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Financial markets see renewed optimism

DOMESTIC FINANCIAL MARKETS rebounded for the most part in the third quarter as the gradual easing of quarantine restrictions, waves of positive news on the development of potential coronavirus disease 2019 (COVID-19) vaccine trials, and slight pickup in the global economic activity lifted investor sentiment at home.

In the third quarter, the peso averaged P48.94 against the dollar, appreciating three percent from the previous quarter’s average of P50.45:$1, Bangko Sentral ng Pilipinas (BSP) data showed. Likewise, the local unit appreciated by 5.4% compared with the P51.74-to-a-dollar average seen in the third quarter of 2019.

At home, bond auctions conducted in the third quarter indicated robust demand. Treasury-bill (T-bill) auctions conducted in the July to September period saw total subscription for the quarter amounting to around P970.48 billion, which is around 3.3 times the P298-billion aggregate offered amount. This oversubscription amount of P672.48 billion, however, was lower compared with the P1-trillion oversubscription posted in the previous quarter.

Similarly, Treasury-bond (T-bond) auctions during the period had a total subscription amount of P293.83 billion, almost twice more than the offered amount of P150 billion.

The Treasury also offered five-year retail Treasury bonds during the quarter, which raised P516.3 billion with a coupon rate of 2.625%.

In the secondary bond market, domestic yields were higher by a range of 10.8 basis points (bps) for the three-year T-bonds to 33.3 bps for the 20-year T-bonds compared with end-June levels. On the other hand, yields for the three-month, six-month, one-year, two-year papers were lower by 73.8 bps, 42 bps, 31.6 bps, and 5.1 bps, respectively. On average, yields were lower by 1.6 bps during the reference period, according to the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website.

For equities, the benchmark Philippine Stock Exchange index (PSEi) closed at 5,864.23 on Sept. 30, 5.5% lower compared with the PSEi close of 6,207.72 on June 30. Despite this, the third-quarter average of 5,992.8 was 2.6% higher than the second-quarter average of 5,839.2.

In an e-mail to BusinessWorld, the Bangko Sentral ng Pilipinas (BSP) attributed movements in market activity to several factors that include, among others, the gradual easing of quarantine restrictions; the increasing reports of probable vaccines from the US, China, and Russia; and the substantial monetary stimulus by the central bank coupled with the recent passage of Republic Act No. 11494 or the Bayanihan to Recover as One Act (Bayanihan II).

“In [the third quarter], both public and private sectors took advantage of the ample liquidity in the domestic bond market. The increase in government issuances reflected the continuous need of the National Government (NG) to counter the impact of the coronavirus disease 2019 (COVID-19) pandemic in the country. The NG took advantage of ample domestic liquidity coming, in part, from the enhanced liquidity measures implemented by the BSP during the quarter,” the BSP said.

“Meanwhile, local firms opted to tap the bond market as an alternative funding option amid the tightened lending requirements of banks as they manage their capital and non-performing loans,” the central bank added.

The government gradually lifted lockdown restrictions starting June, although Metro Manila and nearby areas returned to a strict lockdown for two weeks in August to curb the rise in COVID-19 cases.

Signed into law on Sept. 11, Bayanihan II aims to help affected sectors recover from the pandemic through relief measures and programs up until it expires on Dec. 19. It allocated P140 billion to aid heavily affected sectors and another P25.5 billion in standby funds in case there is excess revenue for other programs. This is a follow up to the first Bayanihan law (Bayanihan to Heal as One Act) signed last March 24, which granted President Rodrigo R. Duterte special powers to realign the funders under the 2019 and 2020 national budgets to COVID-19 measures until June 24 when the law expired.

On the other hand, the BSP also noted the worsening trade tensions between US and China, the uncertainty over the proposed US stimulus plan, renewed COVID-19 lockdown measures in Europe, and the mostly pessimistic view among US Federal Reserve officials about the US economic recovery through dovish statements that rates will stay low until 2023 as among the factors that “partly tempered” gains in the market, particularly on equities.

WHAT INDICATORS TO WATCH OUT FOR
Given the flurry of developments at home and abroad, BusinessWorld asked the analysts on what indicators should investors keep tabs on.

“Indicators worth watching as we move forward will be consumer sentiment and mobility indices as these go hand-in-hand; better mobility will mean the improved ability for households to consume and this is 70% of the GDP,” said Security Bank Corp. Chief Economist Robert Dan J. Roces.

“The manufacturing PMI (purchasing managers index) will also be important to track to see how both local and international orders are affecting the sector. Foreign exchange levels, if it depreciates, means higher demand for the US dollar and likely indicative of better exports as well. Government spending data will also be important to let us see the extent of the complementary fiscal response to recent monetary actions,” Mr. Roces added.

For UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion, a major development to consider would be the transition of the US presidency and COVID-19 vaccine developments.

“Domestically, the control of the virus spread is a major indicator that all investors should be watching out for. A possibility of another round of fiscal stimulus would also be something that one should be keen about,” Mr. Asuncion said.

Rizal Commercial Banking Corp. (RCBC) Economist Michael L. Ricafort looks at vaccine developments, the further easing in monetary policy and in new COVID-19 cases, and the progress on the passage of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act and the Financial Institutions Strategic Transfer (FIST) Act as part of the government’s recovery program.

To recall, CREATE looks to cut corporate income tax to 25% and streamline the tax incentive system, while FIST looks to allow financial institutions to offload bad loans to asset management companies.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa looks at the likelihood of procuring the COVID-19 vaccines and further fiscal stimulus.

“I am, however, not very optimistic on either as the Philippines is not just negotiating with pharmaceutical companies when most other peers have safely secured their doses.  More troubling, the vaccine czar indicated that vaccine rollout may take as long as three to five years, which would dent consumer confidence in the medium term.  Lastly, fiscal stimulus has largely been absent in 2020 and should this persist, we run the risk of posting sub-par growth numbers while debt piles up, a potentially dangerous place in terms of credit ratings downgrade territory,” Mr. Mapa explained.

