Poll sees muted 1st quarter GDP growth on 2019 budget delay

May 6, 2019 | 1:20 am

By Mark T. Amoguis
Senior Researcher

ECONOMISTS expect gross domestic product (GDP) growth in the first quarter to be weighed down primarily by the impact of the delayed enactment of the 2019 national budget despite household spending and private sector investment picking up, according to results of a BusinessWorld poll.

A poll of 20 economists yielded a median GDP growth estimate of 6.1% for the first quarter, easing from the 6.3% uptick recorded in the fourth quarter of 2018 and the 6.5% expansion logged in last year’s first quarter.

If realized, this figure would be the lowest reading in two quarters or since clocking in six-percent growth in the third quarter of 2018. The Philippine Statistics Authority will report the official first-quarter GDP data on Thursday hours ahead of the central bank’s third monetary policy review for this year.

Last week, the country’s economic managers were “conservative” in estimating first-quarter GDP growth, with Socioeconomic Planning Secretary Ernesto M. Pernia penciling the pace at “above six percent” and Trade and Industry Secretary Ramon M. Lopez giving a 6.2-6.4% range.

The interagency Development Budget Coordination Committee, which sets official macroeconomic assumptions and fiscal program, slashed its 2019 GDP growth target last March to a range of 6-7% from 7-8% originally due to delays in signing the budget for this year.

GOV’T SPENDING DRAGS
Among many factors, many of the economists polled last week via e-mail attributed the expected GDP growth slowdown in the first quarter to the four-month delay in signing the P3.662-trillion national budget for the year.

“The main reason [for the slower reading in the first quarter] is that government spending growth ground to a halt as the government operated on a reenacted budget. Export and activity data also suggest growth slowed in other sectors of the economy in Q1,” said Alex Holmes, Asia economist at Capital Economics. He forecast a 5.4% growth in the first quarter.

Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc. (UnionBank), likewise cited the budget delay despite improving conditions in domestic demand due to the declining inflation trend.

“Specifically, government spending in Q1 may fall by about P46 billion, which represents wasted opportunity to implement infrastructure projects. This means that the demand side of the economy in general has slightly slowed down compared to the same period last year,” said Mr. Asuncion, who estimated 6.1% GDP expansion in the first three months of the year.

For Standard Chartered Bank economist Chidu Narayanan, the budget delay “likely shaved 0.3-0.5 ppt (percentage point)” off GDP growth in the first quarter. He gave a 6.2% growth estimate.

The government operated on a reenacted 2018 budget from the start of the year until April 15, when President Rodrigo R. Duterte signed the latest general appropriations into law, but vetoed P95.3 billion in appropriations that he said were not in accordance with his administration’s priorities, slashing this year’s national budget to about P3.662 trillion.

Running on a reenacted budget had left new projects unfunded in the first semester, which would otherwise have been ideal for infrastructure work ahead of the 45-day public works ban starting March 29 ahead of the May 13 mid-term elections and the rains next semester.

State disbursements missed the program by 11% at P777.99 billion in the first quarter, although they edged up a percent from P771.964 billion year ago according to data from the Bureau of the Treasury.

In March alone, state spending fell by eight percent from a year ago and 16% short of the P287.327 billion programmed for that month.

Separate data from the Department of Budget and Management show infrastructure and capital outlays growing 26.3% to P118.4 billion in the first two months of the year from P93.8 billion a year ago.

EASING INFLATION, ELECTION BOOST
On the other hand, economists said that private consumption may have gotten a boost from easing inflation as well as election-related spending in the run-up to the May 13 legislative and local elections.

Emilio S. Neri, Jr., lead economist at Bank of the Philippine Islands, predicted a 6.2% growth as “our leading indicators for retail sales, business and consumer confidence, car sales, government construction projects support our forecast on upside. We think election spending helped bolster growth on most of these items.”

DBS Bank economist Masyita Crystallin gave a 6.1% forecast, noting that “decelerating inflation has helped maintain purchasing power and hence we believe that consumption growth will be stable.”

ING Bank NV Manila Branch senior economist Nicholas Antonio T. Mapa also expects household consumption to have picked up in the first quarter, giving a 5.9% GDP growth estimate.

At the same time, Mr. Mapa doubted the impact of the “election bump” on the economy.

“[A] closer inspection of the contributions to growth per sector [shows that] the main reason for faster growth during EY (election year) is a strong showing from capital formation in the [first half] of the year,” he said.

“[Household] spending does see an acceleration as more funds exchange hands but the 2019 EY is likely to see boost emanate only from the consumption side with capital formation likely taking a back seat as rate hikes do their damage.”

Headline inflation eased for the fifth straight month to 3.3% in March — the slowest pace in 15 months or since December 2017’s 2.9% — bringing the year-to-date average at 3.8%. March brought the year-to-date inflation back within the 2%-4% target range of the Bangko Sentral ng Pilipinas (BSP) for this year, but still above the its reduced three percent forecast average for 2019.

April inflation data will be released tomorrow.

OUTLOOK
Despite the first quarter hiccup, economists expect the economy to recover for the rest of the year now that the national budget for this year has been signed.

“The signing of the 2019 budget in mid-April should see growth rebound in the second quarter. For the year as a whole, growth is likely to come in at around 6.0%,” said Capital Economics’ Mr. Holmes.

