan II was a provision that Section 4 (bbbb) would remain in effect even after the expiration of the Act, provided that the deductions are claimed within the next five consecutive taxable years.

In the implementing regulations [Revenue Regulations (RR) No. 25-2020 dated Sept. 30] of Bayanihan II, net operating loss is defined as the excess of allowable deductions or expenses (as enumerated in the Tax Code) over the taxable gross income of the business in a taxable year, whether calendar or fiscal year.

Recently, the Bureau of Internal Revenue (BIR) clarified, through Revenue Memorandum Circular (RMC) No. 138-2020 dated Dec. 22, that the net operating loss carry-over (NOLCO) may be availed of under RR No. 25-2020 for taxpayers operating on fiscal-year reporting. The RMC enumerated fiscal years ending between July 31 and Nov. 30, 2020 and Jan. 31 to June 30, 2021 as falling within the taxable year 2020. Meanwhile, fiscal years ending between July 31 to Nov. 30, 2021 and Jan. 31 to June 30, 2022 fall within the taxable year 2021. Thus, net losses incurred by businesses or taxpayers during these fiscal years can be carried over as deductions from gross income for the next five consecutive taxable years.

It should be noted that generally, under existing rules (Section 34 of the Tax Code and RR No. 14-01), the accumulated net operating loss of a business by individuals engaged in trade or business or practice of profession and domestic and resident foreign corporations can be carried over as a deduction from gross income only for the next three consecutive taxable years.

WELCOME RELIEF FOR TAXPAYERS
The benefit granted under the Bayanihan II extending NOLCO for an additional two years is welcome relief for businesses that have been significantly affected by the pandemic and have suffered operating losses in 2020, as well as those still recovering and expecting negative results from operations in 2021.

However, while a business may incur a net operating loss and is allowed NOLCO deductions in subsequent years, the corporation is still liable to pay the 2% minimum corporate income tax (MCIT). The MCIT is based on gross income if the same is higher than the 30% regular corporate income tax (RCIT) based on net taxable income. Accordingly, the extended NOLCO deduction may have no impact or relevance if the corporation pays MCIT.

MCIT UNDER THE CREATE BILL
Another related development is the reconciled version of the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE), which was ratified by the House of Representatives and the Senate on Feb. 1 and 3, respectively. It covers package 2 of the tax reform program, which proposes amendments to the corporate income tax system, among others, and provides for a reduction in the MCIT rate to 1% effective July 1, 2020 until June 30, 2023.

However, this reduction in MCIT rate appears to provide temporary tax relief only during the period when businesses may possibly incur net operating losses due to the pandemic. For the enhanced or extended NOLCO to have significant impact during the period when businesses are supposed to have recovered and claimed NOLCO deductions, the effectivity period of the MCIT relief should ideally be consistent with the extended period of the NOLCO.

It is hoped that, as legislators move forward with the CREATE Bill, the possibility of extending the period of MCIT relief is considered to better align the bill with NOLCO provisions of Bayanihan II. Otherwise, between 2023 and 2026, when net operating losses from 2020 and 2021 are allowed to be claimed as deductions, businesses may end up paying the 2% MCIT instead of taking full advantage of the extended NOLCO. Harmonizing these areas is believed to allow taxpayers to enjoy full tax relief and support.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.

 

Judy J. Castroverde is a Tax Senior Director from the Global Compliance Reporting Service Line of SGV & Co.

On the proposed lifting of the constitutional foreign ownership restrictions

The lifting of constitutional limits on foreign ownership proposed by Resolution 2 of both Houses has now been approved by the Lower House committee on constitutional change. Resolution 2 proposes to add the phrase “unless otherwise provided by law” to every restrictive provision.

It has two separate parts:

a.) Substance — will the lifting raise foreign investment inflow and by how much?

b.) Process — could it be implemented in a fashion that keeps political provisions out?

I agree with the substance of Resolution 2 that the lifting of the constitutional limit on foreign ownership will make the Philippines more foreign investment-friendly; but “more” should be understood with caution. The evidence on the response of foreign investment to the lifting of restrictive ownership provisions is still largely cross-country and directional (positive) but not on how much. There is however evidence that for one particular case, the restriction has proven very costly (case below).

By itself alone, the lifting will not create a tsunami of inward foreign investment as often vehemently but gratuitously asserted. The reason is that attracting foreign investment is like attracting hotel clientele: clients are always comparing packages of offerings. If your package is multiply inferior, say, “dirty toilets” on top of “bad air conditioning” on top of “poor safety,” solving just “dirty toilets” will not bring about a flocking of clients. It is only one among the many steps toward a competitive package of features. Advocates of the lifting sometimes treat the public like they were born yesterday by unfounded overselling.

