Thailand and Taiwan may be added to the US watchlist for currency manipulation after meeting all of the criteria set out by the Treasury Department, according to UBS Group AG.
A country is included in the monitoring list if it fulfills two of three benchmarks: a trade surplus with the US of at least $20 billion; a current-account surplus of at least 2% of gross domestic product; and persistent, one-sided intervention in the currency equivalent to 2% of GDP in six months of a year.
Taiwan, which dropped off the US monitoring list in 2017, and Thailand now fulfill all three criteria, UBS’s analysis shows. Neither were included in the US Treasury’s January findings.
“Thailand and Taiwan crossed the $20 billion trade surplus mark to make it to the list,” UBS strategists including Rohit Arora and Teck Quan Koh wrote in a July 21 report. “We expect Thailand’s inaugural mention in the upcoming report, with a non-negligible possibility of Taiwan’s re-mention.”
Bank of Thailand Governor Veerathai Santiprabhob said on July 14 that he is not concerned about the upcoming report as the nation has explained its foreign-exchange policy to the US Treasury. The baht has moved in both directions against the dollar and actually weakened from last year, he said. He added that the central bank only steps in when there are excessive swings as it uses a managed float system and the US Treasury understands that.
The US dropped its designation of China as a currency manipulator in its last report, noting the world’s second-biggest economy had made “enforceable commitments” not to devalue the yuan. Switzerland was added to the watchlist, while China, Japan, Korea, Germany, Italy, Ireland, Singapore, Malaysia, Vietnam were retained.
Taiwan’s central bank Governor Yang Chin-Long has said that it may appear on the watchlist if the US keeps its criteria. “Our principle of when to step in forex market does not change, that is when there is huge fund flow in or out in short period of time. The central bank will maintain the stability of Taiwan dollar,” he said last month.
About 75% of central banks have engaged in “persistent FX intervention,” the UBS report found. Asian nations made up about 60% of the economies under currency surveillance by the US Treasury, the strategists said.
“Even though we think no country will be labeled a manipulator, the report matters symbolically for FX markets,” the UBS strategists wrote. “A persistent one-sided intervention means authorities may have to focus on current-account surplus recycling flows or structural reforms to avoid any unintended penalties over the medium term.”
Here are some of UBS’ other findings:
• Bank of Thailand is estimated to have intervened 10 out of 12 months in the currency market over the course of 2019, with net foreign-exchange purchases representing 3.5% of GDP
• Coronavirus disruption in Thailand’s tourism sector and impact on current-account may curb BOT’s opportunities to buy dollars over next six to nine months
• Taiwan’s inclusion in the list may be a “close call” on the country’s strengthening currency and transparent disclosures around forwards positions.
— Bloomberg
COPS, MILITARY and other government workers involved in the alleged investment scam of Kapa-Community Ministry International (KAPA) will be tracked down and investigated, according to the national police chief. “The special task group is there to investigate kung sino ‘yung mga kasali dito. ‘Yung sinasabi nila na members na hindi lang kapulisan or ng AFP (Armed Forces of the Philipines). Lahat ng member ng gobyerno (all those involved, not just the police or the AFP. All members of government),” Gen. Archie Francisco F. Gamboa said in an online briefing Wednesday. KAPA founder Joel Apolinario, who is facing syndicated estafa charges, was arrested Tuesday with 23 of his armed men in a resort in Lingig, Surigao del Sur. — Emmanuel Tupas/PHILSTAR
THE JAPAN International Cooperation Agency (JICA) is donating laboratory equipment and supplies to two facilities in Manila conducting coronavirus disease 2019 (COVID-19) testing. The recipients are the Research Institute of Tropical Medicine (RITM) and San Lazaro Hospital, both longtime institutional partners of JICA. “COVID-19 is not only a challenge of one nation, but of the rest of the world. JICA will continue to work closely with our partner nations like the Philippines, as we have done in the past, so we can get through this public health challenge together,” JICA Philippines Chief Representative Azukizawa Eigo said in a statement on Wednesday. The equipment and supplies are scheduled to be turned over in September. The Philippines earlier signed a soft loan of 50 billion yen or around P23.5 billion with Japan, through JICA, to fund outbreak-containment efforts. JICA has extended 3.6 trillion yen in official development assistance to the Philippines since 2018. — Jenina P. Ibañez
