Saturday, 20 November 2010

Aquino vows support for Arroyo measure

Manila Bulletin

MANILA, Philippines — Determined to make the business climate in the country more attractive to investors, President Benigno S. Aquino III said he will support improvements on the Build-Operate-Transfer (BOT) Law even if the proponent is his political foe, former President and now Pampanga Rep. Gloria Macapagal Arroyo.

Rep. Arroyo reportedly said she is eyeing improvements on Republic Act 7718 or the BOT Law, which she authored as a senator, to help hasten the entry of private investments into the country.

“I will have to read her bill first. It might already be good enough but we might also have some ideas which can be included in the bill,” Aquino said, speaking in Filipino.

“It's not important who is the proponent of the bill. If it's good for the country, I will support it,” President Aquino said.

Friday, 19 November 2010

Dollar reserves to hit $60b

by Roderick T. dela Cruz
Manila Standard

Bangko Sentral Gov. Amando Tetangco Jr. on Wednesday said the country’s gross international reserves may reach close to $60 billion by the end of the year, given the strong foreign exchange inflows that placed the level at $56.85 billion at the end of October.

“It will be closer to $60 billion,” Tetangco told reporters.

Monetary authorities allowed foreign-currency swaps to mature, making the dollars part of the stock, Tetangco said in a briefing. The Philippines will probably exceed the balance of payments surplus target for the year, he said.

Tetangco said the country’s external position has remained comfortably in surplus and the GIR has been rising to new highs, while the volatility of the peso-dollar exchange rate has remained in the middle of the range of the volatilities of currencies in the region.

He noted that strong foreign exchange inflows continued to build the country’s balance of payments position. “At the rate we are going, full-year BoP surplus could be higher than $8.2 billion,” he said. The BoP surplus stood at $6.5 billion in the first nine months of the year.

Tetangco said the country’s economic fundamentals were well in place, which could support economic growth of 7 to 8 percent for the year. Inflation rate is also manageable, giving the monetary board an elbow room to become flexible in its policy interest rates.

“We can adopt a stance that continues to support economic growth. There’s no immediate threat to inflation,” he said.

“For 2010, we expect the average inflation rate to be below the midpoint of the target range which is 3.5 percent to 5.5 percent,” he said.

Despite the strong foreign exchange inflows which tend to help the peso to move upward, Tetangco said Bangko Sentral is not targeting any particular exchange rate.

“We have this policy of allowing the peso to respond to market forces,” he said. “But the Bangko Sentral can participate from time to time basically to smoothen the sharp fluctuations in the exchange rate. We do not go against the fundamental trend.”

Gov’t dangles PPP promises


GUARANTEES, easier access to bank loans and speedier processing were dangled by the government at yesterday’s rollout of key infrastructure projects that include $3.3 billion worth of rail, road and airport ventures up for bidding next year.

Even as officials admitted that funding to support the promised facilitation still had to be approved by Congress, a number of business leaders nevertheless expressed interest in the undertakings on offer.

Multilateral organizations also promised to help get the public-private partnership (PPP) program off the ground.

President Benigno S. C. Aquino III laid down the first pledge of the day, promising to compensate contractors should legal challenges prevent them from collecting agreed rates.
"If for some reason a court decision threatens [rate] adjustments, the government will compensate the private concessionaire for the difference between what the tariff should have been under the formula and the tariff which it is actually able to collect," he said at the opening of the two-day Infrastructure Philippines 2010 conference.

"If we are truly interested in a square deal for all, then what we shake hands on should be what endures," Mr. Aquino added.

The president’s economic team went on to bare plans for state agencies to speed up project processing by helping out with feasibility studies and right-of-way acquisition. These two objectives are to be funded by a P12.5-billion allocation specifically for projects up for bidding next year, Budget Secretary Florencio B. Abad said in a speech.

This is on top of the P300 million programmed for the Project Development and Monitoring Facility that is under the National Economic and Development Authority (NEDA), Socioeconomic Planning Secretary Cayetano W. Paderanga, Jr. said.

The NEDA will be charged with assisting other agencies in packaging their projects for auctions, he added.

Mr. Abad, however, admitted that funds to support the president’s promise of compensating investors had not been allocated.

"We still have to figure it out," he told BusinessWorld.

"We can reflect that to some degree in the contracts," he added without elaborating.
Mr. Abad also conceded that Congress had yet to approve the budget for right-of-way acquisition and feasibility study drafting.

"But after this conference, there will be a stronger urgency to keep that allocation intact," he said.

House of Representatives Speaker Feliciano R. Belmonte hinted that legislators would favor the infrastructure initiative.

"We are supportive of the President’s programs, particularly the PPP," Mr. Belmonte said at the event.