ING’s Mr. Mapa said that growth “will likely remain challenged” in the first half of this year due to the “lingering effects of the budget backlog and elevated borrowing costs.”

On the other hand, he added that the possible easing of monetary policy from the BSP and the 2019 budget coming on line “should help [second-half] growth finish the year strong.”

BSP to take measured policy steps — S&P

May 6, 2019 | 1:18 am

By Reicelene Joy N. Ignacio
Reporter

THE PHILIPPINE ECONOMY is not overheating, but this does not mean the central bank will dial back the cumulative 175-basis-point interest rate hike it fired off last year to ease inflation pressures.

“There was no overheating seen within the economy of the Philippines. Some analysts covering the Philippines last year were worried of overheating because of the inflation we saw. What the inflation ended up doing was to cut… disposable incomes of households… and that weighed down consumption,” Vincent Conti, S&P Global Ratings Asia Pacific economist, said in a Friday webcast.

“Inflation has sharply fallen and is now back to target range,” he noted.

“We support the view that the Philippines is not overheating; [but] It does not mean for us that monetary policy settings, that policy rates, should go back to before inflation shocked last year.”

Overheating in an economy occurs when a country’s productive capacity cannot keep up with demand in a fast-growing economy, and rising inflation is a key overheating warning sign. Headline inflation had picked up for nine straight months to a nine-year-high 6.7% in September last year that was sustained in October, before slowing for five straight months to a 15-month-low 3.3% in March. The Bangko Sentral ng Pilipinas (BSP) increased policy interest rates by a total of 175 basis points in five meetings last year, leaving the key benchmark at a decade-high 4.75%.

“We think the BSP does have the preference to cut back on the overtightening they were forced into last year, but they will not go all the way back to the 175 basis points (bps) they had to raise last year,” Mr. Conti said.

He added that slowing global demand — as reflected in easing purchasing managers indices including for the Philippines — “is a bit of headwind, but I would not be so concerned about it.”

“The switch to cash-based budget system in the Philippines would be [followed by] an uptick in infrastructure spending in the second half of the year…” he said, adding that the country, “unlike many of its neighbors in Asia, also has a very strong domestic component of growth led by strong growth consumption by the middle class.”

Andrew Wood, S&P director for Sovereign and Internal Public Finance Ratings, said that gross domestic product “growth may slightly underperform in the first half of the year especially due to delay [of 2019 budget enactment and]… the reenacted budget,” but added: “We’re expecting it to pick up in second half of the year.”

Mr. Wood said S&P, which on April 30 gave the Philippines its highest credit rating yet at “BBB+”, is now watching for progress in the government’s remaining tax reforms, including one that will cut the 30% corporate income tax rate in a bid to attract more foreign direct investments.

Mindanao railway construction pushed to Q4 due to alignment issues

May 6, 2019 | 1:17 am

DAVAO CITY — Construction of the Mindanao Railway System (MRS) has been moved to the fourth quarter this year as the government reviews the alignment in Davao City following resistance from affected homeowners.

In August last year, Project Manager Patricia Melizza B. Ruivivar — after presenting the plan to the Davao City council — said the first phase of the MRS, covering the 102-kilometer Tagum-Davao-Digos (TDD) segment, was targeted to start by Jan. 2019.

Transport Secretary Arthur P. Tugade, in a press conference here Friday for the Tsuper Iskolar scholarship program launch, said that his department has already finalized the alignment and the downloading of funds for right-of-way acquisition, but residents of a gated subdivision in the city have appealed for reconsideration.

In February this year, members of the Monteritz Classic Estates Homeowners Association Inc. (MCEHAI) asked the Department of Transportation (DoTr) to review the railway’s alignment, particularly the viaduct that would hit their area with 40 homeowners and 67 lot owners affected.

Also in February, the South Pacific Golf and Leisure Estates Homeowners Association appealed for reconsideration. No house in the high-end subdivision will be directly hit by the train track, but it will traverse the 18-hole golf course, including its newly built clubhouse, which cost P550 million.

Eymard D. Eje, Department of Transportation assistant secretary for Project Implementation-Mindanao Cluster, said his office has been working to resolve the issues, emphasizing that the new transport system is being planned to cause the least public disturbance.

“When there is a development, especially if it is national(-funded), there will always be people that will be inconvenienced. There will always be difficulty because you are putting a new system,” Mr. Tugade said.

“I hope our approach here is not just personal concerns, let’s look at the benefit for the majority… That is why we are requesting for a fuller understanding and a wider patience,” he added, speaking in mixed Filipino and English.

Despite the delay, the Transport chief said the department is intent on having the railway at least partially operational by 2022.

“Our goal for the Mindanao railway is partial operability of the stations in Tagum City, Digos City, and Davao City,” Mr. Tugade said.

“It is our goal that there will be partial operability of these stations by first or second quarter of 2022. I am trying to fast-track and move forward… These will be constructed simultaneously.”

The Tagum-Davao-Digos segment is estimated to cost about P35 billion and will be partly funded by official development assistance from China.

It is planned to have eight stations, with three in Davao del Norte (Tagum City, Carmen, Panabo), three in Davao City (Mudiang, Davao central, Toril), and two in Davao del Sur (Sta. Cruz, Digos).