THE NATIONAL Irrigation Administration (NIA) has partnered with EMME Environmental Solutions, Inc. (EESI) for the development of a hydrokinetic power project on the Magat Canals located in the town of Ramon in Isabela. NIA Senior Deputy Administrator Abraham B. Bagasin and EESI Chairman Edgar B. Aglipay signed an agreement on July 17 for the construction of a hydropower plant through the installation of hydrokinetic turbines on seven irrigation canals in the Magat River Integrated Irrigation System. The agreement indicates that the conduct of feasibility studies and installation of demo units of hydrokinetic turbines in the irrigation canals will not disrupt the operation and maintenance of other existing canals of the irrigation system. NIA said the memorandum is effective for a non-extendable period of one year and will be at no cost to the agency. — Revin Mikhael D. Ochave
THE DEPARTMENT of Transportation (DoTr) has received the shortlist of bidders for the project management contract of the China-funded Mindanao railway’s first phase, but none yet for the build-and-design contractor. DoTr Assistant Secretary Eymard D. Eje did not give the names on the project management list, which he said is already “at hand.” The list of bidders for the build-and-design contract was expected in June from the Chinese Embassy. The P82.9-billion railway’s first phase, covering the 100.2-kilometer Tagum-Davao-Digos segment, will be financed through an official development assistance package from the China government.
PRE-CONSTRUCTION
Meanwhile, Project Manager Clipton J. Solamo said they are aiming to complete all the pre-construction activities by the third quarter this year. This involves right-of-way (ROW) and site acquisition, area inspections, project alignment, and meetings with officials and residents of affected communities. “We are targeting to finish the pre-construction works within the third quarter of this year,” Mr. Solamo said in a text message. The National Economic and Development Authority approved a single track, diesel-run railway system for the initial segment, but Mr. Eje said they are acquiring a 40-meter wide ROW for the entire line as a provision for a possible upgrade to a dual track electric system in the future. — Maya M. Padillo
ILOILO CITY Mayor Jerry P. Treñas has withdrawn the temporary closure of its borders for those coming from Negros Island, which is composed of the provinces of Negros Occidental and Oriental and the independent city of Bacolod. “Upon due consideration, the City of Iloilo hereby reconsiders its decision to ban the travel of passengers from Iloilo City to Bacolod and vice versa. We apologize to everyone for the inconvenience,” Mr. Treñas said in a statement posted on the city government’s Facebook page. The ban was supposed to be in effect July 22 “until further” notice, according to an earlier post. Mr. Treñas cited the rising number of coronavirus cases in the city. Bacolod City, the main jump-off point for sea transport from Negros to Iloilo, also closed its border in response to Iloilo’s move. “This is primarily a reciprocity to the issued statement of Mayor Jerry Treñas… that is logic because if Iloilo will not receive people from Bacolod and the island of Negros, what is the sense in allowing trips from Bacolod to Iloilo,” Bacolod Mayor Mayor Evelio R. Leonardia said in a video message posted on the local government’s Facebook page just past midnight Wednesday. “We are closing our borders to passengers coming in from Iloilo City, Province of Iloilo and the whole of Panay, including Guimaras, effective 11:59 p.m. of July 21,” he said. Transport of essential goods to and from both cities will continue, according to both mayors. Of the 810 confirmed coronavirus cases as of July 21 in the Western Visayas Region, 607 are repatriates. Of the total, 98 are from Iloilo City, including 48 returning residents and overseas workers. Negros Occidental has the highest cases at 272, including 240 repatriates. Bacolod has 92, with 65 repatriates. — Marifi S. Jara
THE National Government’s budget deficit ballooned to P560.4 billion in the first half of 2020, as pandemic-related expenses surged amid a decline in tax collections, the Treasury said. Read the full story.