ECONOMIC RECOVERY (?)
Latest government data show economic output declining by 11.5% in the third quarter, bringing the total contraction in GDP for the three quarters to 10%.

For Security Bank’s Mr. Roces, economic recovery “is still fraught with uncertainties.”

“The faster development of a vaccine provides some upsides. The path to a new normal, however, may be too early to tell at the moment,” he said.

UnionBank’s Mr. Asuncion expects a five-percent year-on-year decline in the fourth quarter, but looks at a positive quarter-on-quarter economic growth.

“With the economy continuously opening up and the government’s push to recoil restrictions to movement, the economy is expected to fare better,” Mr. Asuncion said.

RCBC’s Mr. Ricafort expects a better showing for the Philippine economy in the fourth quarter.

“Exports, foreign direct investments, and remittances data are bright spots for the economy, as these are back to pre-COVID-19 levels,” he said.

“Seasonal increase in consumer and business spending in preparation for the Christmas holidays would also help spur greater economic activities that would lead to some improvement in GDP data for the fourth quarter, with narrower contraction, at the very least. Faster rollout of the Bayanihan II funds would partly help stimulate more economic activities in the last three months of 2020,” Mr. Ricafort said.

On the other hand, ING Bank’s Mr. Mapa is not so optimistic.

“The downright lack of commensurate support from the fiscal authorities is glaring in comparison to our neighbors and we are paying the price as ASEAN (Association of Southeast Asian Nations) peers exit double-digit contractions while we are in the midst of our deep recession,” Mr. Mapa said.

“[The fourth quarter] will likely slide to an ever more severe drop in GDP on the lack of fiscal stimulus coupled with recent storm damages from a string of severe typhoons. That and the absence of the usual holiday cheer will mean [the fourth quarter] will be unfortunately less merry and bright with our forecast pointing to the [first quarter of 2021] still being negative. The freefall in capital goods imports, meanwhile, signal that a recovery cannot be counted on even in the medium term as our productive capacity quickly fades,” he added.

With these in mind, see the BSP’s and analysts’ outlook for each of the key markets. — Lourdes O. Pilar

 

FIXED INCOME MARKET
BSP: We expect the bond market to function properly following the liquidity-enhancing measures deployed by the BSP such as the purchases of government securities from the National Government under repurchase agreement and from banks in the secondary market. As a result, robust demand across all tenors should be seen as the market remains liquid.

Security Bank’s Mr. Roces: We expect yields to slowly retrace pre-pandemic levels on the back of more borrowing to fund pandemic expenses.

UnionBank’s Mr. Asuncion: There will definitely be portfolio realignments moving forward, anticipating a strong economic recovery (better than 2020, of course) in 2021. This year, high market liquidity has market players preferring short-tenor assets, and this is expected to continue with potential further monetary policy easing by the BSP early next year. According to BSP Deputy Gov. [Francisco G. Dakila, Jr.], BSP’s policy rate is “nowhere close to zero,” while its reserve requirement ratio remains high relative to its peers. While we concur with this assessment, the timing for another round of rate easing will be in [the first half of 2021] when updated GDP news (and other indicators) will still show recovery prospects stuck in low gear or struggling to emerge out of negative territory.

RCBC’s Mr. Ricafort: Relatively benign inflation and the continued huge excess liquidity in the financial system would still support the low interest rate environment. However, this is offset by further recovery in both the local and global economy that would lead to some healthy upward correction in local bond interest rate benchmarks (PHP BVAL yields) from unusually low levels, already up recently by about 0.30-0.60 from record lows.

Upward correction in US/global bond yields from record lows posted in July-August 2020 amid improvement in economic data and the need to issue more bonds to partly finance record stimulus measures would be a risk factor in terms of lower bond prices from record highs. As an offsetting factor, excess liquidity in the financial system would temper any further upward correction in bond yields.

Expect less supply from the BTr and the gradual lifting of support from BSP.  A pickup in inflation coupled with sustained dovish comments from BSP Governor Benjamin E. Diokno may cause the yield curve to steepen.

EQUITIES MARKET
BSP: Over the near term, the Philippine equities market may be expected to improve further, reflecting the recovery of business activities, and improved investor sentiment given the expected availability of two coronavirus vaccines [referring to Germany’s Pfizer and US’s Moderna reporting positive developments over experimental candidates]. This should result in the continued reopening of the Philippine economy, and which, accompanied by substantial policy support from the fiscal and monetary authorities, could lift further the expectation of a strong economic recovery and sustain investors’ buying momentum.

Security Bank’s Mr. Roces: Economic recovery, better corporate earnings next year, and a vaccine distribution in [the second half of 2021] to drive the market.

UnionBank’s Mr. Asuncion: The PSEi will continue to be highly dependent on offshore developments and will continue to keep an eye on the status of the COVID-19 spread. We may see slight corrections toward the end of 2020 and a better 2021 probably staying above the 7,000-level. As the economic growth becomes better, corporate incomes will be more positive, resulting in a higher PSEi level.

RCBC’s Mr. Ricafort: Near record-low interest rates locally and in many other countries around the world would prompt some investors to search for higher returns in the equity markets, especially for those with the risk appetite/tolerance for riskier asset classes.

Lingering excess liquidity in the financial system would also support some liquidity-driven gains in the financial markets such as in the equity markets, especially as global market risk appetite improves with the recovery in economic data. Measures to further re-open the economy would fundamentally support further pick-up in economic activities and investment valuations.

ING Bank’s Mr. Mapa: We expect bouts of weakness tied to souring sentiment, should Philippine GDP lag regional peers and we expect the Philippines to lag the rest of ASEAN in a big way.

FOREIGN EXCHANGE MARKET
BSP: The peso will continue to be supported by fundamentals in the long run. Amid the pandemic, the peso-dollar market has generally remained stable in line with the country’s economic fundamentals (i.e., a manageable inflation environment, a strong and resilient banking system, and a prudent fiscal position). Based on BSP estimates, the peso is currently fairly valued and, in the long run, will continue to be supported by the said fundamentals even as the market, at times, will reflect short-term investor sentiment and external factors.