A 10-hectare depot will be built in Tagum. — Maya M. Padillo

BoI-approved investment projects rise 46.5% in first 4 months

May 6, 2019 | 1:14 am

INVESTMENT projects registered with the Board of Investments (BoI) in the four months to April rose 46.5% year on year to P286.7 billion, led by the power industry.

Investment by domestic entities rose 14% to P219.7 billion, the BoI said in a statement Friday.

Foreign-sourced investment proposals rose sharply to P66.9 billion from P2.9 billion a year earlier.

Power projects accounted for P185.4 billion in registered investments, up 78% from a year earlier.

The BoI is one of the government’s investment promotion agencies, and project proponents register with it in order to qualify for incentives.

Manufacturing accounted for P44.6 billion, from P15.9 billion a year earlier. This was followed by the information and communication sector where project registrations rose to P33.2 billion from P340 million a year earlier. Meanwhile, proposed investments in the accommodation and food service sector rose to P8.4 billion from P1 billion in 2018.

“With the government’s commitment to ‘clean and green’ infrastructure systems, successive renewable power projects were approved by the BoI,” Trade Undersecretary for Industry Development and Trade Promotion and BoI Managing Head Ceferino S. Rodolfo said.

The BoI said such renewable projects include the P35.2-billion 506-megawatt (MW) natural gas power plant of Vires Energy Corp. in Batangas City; the 15-MW biomass plant of Cagayan Biomass Energy Corp. in Isabela and the P1-billion geothermal source project of Philippine Geothermal Production Co., Inc. located in several towns in Albay and Camarines Sur.

Calabarzon was the proposed location for P198 billion in new investment. Central Luzon followed with P26.7 billion and the National Capital Region was third with P7.9 billion. Rounding the top five are the Central Visayas with P5.7 billion and Cagayan Valley with P4.3 billion.

Singapore was the biggest foreign investor in the year to date with P35.4 billion, up sharply from P38.7 million a year earlier. This was followed by the Netherlands with P9.1 billion; Thailand with P8.5 billion; Japan with P5.5 billion; and the United States with P2.2 billion.

“Foreign investors remain confident in the country’s business prospects as foreign capital continues to surge into the country while domestic investors remain upbeat as domestic capital continued its steady growth,” Trade Secretary and BoI Chairman Ramon M. Lopez said.

He added that the Philippines’ recent credit rating upgrade from S&P Global, as well as the Asian Development Bank’s view of the Philippines as the second fastest-growing economy in Southeast Asia, will continue to bring in investment.

“I join the economic managers in attributing all these very positive economic developments, including the continued surge of BoI investment approvals in priority and strategic sectors, to the steadfast implementation of the 10-point economic agenda of President Rodrigo R. Duterte,” Mr. Lopez added.

The BoI has a P1-trillion investment target for 2019.

The investment promotion agency posted a record P907 billion worth of project registrations, with most projects from the manufacturing, infrastructure, transport and utilities sectors. — J.C. Lim

DoF touts stronger BIR collections under Duterte

May 6, 2019 | 1:13 am

THE Department of Finance (DoF) said the Bureau of Internal Revenue (BIR) collections have grown sharply in the first two full years of the Duterte administration, while remaining just a few percentage points below target in each of the two years.

In a statement, the DoF said that the BIR collected P1.78 trillion, or 97.35% of its P1.83-trillion target, in 2017, and P1.96 trillion, or 96.04% of the P2.04-trillion target, in 2018.

In 2015, the last full year under the previous government, the BIR reported collections of P1.44 trillion, or 86.12% of its target of P1.67 trillion.

The current administration took over at the end of June 2016.

“To his credit, President Duterte has transcended all the political chatter and stayed focused on pursuing policy initiatives such as tax reform, trade liberalization and infrastructure modernization, that are necessary to sustain the growth momentum, attract investments and ensure financial inclusion for all Filipinos on his watch,” Carlos G. Dominguez III, Finance Secretary, said in the statement.

According to the DoF, tax effort, or the proportion of collections relative to the size of the economy, was recorded at 11.27% in 2017 and 11.26% in 2018, from 10.82% seen in 2015 and 10.56% in 2014.

“The 2018 tax effort of 14.7% to GDP (gross domestic product) is the highest in 20 years,” Mr. Dominguez said.

The DoF noted that the collection performance of the BIR averaged 96.7% in the first two full years of President Rodrigo R. Duterte’s term, as compared with the 94.5% in the full five years of the previous administration.

The DoF attributed the increase to the government’s tax reform program that “has led to the strong performance of revenue collection” wherein tax revenue increased by 14% to P2.565 trillion in 2018 from P2.250 trillion a year earlier.

The BIR has said it is expecting higher collections for this year from the tax amnesty program rollout.

The BIR generated total revenue of P468.2 billion in the first quarter of 2019, up 11% from a year earlier.

The BIR has been actively running after manufacturers of cigarettes and other commodities with fake tax stamps and charging them with tax evasion, as well as requiring Philippine Online Gaming Operators (POGOs) to register their companies with the BIR as a condition for the issue of operating licenses. — Reicelene Joy N. Ignacio

Goods trade up 10.5% amid large deficit with top partner China; electronics still top export

May 6, 2019 | 1:12 am

INTERNATIONAL trade in goods in 2018 totaled $182.15, up 10.5%, the Philippine Statistics Authority (PSA) said, with China, the top trading partner, accounting for 16.9% of total trade while enjoying a large surplus vis-a-vis the Philippines with exports of $22.01 billion and imports of $8.82 billion.