THE National Government’s budget deficit ballooned to P560.4 billion in the first half of 2020, as pandemic-related expenses surged amid a decline in tax collections, the Treasury said.
Data from the Bureau of the Treasury (BTr) released on Wednesday showed that the budget deficit swelled by 1,214% in the January to June period, from the P42.6-billion gap recorded during the same period a year ago. It was also 25% lower than the P751-billion deficit programmed for the period.
This as the fiscal gap swung to a P1.8-billion budget surplus in June, from a P41.8-billion deficit logged a year ago.
State revenues jumped 50% to P351 billion in June from P234 billion a year ago, thanks to a 54.56% increase in tax collections.
Tax revenues stood at P325.4 billion in June, as the Bureau of Internal Revenue’s (BIR) collections surged 79% to P283 billion. The income tax payment deadline fell in June this year, as the lockdown forced the government to extend it several times from the original April 15 deadline.
“BIR’s strong performance for the period was attributed to the collection of the 2019 income tax dues during the month as well as the resumption of economic activities due to the easing of some quarantine restrictions,” the BTr said.
On the other hand, the Bureau of Customs (BoC) saw a 17% drop in collections to P42.6 billion due to the impact of the lockdown.
Revenues from non-tax sources totaled at P25.6 billion last month, with BTr’s income rising 5.85% to P11.3 billion and those from other offices increasing by 12.64% to P14.3 billion.
The BTr attributed this to higher remittances from state-owned firms; dividends from stocks held by the government; and the reversion of P5-billion unused funds from the wage subsidy program that ended in June.
On the other hand, state spending jumped 26.65% to P349.2 billion in June from P275.7 billion a year ago. Primary spending — net of interest payments — climbed by 30.42% to P322 billion, while interest payments slipped by 5.3% to P27.6 billion. The BTr said disbursements increased mainly on subsidies extended to Philippine Health Insurance Corp. and the National Housing Authority.
HIGHER SPENDING
Year to date, the budget gap widened as the government ramped up spending in order to boost the country’s healthcare capacity and provide relief to sectors most affected by the pandemic.
State spending jumped 26.63% to P2.014 trillion in the first half from P1.59 trillion spent a year ago, but still short of the P2.203-trillion target. The BTr attributed the higher expenditures to the release of emergency cash handouts to poor and low-income families.
Operating expenses were 29.5% higher at P1.826 trillion but still missed the P1.995-trillion target by 8.48%. Interest payments were up 4.22% to P187.7 billion but fell 9.47% short of the P207-billion goal.
As a percentage of revenue and expenditures, interest payments in those six months stood at 12.91% and 9.32%, respectively, inching up from 11.64% and 11.32%, respectively in the same period last year.
At the same time, revenue collection slipped 6.09% to P1.453 trillion in the January to June period. Tax collections dropped 11.9% to P1.216 trillion, although this was partially offset by a 42% rise in income from non-tax sources at P236.9 billion.
However, the revenues still exceeded the downgraded P1.452-trillion target for the six-month period by 0.12%, with tax haul surpassing its P1.198-trillion goal for the period by 1.53% and earnings from non-tax sources missing its P254-billion target by 6.53%.
Expecting a severe economic downturn, the Development Budget Coordination Committee (DBCC) lowered its revenue projections to P2.613 trillion for 2020, P2.929 trillion for 2021, and P3.271 trillion for 2022.
In the first half, taxes collected by the BIR slipped 10.31% to P956.4 billion, but 2.45% higher than the revised P933.5-billion target.
Customs’ six-month collections were also lower by 16.47% to P253.1 billion, falling short of its P254.2-billion goal.