Security Bank’s Mr. Roces: Peso may depreciate on the wider trade deficit and lengthy negative real interest rates. Vaccine prospects will also rejuvenate economic activity worldwide and may cause some disinterest in peso assets.

UnionBank’s Mr. Asuncion: Trade is the anchor of US dollar-Philippine peso prices as we have seen in recent years. In 2020, imports collapsed and the peso continued to strengthen because of a smaller trade surplus (due to weaker imports)… In 2021, the US dollar may be weaker because of the expectation of a smooth US presidential transition and a waning coronavirus outbreak as the new administration deals with the pandemic. Thus, this adds pressure to a stronger peso, but a strong economic recovery of the country may prop the peso to be weaker. Overall, we expect the peso to breach the P50-level in 2021.

RCBC’s Mr. Ricafort: Much of the peso exchange rate’s strength… has been due to slower demand for imports since the COVID-19 lockdowns… Going forward, any further recovery in the local economy could correspondingly lead to faster demand for imports and the US dollars needed to pay for imports.

ING Bank’s Mr. Mapa: Likely still on an appreciation trend in the near term as imports remain soft as the economy is running wounded. A weak dollar scenario would mean a relatively strong peso until import demand returns.

How PSEi member stocks performed — December 11, 2020

Here’s a quick glance at how PSEi stocks fared on Friday, December 11, 2020.

Shares to rise on improved investor confidence

By Revin Mikhael D. Ochave, Reporter

PHILIPPINE shares are expected to be off a good start this trading week as investor sentiment got a boost from the central bank’s recent survey showing improving confidence of consumers and businesses despite the coronavirus disease 2019 (COVID-19) pandemic.

The bellwether Philippine Stock Exchange index (PSEi) closed Friday’s session at 7,246.16, higher by 91.73 points or 1.28% than the previous trading day.

Week on week, the main index improved 1.56% or 111 points, sustaining the upward trend it had in the last trading week.

The market’s average value turnover increased 14.1% week on week to P11.09 billion, while average net foreign selling eased 50.6% week on week to P290 million.

Philstocks Financial, Inc. Senior Research Analyst Japhet Louis O. Tantiangco said in a mobile phone message that the market may have a good start this week as investors will absorb the recent survey of the Bangko Sentral ng Pilipinas (BSP).

The BSP on Friday released its latest survey, which showed that consumer sentiment improved to -47.9% in the current quarter against -54.5% in the third quarter due to hopes of a nearing end of the COVID-19 pandemic resulting from vaccine availability, additional employment, and higher income.

Meanwhile, business sentiment this quarter improved to 10.5% compared to -5.3% in the previous quarter, largely on the back of the ongoing recovery of the economy from the pandemic and more businesses resuming their operations.

Mr. Tantiangco said some of the key indicators that may sustain the market’s momentum include prospects of the availability of the COVID-19 vaccine in the country and improving economic numbers. However, he warned that the market may see some profit taking during the week and can be affected by a possible surge of local COVID-19 cases as Christmas nears.

“At its current level, the market is seen to be more susceptible to profit taking given that our economic and corporate fundamentals remain weighed by the damages left by the stringent quarantine measures previously implemented, the current ones in place, and ultimately, the pandemic,” Mr. Tantiangco said.

Meanwhile, online brokerage 2TradeAsia.com said in a market note that the local bourse will be affected by the upcoming meeting of the Federal Open Market Committee this week.

2TradeAsia estimated that the market’s immediate support will be at 7,000, while its resistance will range from 7,300 to 7,450.

“This week, we may see the market test the validity of its current level. If the market sustains its ground at the 7,150 line, its new trading range is seen from 7,150 to 7,500. Failure to hold ground at the said level however would lead to a return to its 6,600 to 7,150 trading range,” Mr. Tantiangco said.

Peso may weaken on local data

THE PESO is seen to depreciate versus the dollar this week amid risk-off sentiment in the market due to Brexit uncertainties as well as a possible drop in monthly remittances.

The local unit closed at P48.07 per dollar on Friday, inching down from its Thursday close of P48.065.

Week on week, the peso weakened by three centavos from its P48.04-per-dollar finish on Dec. 11.

The peso declined versus the greenback on Friday following data showing a decline in foreign direct investments (FDI), said Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort.

Net FDI inflows sank 12.3% from a year earlier to $523 million in September, ending four months of year-on-year growth. It also fell 17% from the $637 million seen in August.

For this week, an expected drop in October remittances could dampen sentiment on the local currency, said UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion.

The Bangko Sentral ng Pilipinas (BSP) is due to release October remittances data this week.

Latest data from the BSP showed cash remittances rose 9.3% year on year to $2.601 billion in September. However, inflows in the first nine months were still 1.4% lower at $21.886 billion from the $22.187 billion seen in the same period last year.

The central bank expects remittances to drop by 2% this year amid the ongoing coronavirus pandemic.

For his part, Mr. Ricafort said investors will look towards the progress of the 2021 budget bill this week.

Dollar-peso trading will also be affected by international developments, including the Brexit progress, he added.

The P4.5-trillion national budget for next year has been ratified by the Congress last week. The enrolled copy is expected to be signed by leaders of both houses before being transmitted to President Rodrigo R. Duterte for enactment.

Meanwhile, UK Prime Minister Boris Johnson and European Union Executive Commission Ursula von der Leyen said on Friday that a “no-deal” Brexit is the most likely outcome, Reuters reported. The UK is under a transition period and is still part of the EU’s single market and customs union at least until Dec. 31.

Mr. Ricafort sees a trading range of P47.90 to P48.15 versus the greenback this week, while Mr. Asuncion expects a narrower band of P47.95 to P48.15 per dollar. — LWTN with Reuters

Senator files bill mandating free COVID-19 vaccines for Filipinos

A SENATOR has filed a bill that seeks to vaccinate the country’s more than 100 million Filipinos against the coronavirus for free.