Electronics remained the top Philippine export, generating overseas shipments worth $38.18 billion, up 4.5% from a year earlier and accounting 55.1% of the total, the PSA said in its preliminary report on international trade for 2018. It added that the top 10 export commodities accounted for 80.7% of export receipts.

Other top exports were “other” manufactured goods, with a 6.3% share worth $4.3 billion, and machinery and transport equipment with a 4.8% share valued at $3.31 billion.

In addition, machinery and transport equipment exports declined 11.6% from a year earlier.

China accounted for $4.96 billion of the Philippines’ electronic products exports, or 56.3%.

Japan, the second-largest trading partner in 2018, accounted for 11.6% of total trade in 2018 or $21.14 billion. The trade balance with Japan is slightly in Japan’s favor, with the country taking in Philippine exports of $10.32 billion while shipping $10.82 billion worth of goods the other way.

The top export to Japan was electronic products worth $3.01 billion, followed by wiring sets for vehicles valued at $962.36 million.

The United States was the third-largest trading partner with a share of 10.3% or $18.70 billion. The trade balance favors the Philippines with exports to that country valued at $10.64 billion compared with imports worth $8.06 billion. The top export to the US was electronic products worth $5.13 billion, accounting for 48.2% of the total. The top US export to the Philippines was also electronics worth $2.55 billion or 31.6% of the total, followed animal feed (excluding unmilled cereals) valued at $1.01 billion, or a share of 12.6%.

Total trade with ASEAN amounted to $39.64 billion, with the Philippines incurring a trade deficit with exports worth $11.18 billion and imports valued at $28.46 billion. ASEAN as a bloc accounts for 21.8% of total trade.

Of other major economic blocs, the European Union accounted for $17.49 billion, or 9.6% of total trade. The Philippines enjoyed a surplus of $320.71 million vis-a-vis the EU on exports of $8.91 billion and imports of $8.59 billion.

Trade with APEC was $151.53 billion, with the Philippines also suffering from a deficit estimated at $36.52 billion, on exports of $57.50 billion and imports of $94.02 billion.

Wage hike petitions still being evaluated by NWPC, DoLE says

May 6, 2019 | 1:11 am

THE Department of Labor and Employment (DoLE) said it continues to study current settings for minimum wages after various wage hike petitions were filed before Labor Day last week.

Labor Secretary Silvestre H. Bello told reporters that the National Wages and Productivity Commission (NWPC) is still assessing the latest wage hike petitions filed by labor groups late last month.

“Ongoing, pinag-aaralan nila (they are studying it)…Every now and then there is that (kind of complaint) or (petition to) fix a new minimum wage so continuous pa rin ang pag-aaral (the evaluation is still continuing),” he said.

On April 29, the Trade Union Congress of the Philippines (TUCP) filed a petition for a wage hike of P710 to add to the Metro Manila minimum wage.

Other wage hike petitions filed before the NCR wage board are from Kilos Na Manggagawa (KnM), Metal Workers’ Alliance of the Philippines (MWAP), and BPO Industry Employees Network (BIEN), which asked for a P213 wage increase. The petition of the labor groups aim to make the National Capital Region (NCR) daily minimum wage rise to P750.

On April 30, Senator and Chair of the Committee on Labor, Employment and Human Resources Development Joel J. Villanueva said in a radio interview “Naniniwala tayo na hindi dapat kaagad-agad isinasara ang posibilidad na magkaroon ng (we believe that we shouldn’t rule out the possibility of a) second round of wage increase in less than a year.”

Only the Regional Tripartite Wages and Productivity Board (RTWPB) of each region has the authority to adjust wages, and only after 12 months lapse since the last wage order, subject to approval by the NWPC. Only “supervening conditions” warrant a wage adjustment less than a year since the last wage order.

For NCR, the last wage adjustment was issued on November 22, 2018 — less than six months ago. The wage order called for a daily minimum wage of P537 for non-agricultural private sector workers.

The wage setting system can only be amended through legislation.

Late last year, NWPC Director Maria Criselda R. Sy said that the NWPC has been tasked to conduct a third-party study on the current wage determination system.

“That is their mandate: to continuously assess the economic situation to assess and recommend a wage hike adjustment,” Mr. Bello said. — Gillian M. Cortez

ERC’s competitive selection rules expected in 30 days

May 6, 2019 | 1:10 am

THE Energy Regulatory Commission (ERC) expects to issue within 30 days its final rules on competitive selection process (CSP), a scheme that chooses the lowest-cost power for consumers, including a provision on replacement power that will require the generation companies to shoulder the cost of unscheduled plant outages.

“Hopefully, in 30 days,” ERC Commissioner Catherine P. Maceda told reporters when asked about how soon the regulator could issue the rules in the face of the continuing legislative hearings on the deficient power reserves in the Luzon grid ahead of the May 13 midterm elections.

She said the ERC has a draft of the CSP rules, which is in the final stage of completion.