Security Bank Corp. Chief Economist Robert Dan J. Roces said the surplus in June could be temporary as the government is widely expected to ramp up spending in the coming months to pump-prime the economy.
“As for below-target spending in (the first half), this is the government being prudent and making sure that spending is manageable relative to revenues; the funding response ideally should be larger but I think there is also the need to manage fiscal dominance and complement the accommodative monetary policy environment set by the central bank,” Mr. Roces said on Wednesday via e-mail.
For Ruben Carlo O. Asuncion, chief economist at the UnionBank of the Philippines, Inc., the widening of the budget deficit will likely depend on the amount of the government’s stimulus package.
“The government has yet to roll out its fiscal stimulus package that is meant to support the flailing economy due to the COVID-19 spread. Once a consensus is reached on a fiscal measure, we may see a deficit growing in the coming months,” Mr. Asuncion said in an e-mailed response to questions.
Several stimulus measures are currently pending in Congress, such as the P140-billion Bayanihan 2 bill and the P1.3-trillion Accelerated Recovery and Investments Stimulus for the Economy bill.
Mr. Asuncion noted the government spending will be a “key component” in reviving the economy.
“Even with the rising COVID-19 infections, construction and infrastructure development activities have to adjust accordingly to help keep the economy moving and eventually stay afloat,” Mr. Asuncion added.
Latest data showed infrastructure spending fell 36.7% to P38.9 billion in May from P61.5 billion in the same month last year, dragging the year-to-date figure to P235.2 billion, down 12.2% year on year.
The economy is projected to shrink by 2-3.4% this year. — Beatrice M. Laforga
By Luz Wendy T. Noble, Reporter
FOREIGN INVESTMENTS to the Philippines plunged to an 11-month low in April, as the coronavirus pandemic prompted lockdowns that disrupted economic activity around the world.
Net inflows of foreign direct investments (FDI) declined by 67.9% to $311 million in April, from the $971 million booked a year ago, data from the Bangko Sentral ng Pilipinas (BSP) showed. This 38.66% lower than the $507 million tallied in March.
The April inflows are the lowest since the $280 million recorded in May 2019.
“The slowdown in FDI inflows reflected the continued weak global and domestic demand prospects prompting many investors to put on hold investment plans amid the unresolved COVID-19 (coronavirus disease 2019) pandemic,” the BSP said in a statement on Wednesday.
The significant drop in April was attributed to a 73.2% decline in net investments in debt instruments to $223 million from the year-ago figure of $832 million.
Reinvested earnings, or funds which foreign businesses chose to keep here to fuel business expansions, also slipped by 15.8% to $81 million in April from the $96 million a year ago.
Equity other than reinvestment of earnings plummeted by 82.6% to $7 million for the month of April against the $42 million recorded last year. Placements sank 68.3% to $47 million, while withdrawals dropped 62.5% to $39 million.
“The bulk of the equity capital placements were sourced from Japan, the United States, Singapore, and Germany,” the central bank said, noting investments were funneled into industries such as manufacturing, real estate, and wholesale and retail trade.
Meanwhile, inflows to equity and investment fund shares decreased by 36.2% to $89 million from the $139 million booked a year ago.
For the first four months of 2020, FDI net inflows slid by nearly a third (32.1%) to $1.98 billion against the $2.916 billion seen in the same period of 2019.
In June, the BSP downgraded its FDI projection for 2020 to $4.1 billion from the $8.8 billion outlook penciled in last year.
Net FDI inflows settled at $7.647 billion last year, 23.1% lower than a year earlier, as global uncertainties, regulatory risks and an unclear path for a local tax reform program dampened investor sentiment.
The weakness of FDI inflows is consistent with the decline in other economic indicators due to lockdown restrictions, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.
“Net FDIs sharply declined in April 2020, which was the height of the COVID-19 lockdown in the Philippines as well as in other developed countries that are the major sources of the country’s FDI,” Mr. Ricafort said in an e-mail.