Senator Leila M. de Lima’s Senate Bill 1942 will set up a program that mandates coronavirus disease 2019 (COVID-19) referral hospitals and tertiary public hospitals to offer free vaccines.

In a statement on Sunday, she cited the need to “guarantee free vaccination for all Filipinos whose right to health should not be diminished by belatedly acting on the health crisis.”

There were four vaccine makers that applied for clinical trials in the country, including China’s Sinovac Biotech Ltd., Russia’s Gamaleya Research Institute of Epidemiology and Microbiology, Janssen Pharmaceutical Companies of Johnson & Johnson and Chinese drug company Clover Biopharmaceuticals.

British drugmaker AstraZeneca last week withdrew its application for local trials.

Congress has just approved the P4.5-trillion national budget for next year, which will allocate P2.5 billion for vaccines under the Department of Health budget and P70 billion more in unprogrammed funds.

There is also a P10-billion standby fund, provided by the Bayanihan to Recover as One Act (Bayanihan II), bringing the total vaccine allocation to P82.5 billion.

Ms. de Lima’s bill also mandates an inter-agency task force (IATF), along with infectious disease experts, to draft a distribution plan that will prioritize front-liners, vulnerable sectors and people in areas with high COVID-19 cases.

“A concrete plan of action that will universally promote the right of all Filipinos to health is vital in winning this battle against COVID-19,” said the senator, a presidential critic who is in prison on drug trafficking charges.

“A vaccination plan that is inclusive will be an instrument to create herd immunity in a country of more than 100 million,” she added.

The vaccination program will inform people about the risks and benefits of the coronavirus vaccine.

The Department of Health (DoH) reported 1,085 coronavirus infections on Sunday, bringing the total to 449,400.

The death toll rose to 8,733 after three more patients died, while recoveries increased by 9,269 to 418,687, it said in a bulletin.

There were 21,980 active cases, 84.4% of which were mild, 5.8% did not show symptoms, 6.3% were critical, 3.2% were severe and 0.33% were moderate.

Quezon City reported the highest number of new cases at 103, followed by Rizal at 46, Makati City at 44, Manila at 43 and Pasig City at 39.

DoH said 16 duplicates had been removed from the tally, while one recovered case was reclassified as a death. Nine laboratories failed to submit their data on Dec. 12.

The coronavirus has sickened about 72.2 million and killed 1.6 million people worldwide, according to the Worldometers website, citing various sources including data from the World Health Organization (WHO).

About 50.5 million people have recovered, it said.

British drugmaker AstraZeneca last week withdrew its application for clinical trials in the Philippines, saying it had enough data, FDA Director-General Rolando Enrique D. Domingo said last week. — Charmaine A. Tadalan and Vann Marlo M. Villegas

Philippines suspends OFW deployment to Jordan on virus risks

THE PHILIPPINES has suspended the deployment of newly hired migrant Filipinos to Jordan due to risks from the coronavirus.

In an advisory dated Dec. 10, the Philippine Overseas Employment Administration (POEA) said it would suspend the verification of employment documents of Filipinos going to the Middle Eastern country.

The POEA cited the “pandemic situation in Jordan, which poses health, safety and labor risks to new workers.”

The agency issued the order on the advice of Philppine Ambassador to Jordan Akmad Atlah Sakkam.

Workers directly hired by members of the Royal Hashemite Court, international organizations and diplomatic corps are exempted from the deployment bad, the POEA said.

Workers with employment contracts issued by the Philippine Overseas Labor Office in Jordan before March 15 are also exempted, it said.

More than 257,000 people have been infected with the coronavirus in Jordan, with 3,335 deaths, according to the Worldometers website, citing various sources including data from the World Health Organization (WHO). — Gillian M. Cortez

Congress sets aside P620 million for 2021 cancer program

PHILIPPINE lawmakers have allotted P620 million for the government’s cancer control program for next year, according to its top leader.

The fund in next year’s P4.5-trillion national budget will be used for cancer prevention, treatment and medicines under the program supervised by the Department of Health (DOH), Speaker Lord Alan Q. Velasco said on Sunday.

“With this funding, the government can now provide cancer patients with better access to more responsive and affordable health care services,” he said in a statement.

This budget would let the government enforce Republic Act 11215 or the National Integrated Cancer Control Act of 2019.

The measure sets up a National Integrated Cancer Control Program, which serves as the framework for all cancer-related activities of the government.

The program will provide timely access to optimal cancer treatment and care for all cancer patients, make treatment and care more affordable and accessible, and support the recovery and reintegration to society of cancer survivors.

About 110,000 new cancer cases are diagnosed annually in the Philippines, Mr. Velasco said, citing a study by the Health department.

The cancer budget for next year would reduce deaths especially among poor patients, he said.

The congressman said the high cost of cancer diagnosis and treatment has led many people to struggle financially. “Certainly, the economic burden of cancer care and treatment is overwhelming and it has the potential to drive Filipino families deeper into poverty.”

A breast ultrasound costs as much as P3,000, while a colonoscopy costs as much as P14,000, Mr. Velasco said, citing a study by the Cancer Coalition Philippines.

“Depending on the type of cancer, the chemotherapy cost per session can range from P20,000 to P120,000 or more,” he added. — Kyle Aristophere T. Atienza

Nationwide round-up (12/13/20)

More face-to-face training allowed

MORE skill training centers have been allowed in areas under a general lockdown to address unemployment amid a coronavirus pandemic, according to the Trade department.

“With our continued efforts to reopen more sectors, there is a need for more skilled workers certified by the Technical Education and Skills Development Authority (TESDA),” Trade Secretary Ramon M. Lopez said in an e-mailed statement on Sunday.

“The government, through agencies such as Department of Trade and Industry (DTI) and TESDA, is committed to ensuring that our fellow Filipinos are equipped with the needed competencies to adjust to this ‘new normal,’” he added.