Attached in the rules is a template for a power supply agreement (PSA), which has a provision on replacement power.

“It’s almost ready,” she added. “There’s a template contract already.”

Ms. Maceda said given the recent hearings and the inputs from stakeholders, the ERC will revisit its draft CSP rules, and possibly hold another round of public consultations.

At present, not all the PSAs that went through ERC approval have a provision on replacement power, an issue that was highlighted in the Senate hearings, with Senator Sherwin T. Gatchalian pointing out that there is no disincentive for power generation companies whose plants go on an unscheduled shutdown. He also questioned the slow pace at which the power plants go back online after an outage.

Some PSAs between generation companies and distribution utilities have a provision on replacement power. That provision calls for the utility to buy power from the wholesale electricity spot market when the generator is unable to deliver because of an outage. Market prices are driven by existing supply and demand, and could be higher than the contracted prices under PSAs. The additional cost may be passed on to consumers.

Ms. Maceda said the ERC might need one or two en banc meetings to finalize the CSP rules, plus another special commission meeting for the same purpose.

The urgency of coming up with the rules comes at a time when the ERC is in the thick of inspecting power plants that shut down in March and April, resulting in rotational brownouts in some areas in Luzon, including Metro Manila.

Ms. Maceda said the commission is awaiting the submission of data from the power generation companies on the plant shutdowns, which it will validate with its own data.

“We have our own data in-house. What we are doing is ibabangga ito sa data ng PEMC (validate this against the data of the Philippine Electricity Market Corp). Can anyone manipulate the data? No, because we have our own,” she said.

She said the ERC was awaiting the submission of complete data from PEMC, the governance arm of the electricity spot market.

“How can you regulate when you don’t know the state of affairs,” she said. “We impose the necessary sanctions, if necessary and after due process. The due process is always important.”

For now, she said the position of the commission is allegations that some market players made money out of the unscheduled plant shutdowns are “just allegations.”

“Those are just allegations and until we have the proof, which is essentially the data, hard data, then nobody can say that there was gaming in the market. It’s as simple as that,” she said. — Victor V. Saulon

Senate panel targets 3rd reading passage of foreign investment bill before June 7

May 6, 2019 | 1:09 am

THE Senate committee on economic affairs targets third-reading approval of measures lifting restrictions on foreign investments and institutionalizing the National Economic and Development Authority (NEDA) ahead of the June 7 adjournment.

“Again, it bears stressing that we need to come up with legislative reforms in order to create a more competitive business environment in the country and to make the country become more adaptable to the current and future business demands and trends,” Panel chair Senator Sherwin T. Gatchalian said in a statement Sunday.

“Rest assured, we will immediately buckle down to work and, hopefully, finish these bills in three weeks before the 17^th Congress adjourns sine die,” he also said.

Mr. Gatchalian said he plans to file the committee report on Senate Bill No. 2102, which will amend Republic Act No. 7042, or the Foreign Investments Act of 1991 (FIA), when sessions resume on May 20.

The bill proposes to remove restrictions on foreigners from practicing their profession in the Philippines, provided Filipinos are given reciprocal privileges in the foreign nationals’ own countries.

Moreover, the bill proposes to hold an annual review of the regular Foreign Investment Negative List to keep it in line with the government’s economic policy.

The proposed NEDA Act, under Senate Bill No. 2120, is likely to complete its amendment period in the Senate, Mr. Gatchalian said.

The bill will also allow NEDA to effectively integrate major regional and local development priorities into the Medium-Term Philippine Development Plan (MTPDP) and Medium-Term Regional Development Plans (MTRDPs).

The counterpart measures of these bills, House Bills No. 8764 and 8635 respectively, have hurdled final reading at the House of Representatives.

Congress has been on break since Feb. 9 to make way for the campaign period for the midterm polls on May 13. It is set to resume from May 20 to June 7, giving it three weeks to finish remaining legislative measures.

The Senator noted as well his committee will also prioritize the bill strengthening the power and functions of the Authority of the Freeport Area of Bataan (AFAB), under Senate Bill No. 2133. — Charmaine A. Tadalan

Banks and fintech: the next step

May 6, 2019 | 1:08 am

In recent years, the Philippine banking ecosystem has undergone rapid digital transformation driven by sweeping technological advances. The Philippine Banking Almanac states that the Philippine banking industry started as a government venture to provide deposit services and fund production in the agricultural and commercial industries. That was 160 years ago and since then, the industry has evolved to include various aspects of financing, up to the ubiquitous digital systems that are now used all over the world. This is no surprise since the banking industry has always been characterized by continuous, customer-driven innovation.

RISE OF E-BANKING
E-banking first revolutionized the Philippine banking industry in the 1980s with the introduction of automated teller machines (ATMs). These machines eliminated several geographic and time constraints as they allowed customers in urban areas to conduct cash withdrawals and deposits on an everyday basis. In 1999, the invention of smartphones, coupled with developments in the telecommunications industry, paved the way for early versions of mobile banking. Customers could now conduct basic banking transactions such as balance inquiry and fund transfers to accounts within the bank using a short messaging service (SMS). This was followed by internet banking in 2000 which allowed customers to accomplish transactions through computers and the Internet. It was at this point that banks started to veer away from their traditional bricks and mortar operations, integrating both online and offline operations into their physical presence.