If realized, the support measures could lure private investment into 11 rail, road and airport projects up for bidding next year.

The government will be wholly responsible for the civil works of at least five of these projects, which will be turned over to a private sector concessionaire for operation and maintenance (O&M).

The five are:

  • the $170-million expansion of the Light Rail Transit (LRT) Line 1, to be turned over to a concessionaire at market prices;
  • the $140-million expansion and privatization of the Metro Rail Transit-3 under a scheme similar to the LRT-1 deal;
  • the $700-million LRT-1 South extension, where O&M will be worth $800 million;
  • the $120-million LRT Line 2 East extension with O&M worth $100 million; and
  • the privatization of the $28-million Laguindingan airport in Misamis Oriental with O&M at $5 million.

Meanwhile, in addition to O&M, private sector investors will have to partly fund the construction of the remaining six projects:

  • the 27.6-kilometer Cavite-Laguna Expressway worth $262 million;
  • an elevated 4.9-kilometer expressway worth $235.33 million that will link the Skyway and Manila-Cavite Coastal expressway to the Ninoy Aquino International Airport terminals;
  • the North Luzon Expressway-South Luzon Expressway link worth $467 million;
  • a new $120-million airport in Panglao, Bohol;
  • the $97-million rehabilitation of the airport in Puerto Princesa, Palawan; and
  • a new $71-million airport in Daraga, Albay.

The private sector will be tasked to put up and operate the terminals for all the proposed airports, save for the one in Laguindingan, with the government taking care of the "airside" development such as runway construction, Transportation and Communications Secretary Jose P. De Jesus said.

Public Works Secretary Rogelio L. Singson said feasibility studies for the three proposed roads had been completed.

Other minor projects, spearheaded by the Agriculture and Health departments and some local government units are also ready for bidding next year, officials said.

Already, several large corporations said they would be studying the project lineup.

"We’re very interested in all the projects... Our priority is tollways but we are interested in tourism, power and infrastructure [too]," San Miguel Corp. President Ramon S. Ang said at the sidelines.

Metro Pacific Investments Corp. Chairman Manuel V. Pangilinan similarly told reporters he was interested in the tollway projects, adding that "The government is setting the right tone."
Ayala Corp. Chairman and CEO Jaime Augusto Zobel de Ayala said his company had been "interested for a long time" and would study its options "more carefully."

The conference, SM Investments Corp. Vice-Chairman Teresita Sy-Coson, said was "a good start."
Officials of foreign business groups also weighed in, expressing optimism over what has been described as the Aquino government’s centerpiece program.

"It’s a strong stand. It’s the same feeling I had under the Ramos administration," European Chamber of Commerce of the Philippines President Hubert d’Aboville told BusinessWorld.

"I believe we’ve just passed a curve and now have a clear highway ahead," he added.

John D. Forbes, senior adviser at the American Chamber of Commerce of the Philippines, called the PPP initiative ‘a sea change."

"The government has made a strategic choice with limited funds to work on," he said.

"But the challenge is still there," Mr. d’Aboville said, noting that more meetings with the private sector and the final packaging of the projects should be next on the agenda. -- with reports from Emilia Narni J. David and Louella D. Desiderio

Thursday, 18 November 2010

26 projects worth P263 B offered for PPP

Manila Bulletin

MANILA, Philippines – Twenty-six projects with a combined cost of P263 billion and mostly in the infrastructure sector that include airports, tollways, and agri facilities for medium term development under the public-private partnership program of the government would be presented Thursday.

These projects would be presented at the Conference: Public-Private Partnership Projects starting Thursday at the Marriott Hotel to be led by President Benigno S. Aquino III.

These projects include the Kabulnan-2 Multi Purpose Irrigation and Power project; Balintingon Reservoir Multi-Purpose, cold chain systems covering strategic areas in the country, grains centrals with bulk handling facilities, logistics support on agri-fishery products, Cala Expressway-Laguna side section, C-5/FTI/Skyway connector, NAIA Expressway Phase 2, C-6 Expressway Global City link, Central Luzon Expressway for Tarlac-Cabanatuan and Cabanatuan-San Jose, SLEX Extension to Lucena City, Calamba-Los Banos expressway, R-7 Expressway, NLEX East/La Mesa Parkway, Privatization of NAIA 3 and DMIA, Mactan-Cenu International Airport Authority, Kalibo Airport, urban transport programs, MRT 8, Balabac Airport, development of National Motor Vehcile Inspection and Maintenance Program, Privatization of Northrail Operation and management; Mindanao Railway System, Construction of elementatry and secondary classrooms, and health facilities program.

One distinct advantage for investors in these projects is the presence of an established legal framework that spells out the rules of engagement from the very beginning.