The Trade department cited massive layoffs as companies were forced to shut down during the strict lockdown.

Face-to-face training is allowed for the construction and related sectors; electrical and electronics-related jobs; garments and textiles including dressmaking, face mask making and tailoring; land transportation and  health. — Arjay L. Balinbin

Illegal tree-cutting in Cotabato cited

THE ENVIRONMENT department has ordered a municipality in Cotabato province to monitor illegal tree-cutting activities in the area.

A government-led raid last week uncovered an illegal small-scale mining operation in Magpet, Cotabato.

Authorities found a five-hectare area cleared of trees about 300 meters away from the mining site, the Environment department said in a statement on Sunday.

Environment Secretary Roy A. Cimatu said the absence of trees had led to severe flooding in the area.

“We cannot allow people to further destroy our forests especially when we know that flooding is among its direct consequences,” he said “Many Filipinos have suffered enough from the devastation of massive flooding because of forest denudation.” — Angelica Y. Yang

Dumacaa River irrigation rehab completed

THE NATIONAL Irrigation Administration (NIA) has finished rehabilitating the P115.69-million Dumacaa River irrigation system in Quezon Province, it said in a statement at the weekend.

The repairs included mechanical works at Alsam, Lakawan and Mayao dams, construction and realignment of the 14.74-kilometer concrete lining, desilting works and the rehabilitation and construction of 16 structures.

“The project is expected to provide timely and reliable irrigation service to 1,839 hectares of agricultural land in the town of Pagbilao and the cities of Tayabas and Lucena, benefiting 1,585 farmers and their families,” NIA said.

The agency said rehabilitation was funded by the Japan International Cooperation Agency (JICA). — Revin Mikhael D. Ochave

Regional Updates (12/13/20)

Coding scheme still suspended

THE NUMBER coding scheme will remain suspended in the capital region during the holiday season amid a coronavirus pandemic, according to the Metropolitan Manila Development Authority (MMDA).

This is despite the growing volume of cars on roads as Christmas draws near, MMDA Assistant Secretary Celine B. Pialago told DZBB radio on Sunday.

“The number coding scheme will remain suspended until public transportation normalizes,” she said in Filipino.

The scheme was first suspended in June, at the height of a strict lockdown in Manila, the capital and nearby cities and provinces.

Ms. Pialago said if the number coding scheme is restored, they were likely to get a number of requests for exemptions from those who work on the front line.

“The purpose will be defeated,” Ms. Pialago said, adding that public transportation had yet to normalize while the economy gradually reopens. — Gillian M. Cortez

Budget for social services increased

THE SPENDING on social services got a significant boost in the proposed P4.5-trillion national budget for next year, according to a House of Representatives leader.

Senators and congressmen have agreed to increase the budget of the Social Welfare department by P3.669 billion to P176.66 billion, House Deputy Speaker Bernadette Herrera-Dy said in a statement on Sunday.

“Congress recognizes the impact that COVID-19 has placed on citizens, thus it really made sure the 2021 national budget would help reduce the financial and lifestyle effects on individuals and families already experiencing difficulties,” said Ms. Dy, who is part of the 21-member contingent to the bicameral conference committee on the spending measure. — Kyle Aristophere T. Atienza

Speaker urged to divulge net worth

AN ADVOCACY group for political reforms and clean elections on Sunday urged Speaker Lord Allan Q. Velasco to lead by example by disclosing his net worth.

The Institute for Political and Electoral Reform (IPER) issued the call after a resolution was filed in the House of Representatives seeking to compel government officials and employees to divulge their statement of assets, liabilities and net worth (SALN).

The resolution was filed by Party-list Reps. Rodante D. Marcoleta and Michael T. Defensor after the Supreme Court rejected a lawsuit seeking to compel Associate Justice Mario Victor F. Leonen to disclose his net worth.

Mr. Defensor and Mr. Marcoleta said a congressional inquiry would protect the public’s right to information.

“The concept of SALN being accessible to the public means that all government officials must be accountable to the people,” Ramon C. Casiple, executive director at IPER, said in a statement. — Kyle Aristophere T. Atienza

2021: Big bounce-back year?

 

With esteemed financial practitioners and good friends, BDO Capital President Ed Francisco and ING Bank President Hans Sicat, I was recently asked to be a panelist in a Philippine Daily Inquirer 35th Anniversary forum. That question, the title of this piece, was posed by our moderator, Business Editor Tina Arceo-Dumlao.

Save for minor variations, we gave similar answers which I paraphrase thus: “Yes, we will see some bounce back, but largely due to base effects from the depressingly low level this year, and we won’t be seeing the Philippine economy back to 2019 levels until 2022 at the earliest. The recovery shape won’t be a V, may not even be a Nike swoosh or a U, but more like a ‘dirty L’ (Han’s depiction) with features of a K, uneven across industries, firms, and the populace.”

Characterizing the crisis as unprecedented and whose impact is sudden, severe, and globally synchronous, I was the most pessimistic among us three. I echoed what we wrote for GlobalSource Partners (globalsourcepartners.com) of a bounce back to only 5% next year, after a severe contraction of 9.5%  this year.  Moreover, that medium term growth is unlikely to recover to the six to seven percent range of the recent past seven years, and more likely to struggle at four to five percent, closer to the long-term growth record of the Philippines.

I mentioned the following reasons for my pessimism:

1. Risk of more infections and stricter quarantines, possible second or third waves: Notwithstanding success in flattening of the infection curve recently that has allowed some easing of the longest and strictest lockdowns.

This is thanks to the notable augmentation of Department of Health efforts by heavy hitters Secretary Charlie Galvez as National Task Force Chief Implementor, Secretary Vince Dizon as his Deputy, the three other czars (for testing, tracing, and quarantine facilities), and Presidential Adviser Joey Concepcion. They have also commendably mobilized the massive support of the private sector, too numerous to enumerate here, in what everyone appreciated to be an existential national undertaking.

