IMF: Philippines can survive global economic crisis

Multilateral lender International Monetary Fund (IMF) believes the Philippines has the capability to survive the impact of the fragile economic growth in advanced economies led by the US as well as the sovereign debt crisis in Europe.

IMF deputy managing director Naoyuki Shinohara said in an interview with reporters that the strong external payments position would give the Philippines enough room to maneuver.

"There is no way you can avoid the impact of the slowdown of the European and US economy. Fortunately, the Philippine government has large room to cope with the situation, both in fiscal and monetary policy areas," Shinohara stressed.

He cited the strong external payments position of the Philippines particularly the country's gross international reserves (GIR) and balance of payments (BOP) position.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed that the country's GIR jumped 32.6 percent to $75.814 billion in the first 10 months of the year from $57.153 billion in the same period last year on the back of the revaluation of the central bank's gold holdings as well as strong earnings from its investments abroad and foreign exchange operations.

The GIR – the sum of all foreign exchange flowing into the country – is enough to cover 11.2 months worth of imports of goods and payments of services and income as well as 10.6 times the country's short-term external debt based on original maturity and 6.4 times based on residual maturity.

The BSP originally saw the GIR hitting a new record level $63 billion and $64 billion but was later revised to range of $68 billion and $70 billion.

On the other hand, the BOP surplus jumped 166 percent to $9 billion in the first eight months of the year from $3.381 billion in the same period last year breaching the revised full-year target of $6.7 billion on the back of the strong capital inflows into emerging market economies.

The BOP refers to the difference between foreign exchange inflows and outflows on a particular period and represents the country's transactions with the rest of the world.

Authorities see the country's BOP surplus hitting $6.7 billion from a record level of $14.4 billion last year.

"The external position is much stronger than before with large foreign reserves and stronger BOP. So the government here needs to be careful about possible impact of the global slowdown but at the same time I think they have enough room to respond to these situations," he explained.

He pointed out that the Philippines would be affected in terms of its balance of trade as both the US and European countries are major destination of Philippine-made products and are major sources of imports.

"In that extent, the Philippine economy will be hit by the slowdown of growth in those regions as well. As for the financial channels, we have seen in the recent months the decline in equity prices and exchange rate appreciation," Shinohara said.

Weak global trade and underspending by the Aquino administration pulled down the country's gross domestic product (GDP) growth to four percent in the first semester of the year from 8.7 percent in the same period last year.

This prompted the Cabinet-level Development Budget Coordination Committee (DBCC) to scale down its GDP growth forecast anew to 4.5 percent to 5.5 percent instead of the revised five percent to six percent this year.

"The growth has slowed down a little bit this year mainly because of the global economic slowdown and the subsequent slowdown in exports as well as the cautious fiscal expenditure. But overall, the Philippine economy is doing well," Shinohara stressed.

The IMF recently downgraded the GDP growth forecast for Asia to 6.3 percent instead of 6.8 percent this year and to 6.7 percent instead of 6.9 percent for next year in line with the weaker global outlook. The lender lowered the GDP growth forecast for the Philippines to 4.7 percent instead of five percent this year and to 4.9 percent instead of five percent for next year.

According to him, the multilateral lending agency believes there is no "quick fix" of the issues involving the US as well as countries in Europe.

The IMF official said the agency supports the efforts of the Philippine government to trim the budget deficit to two percent of GDP starting 2013 until the end of the term of President Aquino in 2016.

"On the fiscal side, it is important that they maintain prudence in policy management. We support the policy goals of the Philippine government in that issue. Of course they need to work on improving infrastructure, safety nets like education, they should come from stronger tax administration and through revenue raising measures," he said.

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₱1.8 Billion – PNOC to be spent exploring for oil in southwest Palawan in 2012

₱1.8 Billion – PNOC to be spent exploring for oil in southwest Palawan in 2012

The joint venture operating Service Contract 63 off southwest Palawan plans to spend roughly ₱1.8 billion to drill an exploration well by the middle of 2012.