FINTECH SOLUTIONS AND OPPORTUNITIES
As technology continued to improve alongside the increase in mobile ownership and Internet subscriptions, the next few years saw a rise in the adoption of financial technologies (FinTech). Financial services became further digitized with the invention of mobile wallets, payment gateways and virtual currencies. These services are now more accessible and convenient than ever as Filipinos can conduct transactions, pay bills, and purchase goods and services using applications on their personal computers or smartphones. However, most of these innovations are not actions of banks but initiatives of FinTech companies that envision providing enhanced financial services at a reduced cost.

FinTech solutions present many opportunities for the Philippines that can be summarized in three main points.

First, it reduces the country’s dependence on a paper-based payment system. A 2015 case study by the Better Than Cash Alliance (BTCA) titled Leaving money on the table: The corporate and SME experiences of digitizing business payments in the Philippines found that digital payments could save Philippine banks about $1.52 per transaction. Also, a digital payment system reduces the risk of graft and corruption because records are automatically created as money passes between accounts.

Second, FinTech can spur greater financial inclusion. The 2017 Global Findex report by the World Bank revealed that majority of Filipinos remain unbanked with only 34.5% of adult Filipinos holding formal financial accounts. Access to financial services remains a challenge because it is difficult for banks to establish physical branches across the more than 7,000 islands that comprise the Philippines. However, FinTech services transcend geographical barriers by granting accessibility through technological platforms.

Third, it provides SMEs with alternative financing opportunities. According to a 2019 study by the Milken Institute, FinTech in the Philippines: Assessing the State of Play, SME lending only made up 2.5% of the total lending portfolio of commercial banks. Sources of capital are a pressing issue for small business owners who are unable to fulfill the loan requirements set by banks. FinTech start-ups have developed an alternative credit-scoring system that can assess the repayment capacity of potential borrowers, allowing Filipinos without a formal credit history to apply for loans.

COLLABORATION AND INNOVATION
Today, FinTech has become a major industry composed of start-ups that are creating solutions for payments, consumer lending, financing for SMEs, remittances, logistics and transportation, and investments. The 2017 EY FinTech Adoption Index emphasized the recent rise in the percentage of digitally active FinTech consumers. The survey conducted across 20 selected markets revealed that 50% of consumers use FinTech money transfer and payment services. Furthermore, 64% of consumers prefer using digital channels to manage several aspects of their lives. The study revealed that global FinTech adoption could increase to an average of 52%. The expansion of the FinTech industry is also due to the efforts of the Bangko Sentral ng Pilipinas (BSP) to continually update and reform much of their regulatory framework in response to the recent financial services trends.

As the industry continues to gain momentum, it also gains capital from investors. In fact, over P5 billion was invested in the Philippine FinTech sector in 2018. These companies have been steadily gaining customers, expanding their market share, and competing with the banking industry.

However, partnership and collaboration — not competition — between banks and FinTech companies can maximize innovation and unlock the potential of the Philippine banking industry’s digital future. Essentially, banks and FinTech companies share the same goal: to deliver better financial services, improve regulatory compliance and reduce long-term costs.

FinTech companies offer a wide range of products such as robotic process automation, data analytics and artificial intelligence that can greatly enhance the business operations of banks. They are also more flexible in integrating and working with cryptocurrencies, rewards and loyalties in the form of tokens, and becoming the cash in and cash out alternatives.

In addition, some FinTechs are capable of giving their partners and clients revenue in the form of rebates or commissions through services such as mobile e-loading and financial transactions.

Meanwhile, banks are adept at handling the common challenges faced by FinTechs such as the significant costs incurred due to customer acquisition and the barriers encountered in cross-border business. Banks are also experienced in handling costly compliance matters such as Anti-Money Laundering Act (AMLA) and Know-Your-Customer (KYC) regulations.

The anonymity that online financial services provide poses risks to AMLA and KYC regulations as cybercriminals and money launderers may see FinTechs as instruments for financial crimes.

To better protect financial institutions from money laundering and other financial cybercrimes, BSP issued Circular no. 950 which contains additional requirements for AMLA and KYC compliance. Complying with these regulations is expensive and can greatly impact the finances of FinTech startups, but these costs are bearable for large financial institutions such as banks. Thus, FinTechs can benefit from the banks’ compliance and regulatory competencies, especially if they are already reaching their marketing saturation points.

With the relative advantages of each side, it is clear that strong collaboration between banks and FinTech companies have great potential and opportunities that can result in relevant and sustainable solutions for their customers.

In order for banks to form successful strategic relationships with FinTechs, they need to clearly define their digital solutions goals. Then, they must work together to design a FinTech framework that best suits their business needs, size, culture and operations as well as their customers’ banking needs and expectations. Banks should also encourage innovation initiatives that promote their long-term growth strategies.

FUTURE OF THE FINANCIAL SERVICES INDUSTRY
The change-driven history of financial institutions demonstrates that adopting emerging technologies unlocks many opportunities. Today’s digitally competitive business landscape requires leaders of financial institutions to embrace sustainable technological transformation and pioneer innovation. In turn, these efforts will lead to financial services that deliver prime transformational value to Filipinos, ultimately boosting their financial well-being and strengthening the economy.