However, major gaps exist including execution of a more digital tracing system, much delayed payments by Philhealth to labs and hospitals, and vaccine procurement where the Philippines is unfortunately at the end of the queue.

An expert I consulted considered that only 25% to 50% of our 108 million population are likely be inoculated by the end of 2022, a good two years away; quite understandable considering how massive and unprecedented such an undertaking is with enormous uncertainties on the approval process, which vaccines will work, for how long, inadequate cold chain and other logistical infrastructure, and the willingness of people to queue up given concerns over unknown long-term side effects. The fairly recent controversies regarding the anti-dengue vaccination program of the last administration is a further dampener.

This all means that physical distancing as a policy to prevent a resurgence in sickness will need to remain in place, especially in dense metropolitan areas that also account for a large share of output, as well as continuing constraints in public transportation and fearful public behavior.

Which brings us to the next concern.

2. Lack of domestic demand.

a. Household consumption which accounts for 70% of GDP has dropped sharply, notwithstanding Government cash transfers and wage subsidies in the hundreds of millions.  A World Bank survey in August revealed that 24% of household heads employed in February were no longer working in August and of those still working, 57% reported reduced or no income. A separate Bangko Sentral ng Pilipinas (BSP) consumer survey also showed that the share of households with savings dropped from 38% to 25%. Meanwhile, the latest consumer and business sentiments showed negative indices, meaning pessimists outnumber optimists.

b. Investments have also plummeted. Reports indicate that firms have underutilized capacities with poor earnings prospects, with certain conglomerates mulling further cuts in capital expenditures next year. The World Bank July 2020 firm survey showed that 15% of over 74,000 respondents had permanently closed down, 40% had temporarily suspended operations (evenly split between voluntary and by government mandate), and job losses had been extensive with 48% of firms having laid off workers, especially in education, food services, and construction. (Uncertainties related to post 2022 national elections are a further reason for firms to “wait and see.”)

We also need to be mindful of “scarring,” output losses that are permanent due to damage to medium-term supply potential such as bankruptcies, lower labor force participation from skills mismatch, impact on human capital due to disruptions in school attendance and health services, and obstacles to resource allocation such as supply chain disruptions.

3. Policy constraints.

a. Monetary policy has been timely and vigorous in providing the needed liquidity shot in the arm. But there are limits to monetary policy in lifting demand especially when interest rates are already at low levels, what economists call “pushing on a string.”

Data thus far validate this. The BSP as of Oct. 27 had already injected P1.9 trillion into the financial system through its set of accommodative policy actions. But banks have understandably been cautious, mindful of their fiduciary responsibility to depositors who provide the bulk of their loanable funds. At the end of Q3, net domestic credits to the private sector increased by only 1.4% year on year compared with a 12% growth in M3. Meanwhile, monies parked in the BSP’s deposit facilities stood at over P1.2 trillion as of end October compared with less than P400 billion at the end of the first quarter.

The one area where the BSP can perhaps be more aggressive is in arresting the further appreciation of the peso, the only currency in our region that appreciated vs the dollar, by doing even more market interventions. This will help our exporters, OFW families, and support overall aggregate demand.

b. Fiscal policy. Spending so far has been “middle of the pack” versus other countries. The Department of Finance’s announced policy to “keep our powder dry” is meant to ensure that we do not compromise needed future access to finance. Already, programmed deficits for the next two years are estimated at seven to nine percent of GDP, two to three times normal prudent levels, and there is much uncertainty on how long this plague will last.

Moreover, I believe current spending has been constrained not so much by the size of the budget, but by limitations on: a.) distribution of income and wage support absent a national ID system that will enable “ayuda” with minimum of leakage; and, b.) slow releases and execution of projects, as shown in the poor disbursements of capital outlays.

The soon to be signed CREATE (Corporate Recovery and Tax Incentives for Enterprises) bill which lowers corporate income taxes and rationalizes fiscal incentives will also provide immediate stimulus equivalent to over P250 billion in the next two years. This does not count the favorable effects this long delayed structural reform will have in generating more investments, both foreign and local.  (I congratulate Secretary Dominguez and Secretary Chua and the sponsors of the bill for bringing this landmark reform to the finish line, building on the efforts of their predecessors, who publicly supported this bill).

Against this dour prognosis I also mentioned some green shoots which we all wish will bring early spring:

1. The unveiling of several vaccines and their much earlier roll out in rich country trading partners which will have some trade, remittance, and investment spillovers to us;

2. The robustness of our BPO sector which has nimbly adopted working from home thanks also to our telco service providers;

3. The surprising resilience of remittances which only declined by 1.4% in the year to September;

4. Some evidence of “revenge spending” by those in the upper leg of the K curve; and,

5. Accelerated investments all around in digital technology.

I ended my remarks by saying, despite having a good track record in forecasting output growth, this is the one time I would love to be terribly wrong. And I quoted noted economist John Kenneth Galbraith: “The only function of economic forecasting is to make astrology look respectable.”

 

Romeo L. Bernardo was finance undersecretary during the Cory Aquino and Fidel Ramos administrations. He is a Board Trustee/Director of the Foundation for Economic Freedom, the Management Association of the Philippines, and the FINEX Foundation.

romeo.lopez.bernardo@gmail.com

The elephant in the room

I didn’t know of the English idiom “elephant in the room” before.

When I called my web designer and friend Cons Raquel to do the design for www.iamsamfoundation.com, it was clear to her that “IAMSAM” is the conviction to scream for rights for women and children and therefore is “public.” She knew too that this was very personal. Cons asked the question, “so… what means much to you? What would be emblematic?” Straight from my heart, I said, “elephants.” The proverbial lightbulb lit and Cons said, “the elephant in the room?” Stumped, I replied, “no, ah… elephants never forget.” And she said, “Ohhh, I thought, the elephant in the room.” She went on to explain. I cut her short, “Cons, perfect… nothing by chance.” Not incidentally — and I am beyond grateful — the name for the movement I Am S.A.M. comes from Cons’ brilliance too.