Investors simply need to conform to the rules and follow the roadmaps for pre-qualifying to do business; structuring proposals and biding for projects; complying with the project approval process; formalizing award and finalization of contracts and; registering and starting s project.

Debt and interest rates; how we win

Business Mirror

The global financial and debt markets are in turmoil again, with Europe taking the center stage. Ireland is overextended on both its government and corporate debt, and the European Central Bank is almost demanding that Ireland draw down $100 billion to protect its debt obligation and provide liquidity for its banking sector. Portugal is in even worse shape, with debt equaling 330 percent of its gross domestic product (GDP).

Ireland is balking at taking the money as it fears losing economic sovereignty, and Europe is scared to death that investor confidence will fall even further, potentially taking down Portugal and Spain. Spain is again on the brink as car sales fell 38 percent last quarter and corporate debt amounts to 137 percent of GDP. Interest rates on both Ireland’s and Portugal’s borrowings have reached an extraordinarily high 7 percent.

The purpose of the latest Federal Reserve strategy of “quantitative easing,” or money printing, is to provide very cheap interest rates for the banks to be able to borrow from the Fed and reloan to businesses and individuals. Another purpose is to lower the value of the dollar to make US exports more attractive and foreign imports less attractive. The problem is that these two purposes are in conflict. As the dollar devalues, lenders to the US government want a higher interest rate. To offset this, the Fed will buy US government debt, thereby increasing demand for this debt and keeping interest rates low.

But the Fed cannot buy all the debt since the market is far too large. And what has happened since last week is that interest rates on US debt are actually going up, defeating the first purpose of the Fed’s action.

In summary, the financial markets are faced with an unbelievably confusing situation, particularly when talking about investing in the US and in general about the total global situation.

The US stock market is going up because the Fed is pumping new money into the economy. That’s good for both domestic and foreign investors. But all that new money is causing the dollar to go down and US inflation to go up. That’s bad for both domestic and foreign investors. Domestic investors lose purchasing power due to inflation and foreigners lose on dollar depreciation.

The Fed is buying US government debt to push interest rates lower so that banks can borrow cheaply and loan. But all the new money is causing people to worry about the value of the dollar so they are selling US government debt, causing interest rates to go up.

Europe has been able to make some slight economic gains through keeping money printing relatively stable and cutting spending. But they cannot afford to see the dollar devalue much more without devaluing the euro. This scares investors away from buying the government debt of countries like Ireland, Spain, Portugal and Italy, forcing their interest rates higher. The alternative is for the Europeans to print more money just like the Fed to bail out the bad euro debt and keep interest rates low. But then their economies will start going back down just like what is happening in the US.

Now we must also factor in the economies like Brazil that are dependent on selling to the US markets. They cannot afford to have to deal with a devalued dollar, which will harm their exports. But they cannot afford to devalue their own currencies too much because then they, too, face inflationary pressures. China runs a different risk. They will maintain their currency peg to the dollar to keep exports up but then will see the worth of their dollar holdings go down in relative value. Further, converting a substantial portion of the dollar holdings to domestic use (like they have done to an extent over the last two years) runs the risk of overheating the Chinese economy.

If you are an international money manager, perhaps at this point your head might explode trying to figure things out. Thank goodness, there is the Philippines.

Who would you rather loan money to: an 80-year-old man with a broken down house, a 20-year-old car and no job or a 40-year-old executive, rising in a large, profitable corporation, who owns a new condominium and a BMW?

That is now the accurate comparison between US government debt and Philippine government debt.

The Philippines is now a player in this global Great Game of money, politics and economics; the term Great Game once applied to the strategic rivalry and conflict between the British Empire and the Russian Empire for control of Central Asia (Afghanistan, Iran, Iraq) from 1813 until World War I. The Great Game now is between East and West, developed and emerging markets, and countries that are bankrupt and those that are not.

A historic event took place this week. The interest rate on the benchmark Philippine 91-day Treasury bills fell on Monday by 1.92 percentage points to an average 1.48 percent. This is the first time that interest rates have been below 2 percent since 1995. And even at these low rates, investors wanted 10 times as much of these bills as the government was offering. By comparison, at the latest US debt auction, the US 10-year notes rose to 2.4 percent.

Now if you are a foreign investor, do you put your money at risk in the US at 2.4 percent or in the Philippines for one year at 2.4 percent? Is there a greater chance of losing on the foreign-exchange rate for the dollar or with the peso?

Do you risk your money in the US stock market that is only being propped up by Federal Reserve “stimulus” or in the Philippines, where the companies are actually growing and making money?

The fundamentals of the Philippines are good. Inflation is low. Interest rates are stable to falling. Corporate profitability is high. The global financial climate makes the Philippines more attractive every day. The foreign money is coming in. It is just a matter of how well the country handles this cash infusion and how you profit from it

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