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

Armando N. Cajayon, Jr. is a Principal in the Advisory Services of SGV & Co.

Crime rate down 3.3% in first quarter, says PNP

May 6, 2019 | 1:05 am

By Vince Angelo C. Ferreras
Reporter

CRIME VOLUME nationwide decreased by 3.3% or 3,963 incidents to 115,539 in the first quarter compared with 119,502 in the first quarter of last year, according to the Philippine National Police (PNP).

PNP Spokesperson Col. Bernard M. Banac said the decrease can be attributed to the police’s campaign against illegal drugs.

“Ma-attribute natin ito sa intensified campaign on illegal drugs. Ayun pa rin talaga (We can attribute this to our intensified campaign on illegal drugs. it’s still that, really),” Mr. Banac said in an interview on Friday.

He added: “Because of the intensified campaign on illegal drugs, (the) effect (on) criminals is to stay away from committing crimes….Kapag under the influence of illegal drugs, may tendency talaga na gumawa ng krimen (there is a tendency to commit crime). Dahil na-reduce natin ‘yung paggamit ng droga (Because we have reduced the use of drugs) from the public, ‘yung commission of crime, bumaba din (the commission of crime also went down).”

Mr. Banac also pointed out, “Hindi maiwasan ng tao na mag-commit ng crime dahil gusto lang niya mag-survive, mabuhay, kumain.” (People cannot avoid committing crime in order to survive, live, and eat).

The PNP cited the decrease in index crimes to 16,235 this year, from 22,100 in the first quarter of 2018. Index crimes pertain to murder, homicide, physical injury, rape, and crimes against property (robbery, theft, carjacking, and cattle rusting).

Theft still registered the highest among index crimes with 5,039; followed by physical injury, 4,447; and robbery, 2,273.

Last February, the PNP recorded a total of 473,068 crimes in 2018. The figure was 9.13% lower compared with 520,641 crimes in 2017.

Sought for comment, Associated Labor Unions-Trade Union Congress of the Philippines spokesperson Alan A. Tanjusay said: “Poor people resort to drugs to sell and get income. Poor people also resort to drugs to seek pleasure and be callous in selling and using illegal drugs. Poor people turn to illegal drugs both to get income and pleasure because of rising unemployment in the country.”

Security analyst and former Federal Bureau of Investigation officer Stephen P. Cutler said in a phone message when sought for comment on Saturday: “Studies in other countries indicate that reducing drug use and addiction has a positive impact on other crimes. As drug demand is reduced so are the crimes that are committed to get the money needed to support addictions and drug use.”

University of Santo Tomas political science professor Marlon M. Villarin said: “President Duterte’s war on drugs may not be the ideal approach in curving/addressing criminality in our country but somehow capable of providing practical short term solutions, of you look at the data, most criminal cases filed/ reported to PNP concern street crimes and domestic violence and most of these cases involved drug addiction. Consistent with popular surveys and plain folks experiences, war on drugs provided a community a practical at accessible solutions to community threat.”

Mr. Cutler said the PNP should improve its computer statistics or COMPSTAT crime management tool: “The PNP is trying to follow the New York City Police model of “COMPSTAT” which is data driven planning and deployment of resources. That is wise, but needs deepening and expanding. In addition, PNP would greatly impact organized crime groups that are deeply involved in drug trafficking, human trafficking, child sexual exploitation, stolen vehicle trafficking and other such criminal acts by a strengthened and broadened use of computerized analysis of data. This is along the ideas used by businesses known as ‘big data analysis.’”

Mr. Villarin said: “They have to strengthen not only with their punitive approach to the war on drugs but also strengthen their preventive approach, with the help of the religious and other socio civic org they can do advocacy program that will educationally and socially cut significantly demand and supply of illegal drugs.”

He added, “War on drugs should not focus more on punitive alone but more importantly the preventive approach.”

Mr. Banac said that more equipment and training, including seminar on human rights, will improve PNP’s services: “We need more equipment to modernize our investigation capabilities and we will continue our training pagdating sa investigation and sa operations. Maging ‘yung training on human rights (As well as training on human rights). ‘Yung awareness namin sa mga police on respecting human rights, the value of life, protecting the rights of the public and the suspect lalo pa namin palalakasin to lessen ‘yung incidence ng pagkakamali.” (We will strengthen our awareness campaign to our policemen regarding respecting human rights, the value of life, protecting rights of the public and the suspect in order to avoid committing mistakes during operations).

BTA member calls for immediate creation of national coordinating body

May 6, 2019 | 1:04 am

A BANGSAMORO Transition Authority (BTA) member has called on the national government to immediately set up the Intergovernmental Relations (IGR) Body that will facilitate interactions with the newly-formed Bangsamoro Autonomous Region in Muslim Mindanao (BARMM).

At a forum conducted by the Institute for Autonomy and Governance (IAG) last May 2, BTA Member Eddie M. Alih noted that the Bangsamoro Organic Law (BOL) mandates the BARMM’s transition government to accomplish within three years its priority legislations.

These include codes on administration, internal revenue, indigenous people’s affairs, civil service, elections, local government, and education.