“Elephant in the room,” according to Wikipedia, is an English idiom for “an obvious truth that is being ignored or goes unaddressed. The idiomatic expression also applies to an obvious problem or risk no one wants to discuss. It is based on the idea that an elephant in a room would be impossible to overlook; thus, people in the room who pretend the elephant is not there have made a choice. They are choosing to concern themselves with tangential or small and irrelevant issues rather than deal with the looming big one.” It is ignored for the convenience or comfort of those involved (allwords.com).

Violence — ABUSE — against women and children is the elephant in the room. Somehow, human nature allows it to remain a statistic. Only when it hits close to home and happens to a friend, only when it hits home and happens to a sister, a daughter, to you, does it become real and make sense, though it can never make sense. It will never make sense.

IAMSAM focuses on domestic violence and child abuse. IAMSAM commits to bring to the fore in creative ways this “problem, this difficult issue that is very obvious but is ignored and continues to go unaddressed.”

Domestic violence is domestic abuse, spousal abuse, or intimate partner violence. It is also one form of child abuse. Defined by the Office on Violence Against Women of the US Department of Justice, domestic violence is a “pattern of abusive behavior in any relationship that is used by one partner to gain or maintain power and control over another intimate partner.” The definition adds that domestic violence “can happen to anyone regardless of race, age, sexual orientation, religion, or gender, and that it can take many forms, including physical abuse, sexual abuse, emotional, economic, and psychological abuse.” Of particular note, Mann points out that “all forms of domestic abuse have one purpose: to gain and maintain total control over the victim. Abusers use many tactics to exert power over their spouse or partner: dominance, humiliation, isolation, threats, intimidation, denial and blame” (1996).

The Superior Court of California, County of Fresno, dedicates a whole spread in its website to domestic violence, with a rather interesting slant and treatment: “It is not [only] a problem with anger. Rarely do you see an abuser act violently with friends, coworkers or a boss. It is a Jeckyl and Hyde personality that confuses others who learn of a person’s violence with their partners. Abusers can act charming, loving and attentive… when they want to. Drinking, drugs, genetics, the victim’s behavior or stress does not cause domestic violence. It is learned behavior. It is learned in the home by observation and reinforcement before the age of 10.”

It is perplexingly complex and baffling for many reasons. When abuse happens, there is disbelief, then denial, which minimizes the abuse so as to seem normal. It is, at times, even a self-protective mechanism to project some semblance of self-respect, to make it appear that this cannot be happening, not to me. Hotaling & Sugarman (1986), further observed that: “similarly, subtle forms of abuse can be quite transparent even as they set the stage for further abuse seeming normal.” It is perplexingly complex and baffling because it is an occurrence within a supposedly intimate relationship that should otherwise be characterized by love and tenderness or, at the very least, respect. For these and more reasons, there is silence, fear, and shame around it.

For the longest time, domestic violence was considered a private matter, a “domestic problem” between spouses or intimate partners, and/or between parent and child. Kofi Annan, former UN Secretary-General, commented: “Domestic violence happens behind walls.” Thankfully, the world has seen through what has been kept hidden behind those walls and within the confines of the home to see what domestic violence really is: “one of the most pervasive of human rights violations, denying women equality, security, dignity, self-worth, and their right to enjoy fundamental freedoms” (Kapoor, 2000).

Abuse is more than hitting. For women who have gone through abusive relationships, many will tell you that the physical aspects of abuse are probably, in relative terms, the least damaging. A scab dries up and falls off. What is most damaging is that which kills the spirit. M. Scott Peck in his book, People of the Lie, made me understand: “There are various essential attributes of life — particularly human life — such as sentience, mobility, awareness, growth, autonomy, will. It is possible to kill or attempt to kill one of these attributes without actually destroying the body. Thus, we may break a horse or even a child without harming a hair on its head.”

The United Nations no less has shown tremendous and pertinent political will through the UN Declaration on the Elimination of Violence against Women (1993) that states that “violence against women is a manifestation of historically unequal power relations between men and women, which have led to domination over and discrimination against women by men and to the prevention of the full advancement of women, and that violence against women is one of the crucial social mechanisms by which women are forced into a subordinate position compared with men.”

The year 2004 was a landmark for women in both hemispheres. For the Filipina, Republic Act 9262, Anti-Violence Against Women and Children, was enacted into law. Interestingly, I also came across in the same year parallel legislation from a country that ruled the Philippines for over 300 years, from 1521-1898. “In Spain, the 2004 Measures of Integral Protection Measures against Gender Violence defined gender violence as violence that is directed at women for the very fact of being women. The law acknowledges that aggressions against women have a particular incidence in the reality of Spain and that gender violence stands as the most brutal symbol of the inequality persisting in Spain. According to the law, women are considered by their attackers as lacking the basic rights of freedom, respect, and power of decision.”

The language, the words used, which I quoted verbatim not wanting to dilute and miss out anything, is so telling. For one, as a Filipino, 300 years of Spanish rule surely has ramifications on the psyche of Filipinos of both genders. On a worldwide scale, it does clearly depict how abuse against women is deeply ingrained in cultures and societies. How many more cultures and societies today perceive women to be deserving of the deprivation of “their basic rights of freedom, respect, and power of decision”? I am indebted to Spain’s honesty and pray other countries take courage to acknowledge and act.

Domestic violence is prevalent. According to the Advocates for Human Rights, “women are victims of violence in approximately 95% of the cases of domestic violence.” The Family Violence Prevention Fund (FVPF) says that one in every three women in the world has experienced sexual, physical, emotional, or other abuse in her lifetime. The World Health Organization (WHO) reports that in a range of countries, an intimate partner accounted for 40% to 70% of murdered females.

Perplexingly complex and baffling, the violence and abuse against women and children will continue. No longer should we ignore the elephant in the room. We must choose to act,

I choose to stop abuse. I AM S.A.M., a stop abuse mom. I AM S.A.M., a Shaker And Mover. 