A sharp drop in FDIs during a time of uncertainty is “not unique” given the country is an emerging market, Security Bank Corp. Chief Economist Robert Dan J. Roces.
Mr. Ricafort said the worst might be over for the country’s FDI inflows as lockdowns began easing around the world.
He said the passage of tax reform measures will help improve investor sentiment.
“The proposed CREATE (Corporate Recovery and Tax Incentives for Enterprises Act) bill, if passed into law later in 2020 would also help encourage more FDI inflows into the country in view of lower corporate income tax rates and greater certainty on incentives for some foreign investments,” Mr. Ricafort said.
The CREATE bill looks to immediately bring down corporate income tax to 25% this year from the current 30% and to 20% by 2027. It is still pending in Congress, which will resume session on July 27.
Mr. Roces said investments may recover if the country improves its infrastructure and incentives program.
“This on top of the fact that we still offer many comparative advantages, including an English-speaking and well-skilled workforce, and a geographical location in a dynamic region,” he added.
THE Philippine Chamber of Commerce and Industry (PCCI) urged the government to allow businesses to resume full operations, warning that many are facing the possibility of permanent closure if lockdowns continue.
The largest business organization in the country on Wednesday said 50% of the members in its local chambers in Luzon and Mindanao have closed down, while employment among those that continue to operate is down to 25-30%.
“The almost five months of lockdowns have put more firms at a greater risk of permanent closure,” PCCI President Benedicto V. Yujuico said in a statement.
After GDP shrank by 0.2% in the first quarter, the Philippine economy’s contraction is expected to deepen in the second quarter — as Luzon was under enhanced community quarantine (ECQ) for most of the period.
“Obviously, we don’t need economists to tell us there could be a faster slide and steeper decline in GDP (gross domestic product) during the second quarter when economic activity was reduced to a minimum. Extending the lockdown further could already spell disaster for the country,” Mr. Yujuico said.
The PCCI said its members want lockdowns to be further eased and full economic activity to “resume soonest to allow them to recover.”
However, as the number of coronavirus infections continues to increase, Malacañang has said it will assess if there is a need to change quarantine conditions once again.
Since June, Metro Manila has been under a more relaxed general community quarantine (GCQ), but many businesses are only allowed to operate on a limited capacity.
If it reverts back to an ECQ, only a select number of essential industries will be allowed to operate and restrictions on the movement of people will once again be imposed.
“Business closures mean a drop in taxes and budgetary income, putting at risk the sustainability of public finances and the ability to fund public services, including health and education,” Mr. Yujuico said.
PCCI said 800 member hotels and tourism businesses in Palawan have closed, while over 8,000 businesses, mostly in the garments industry, in Taytay, Rizal have shut down.
In Metro Manila, more establishments can now operate and at higher capacities. Dine-in at restaurants, barbershops, and salons can have up to 50% capacity in areas under GCQ.
However, Mr. Yujuico said the limited allowable operations translate into losses for companies that would rather close.
“Fifty percent is not enough to pay the rent, utilities and employees; you cannot tell a manufacturing company to operate at below capacity and still require it to provide accommodation and/or shuttle services for its workers; and, you cannot open businesses, even at phases, without allowing public transportation,” he said.
Mr. Yujuico said the Philippines could follow a model that relies on physical distancing, mask wearing, hand washing, widespread testing, and contact tracing.
A World Health Organization official is reported to have said that Philippine efforts to contain the pandemic, including contact tracing, is “a little weak” after confirmed COVID-19 cases surged to 57,000 on July 14. Confirmed cases exceeded 70,000 as of Tuesday.
“Generic” workplace health safety guidelines, if not refined for specific industries, can put employees at risk, St. Luke’s College of Medicine Head of Research of Preventive and Community Medicine Dr. Carolina L. Tapia said. — Jenina P. Ibañez