One observation is highly relevant. The investment rate of the country is and has been very low in the past two decades (at best 22% of GDP (gross domestic product) vs. 25-35% among our neighbors). And the Government Capital Outlay (GCO) is lowest in the region (2-4% of GDP vs. 7-10% of GDP among our neighbors). If we are not investing more in our own country, it’s hard to see why foreign investors will do so. That local investors are not “gung ho” though unhampered by the restrictive provisions suggests that other hurdles are as, or even more, important.

The problem of being bottom of mind as an FDI (foreign direct investment) destination in the region has many fathers — foremost among them being: the high cost of power, the high cost of logistics, the number of signatures required and time delays in applications, the uncertainty of the regulatory environment, the weakness in the judicial system and the unsettled peace and order — no question but these concerns come higher in the minds of investors than foreign ownership restrictions. These hurdles will not go away with the lifting.

Furthermore, in the Philippines, the problem of mixed messaging is acute: first, the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill as approved by Congress will increase the effective income tax on foreign investment because the 5% gross income tax (GIT) to be displaced is equivalent to 17% corporate income tax (CIT) by Department of Finance (DoF) calculation while CREATE proposes a shift to 25% CIT and further on perhaps to 20% CIT. By the way, 17% CIT is the offering to foreign investors in Vietnam.

The appreciating peso (10% in 2020) hit Philippine manufacturers and exporters in 2020 which starkly contrasts with the stability of the Vietnamese Dong to the delight of its export locators. Imposing price controls on pork speaks of the knee-jerk anti-market tendency of the government. Mixed messaging is very damaging to our cause.

That said and to follow up on item 2(a), I will instance, following R. Landingin’s (2007) narration of facts, the cost of Article XII, Section 11 limiting foreign capital of firms to minority status. Arguably the most insidious of red flags about the Philippines as a foreign investment destination in the last two decades starting in 2002 was the PIATCO (Philippine International Air Terminals Co., Inc.) fiasco involving the contract to build Terminal 3 of NAIA (Ninoy Aquino International Airport).

Fraport, the foreign partner in PIATCO, allegedly ponied up most of the money but was relegated by the constitution to minority ownership. For decades after its 2002 delivery, NAIA Terminal 3 was a spanking new $370-million facility lying idle, gathering dust, and earning zilch because it was embroiled in a lawsuit involving the ownership of the facility. No matter who owned the facility, the Coasean bargain would have been to run the facility and focus the legal dispute on its earnings, precisely the recommendation of the Canlas ad hoc committee headed by then-National Economic and Development Authority (NEDA) Secretary Dante Canlas. But then-President Gloria Macapagal Arroyo decided to nullify the contract, handing the matter over to the lawyers. The protracted dispute between the Philippine government and Fraport effectively red-flagged the Philippines as a foreign investment quagmire. Had Section 11 Article XII not been there, Fraport would have had controlling interest and the PIATCO fiasco would not have arisen. In 2013 the Court of Appeals awarded PIATCO $371,426,688 as just compensation. In 2015, the Philippine Supreme Court affirmed the Court of Appeals award which, with interest, had ballooned to P24 billion by 2016. The known cost of Article XII Section 11 on PIATCO alone is staggering. Somebody should have gone to jail.

On Article XII, Section 3 proscribes foreign ownership of land. My personal belief is “To him who can make the land flower best belongs the land.” Citizenship alone does not equip one to make the land flower. Worse, the rape of our national patrimony is the handiwork not only of foreign but also of local passport holders. But foreign investors are not that interested in land ownership; a secure long-term lease is just as good.

Resolution 2 introducing the phrase “unless otherwise provided by law” into specific restrictive provisions makes Congress the final arbiter! This modality is thus contingent on action by Congress which may or may not act. Rep. Edcel Lagman also raised a valid issue on the signaling value of Resolution 2 modality and I paraphrase: This seems a signal of frailty rather than one of resolve. For a stronger signaling, for one more apropos foreign investment and very much less politically contentious (note, no mention of “land”), the Philippines’s cause may be better served by a one-line amendment: Section 11 of Article XII is hereby deleted.

On the process of lifting, the most asked question is: How do the advocates deliver on its promise to insulate the lifting process from non-economic provisions? Rational distrust is the currency of the land at the foothills of another election. As it is, many vocal advocates of the lifting are also lead ideologues of some constitutional political change.

One way to sidestep rational distrust is to offer a “credible commitment” that this won’t happen. A credible commitment is a pledge that is very costly for the offeror to break. An example of credible commitment is the one required by the Mafia of prospective members: Assure us that you will never rat on this family: commit murder. At any rate, anything less will amount to what game theorists call “cheap talk.” Beware of cheap talkers.

 

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

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