 

Rayla Melchor Santos Allertsen is the Co-founder and President of the I AM S.A.M. Foundation. She has written this article as a contribution to 16 Days of Activism Against Gender-Based Violence, an international campaign to challenge violence against women and girls.

The mining industry can save the economy

Following an anticipated 9.8% economic contraction for 2020, Japanese investment bank Nomura expects the Philippines to recover at a slower pace of 6.8% next year, instead of the government’s projection of 7.5%.

The Philippines will only approximate the GDP levels of 2019 in the second semester 2022, said the Japanese financial giant.

This is due to the combined effects of having the smallest stimulus package in the region, slow-to-rebound consumer confidence, and the inability to attract FDIs at the same level as our neighbors. Exacerbating matters is the damage wrought on MSMEs and the slow recovery of the tourism, transport and hospitality sectors.

Now more than ever, the Duterte government must find ways to raise revenues and generate business activities to hasten economic recovery. Fortunately, the country has an untapped treasure trove of resources to fall back on.

Like Australia and Canada, the Philippines is endowed with a colossal amount of metals and mineral deposits.

Our cache of minerals amounts to well over a trillion US dollars, according to the Chamber of Mines. Our estimated levels of metallic and non-metallic minerals was at 7 billion metric tons and 50 billion metric tons, respectively, as per the last comprehensive audit conducted in 1994.

Gold deposits in the Philippines are among the largest in the world with reserves estimated at 101.6 million metric tons. Iron ore reserves are at 298 million metric tons. Among non-metallic minerals, limestone reserves are approximately 19.5 billion tons while marble reserves are at 14.5 billion tons. The Philippines leads the world in chromite resources too.

Despite our enormous mineral resources, the contribution of the mining industry to the economy remains minuscule. As of last year, the share of the mining output to GDP was a mere .06%. It contributed only 1.2% to national tax collection, and comprised only 6.3% of exports. In terms of jobs, it employed less than .04% of the workforce. In contrast, the mining sector in Indonesia accounts for 21% of exports and 7% of GDP.

The reason for the underwhelming performance is the moratorium imposed on new mining permits back in 2012 and the ban on open pit mining in 2017.

It will be recalled that former President Noynoy Aquino signed Executive Order 79 imposing a moratorium on the issuance of new mining permits while the government updated the outdated Mining Act of 1995. Among the contentious issues was an excise tax rate of only 2% of market value of gross output. The former Chief Executive felt that the people’s share was too low and proposed sweeping amendments to the tax structure.

Today, mining companies are charged a 4% excise tax; a 5% reservation royalty; a 1% indigenous people’s royalty; and 30% corporate income tax, on top of VAT. Over and above these taxes, mining companies are also required to appropriate 1.5% of their annual operating cost for social development and management programs. Despite the higher tax structure, the moratorium on the issuance of mining permits has not been lifted.

All taxes considered, mining companies in the Philippines are made to pay an effective tax rate of between 70% to 72%, according to the Chamber of Mines. Our tax system is higher than that of Peru, Chile, South Africa, and Australia. Still, mining companies are making a beeline to invest in the Philippines given the amount of untapped resources.

The pandemic has caused the Philippines to fall further behind the region’s development race, not to mention relegating millions to unemployment and hunger. Hence, we must use our natural resources to fill the gap. Not to do so is like depriving our starving children of food when there is a treasure trove which can be tapped to fill their stomachs.

To unlock the potentials of the mining industry, we must first lift the moratorium on mining permits and lift the ban on open pit mining. After all, excise tax rates have already been doubled and safeguards to ensure sustainable and responsible open pit mining are already in place.

Unbeknownst to many, only 2% of the country is being explored today, says the Chamber of Mines. We need to accelerate exploration to get a better idea of our mineral resources — where they are, and how large a cache exists. The technology used for exploration is non-invasive and has no negative impact on the environment.

Open pit mining has been made a political issue given its supposed damage to the environment. But open pit mining, also known as open-cast mining, is an accepted global practice in the extraction of ores that lay near the surface. It is used when the mine is structurally unsuitable for tunneling. The US has over 1,800 open pit mines in operation, all of which are proven safe, efficient, and cost-effective. There are only two open pit mines in the Philippines and both have been declared safe and environmentally sound. It’s all a matter of doing it according to sustainable protocols.

When retired, open pit mines can be rehabilitated into agro-forestry or agricultural purposes. A good example is Philex Mine’s Sibutad project. After its closure, the mine was transformed into a rainforest where new trees are planted at a rate of some 18.5 hectares per day. It holds the distinction of being the largest industrial tree-planting operation in the country’s history.

To deprive the country of its God-given resources is not only irresponsible, it is immoral. This is why I strongly advocate the reactivation and development of the mining industry. While I understand that we must be looking after the environment, it must also be balanced with our need for jobs, tax revenues, and opportunities for wealth generation. We need not reinvent the wheel. Canada and Australia provide a roadmap on how to manage the mining industry in a responsible and inclusive manner.

Even as I write this, there are three pending projects in Mindanao, caught by the ban, that can generate some $36 billion in output for the country. Government will be remiss not to reactivate these projects.

The ban on open pit mining was a departmental order by the Department of Environment and Natural Resources (DENR), and the Mining Industry Coordinating Council (MICC) has since handed-down its recommendation to lift it. We hope the DENR, with the blessings of the President, will consider doing so at the soonest time so the industry can get moving again. We understand Oceana Gold is waiting in the wings with a sizable investment and the prospect of employing thousands of workers should they be given the go signal.

The DENR has also recommended lifting the moratorium on the issuance of new mining permits to the Office of the President (OP). We urge the OP to accede to the recommendations given the urgency of our needs and the strict sustainable protocols already in place. The sooner the moratorium is lifted, the sooner the industry can work on all cylinders to contribute to the economy.

 

Andrew J. Masigan is an economist

andrew_rs6@yahoo.com

Twitter @aj_masigan

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