“I think even in the process of crafting these codes, it is very important that we have to coordinate with the national government. So dapat lang ito ang unahin (it should really be a priority). Before crafting these different codes, we should already be starting to coordinate…. That’s the importance of the IGR Body,” Mr. Alih said in an audio file emailed by the IAG to BusinessWorld on May 3.

The forum, held at the Department of Interior and Local Government (DILG) headquarters in Quezon City, was conducted in coordination with Konrad Adenauer Stiftung, Ateneo School of Government, and DILG.

He added, “We hope that… the National Government-BARMM IGR Body will be created as soon as possible time to help the Bangsamoro government.”

DILG Assistant Secretary and Spokesperson Jonathan E. Malaya said DILG Secretary Eduardo M. Año will still have to be briefed on the matter.

“Moving forward, we may need to brief the Secretary because he has to understand the implications of this…. We need to brief the Secretary and give you options… while in transition, because…we want BARMM to succeed,” Mr. Malaya said at the forum.

He added that the DILG will consider using the 2009 administrative orders (AOs) 273 and 273-A issued by then president Gloria M. Arroyo, which the Supreme Court upheld, delegating her supervisory powers over the then Autonomous Region in Muslim Mindanao (ARMM) to the DILG.

Following the ratification of the BOL earlier this year, the BARMM has replaced the ARMM.

“Maybe in the context of IGR… there seems to be an agreement that the IGR mechanism is the best way to move forward, DILG (will use its) delegated authority… to be able to begin the IGR mechanism, working of course with the Moro government,” Mr. Malaya said.

AUTONOMY FRAMEWORK
In his presentation, Chief Operations Officer of IAG Development Consulting Inc. (IDCI) Ishak V. Mastura defined IGR as “the processes and institutions through which governments within a political system interact.”

“IGR occurs most importantly in the ‘vertical’ relationship between the central government and sub-national governments,” he explained, adding that it is primarily “a function of the executive arm of government.”

Under Section 2 of the BOL, an IGR body is to be created “to coordinate and resolve issues on intergovernmental relations through regular consultation and continuing negotiation in a non-adversarial manner.”

Other IGR bodies under the BOL include the Philippine Congress – Bangsamoro Parliament Forum, Intergovernmental Fiscal Policy Board, Joint Body for the Zones of Joint Cooperation, Intergovernmental Infrastructure Development Board, Intergovernmental Energy Board, and Bangsamoro Sustainable Development Board.

Mr. Mastura said the BOL can largely work as a framework of autonomy “provided that the limits of national government intrusions on autonomy are defined thru the IGR created by the BOL.”

“Maybe the IGR Body can even be used to devolve powers to BARMM as or if necessary?” he added, noting that there were powers removed in the grant of autonomy that shows the unitary intent of the BOL.

He said the “Local administration, municipal corporations and other local authorities….” were “deleted in the final version” of the BOL.

Removing these items, Mr. Mastura said, “curtails” BOL Art. VI on IGR which states: ” Sec. 10. Bangsamoro Government and its Constituent Local Government Units. — The authority of the Bangsamoro Government to regulate the affairs of its constituent local government units shall be guaranteed in accordance with this Organic Law and a Bangsamoro local government code to be enacted by the Parliament. The privileges already enjoyed by local government units under Republic Act No. 7160, otherwise known as the ‘Local Government Code of 1991,’ as amended, and other existing laws shall not be diminished.”

Mr. Mastura further said that the BARMM “can also exercise its autonomous powers by assuming governmental power to the extent that it sees fit under the BOL until such time that it is questioned or a controversy arises in the exercise of that power.”

”If there is such a dispute, it can be tackled at the IGR Body. The risk is that the BARMM authorities may be skirting ‘color of authority’ instead of a stable policy of rule of law that is recognized by all in the region and by the national government,” he added.

The term ‘color of authority’, he said, means the “appearance or presumption of an official or legal power given to a person or an institution to do something.”

“GAME-CHANGER”
Sought for comment, Michael Henry Ll. Yusingco, lawyer and Ateneo Policy Center senior research fellow noted that “the most challenging” item in the BTA’s to-do-list is the “familiarization of the entire Bangsamoro community to the new parliamentary structure of the regional government.”

“Parliamentary principles and procedures, inter-agency relations and management, values-based leadership, fiscal policy formulation and sustainable development management are just a few examples of the competencies the new Bangsamoro regional government leaders and officials need to learn under such a limited timetable,” he said in an e-mail on Sunday.

He said the IGR could be the “game-changer” for the BARMM.

“Hence, the organization of the IGR bodies under the BOL also has to be prioritized. More specifically, the BTA in partnership with the DILG can organize a small cohort of civil servants from the BARMM and the central government to undergo a specialized training on IGR. This group then can write a general principles handbook which can then guide the organization of the IGR bodies mandated by the BOL,” he explained.

He stressed that attending to the parliamentary structure of the BARMM and the IGR bodies under the BOL “must be the most urgent priorities” now of the BTA.

“Save perhaps the enactment of a new electoral code, the other matters requiring legislation can wait for the election of the first set of Bangsamoro parliamentarians in 2022,” he said further.

“Indeed, it can be argued that given the substantive nature of these proposed laws, it would be more appropriate to have a duly elected legislative body, such as the Bangsamoro Parliament, to draft and enact them according to the legislative procedure mandated by the BOL.” — Arjay L. Balinbin

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