In a briefing on Tuesday (November 8, 2011), the PNOC Exploration Corp. chairman and chief executive officer Gemiliano Lopez Jr. said the amount would be shared equally by the partners in the SC 63 license.

The PNOC EC, the upstream oil and coal arm of state-run Philippine National Oil Co. (PNOC), currently holds a 50-percent interest and is the operator of the field, while the remaining 50 percent is held by Australian firm Nido Petroleum Ltd.

According to Lopez, PNOC EC's board of directors had already approved the allocation of ₱900 million to fund its share in the drilling operations within a petroleum block, covering 10,560 sq.km.

Both PNOC EC and Nido Petroleum earlier agreed to enter the sub-phase of the exploration program with the Department of Energy, which called for the drilling of an offshore exploratory well.

The joint venture already identified the current window to drill the commitment well to be between June and October 2012. However, the final date for spudding a well would depend on the selection of a drill site, identified from a number of prospects by a joint geo-scientific group and rig availability, Lopez explained.

The initial phase of work would reportedly focus on fully resourcing the drilling and subsurface teams, implementing pre-planning activities including securing long lead items for up to two wells and completing the basis of design work for a number of possible well options.

It was not made clear as to which of the prospects within SC 63 (East Sabina) would be tapped by the joint venture. Two of the bigger prospects had been identified as the Aboabo discovery and the Kalapato site, which were estimated to hold 222 million barrels and 239 million barrels of oil, respectively.

SC 63 is located at the northeast end of the Tertiary-aged offshore fold and thrust belt, which was reported to be a "prolific hydrocarbon province." The belt extends from Brunei through Sabah, Malaysia, and into the southern Palawan basin.

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Toyota Philippines Affected - Thai Investments Put Japan Inc. in Flood’s Path

Japan, Thailand's biggest foreign investor, may also be the largest overseas economic victim of record floods forcing companies including Toyota Motor Co., Hitachi Ltd. (6501) and Canon Inc. (7751) to halt output in the country.

Toyota, Asia's biggest carmaker, scrapped its annual profit forecast yesterday, saying it needs more time to assess the financial toll from Thailand's worst floods in almost 70 years. Canon, having shifted some camera production to the southeast Asian nation, cut its full-year profit outlook last month because of damage to output from the disaster.

Japan's most profitable exporters built up factories in Thailand in the past three decades to cut labor costs and stem the erosion of profit caused by the yen's appreciation against the dollar. Japanese direct investment in Thailand jumped 35 percent to about 100 billion baht ($3.4 billion) in 2010, led by the auto, metals and machinery industries, according to the Thai Ministry of Industry's Board of Investment.

"Japan has shifted production to Thailand and other Asian nations because of the stronger yen, so among the G-3 nations, Japan faces the biggest impact from the Thai floods," said Takahiro Sekido, chief Japan economist in Tokyo at Credit Agricole CIB. "Looking at the increase in trade and direct investment in Thailand in recent years, connectivity is rising and the floods will have an impact on Japan's economy."

Japan's mainstay manufacturers, in particular, will be hit hard by the floods, Junichi Makino, chief economist at SMBC Nikko wrote in an Oct. 25 report. Full-year profits of listed Japanese non-financial companies may be cut by 3.9 percent this fiscal year as a result of the disaster, Makino estimates.

Toyota Hit

"If the Thai floods continue to reduce production for three months, Toyota's operating profit may be cut by 200 billion yen," said Koji Endo, an auto analyst at Advanced Research Japan. Toyota was already producing at full capacity to recover from the impact of the March earthquake in Japan, so there is a limit to what it can do to recover from losses from the Thai floods, he said.

The renewed threat to factories as water courses toward Bangkok's central business district may worsen the effect of floods that have prompted Thailand's central bank to slash its 2011 economic growth forecast and damped the earnings outlook for Japanese companies including Sony Corp. (6758), Nikon Corp. (7731) and Isuzu Motors Ltd. (7202)

Flooding across the region may also lead to "serious food shortages," the United Nations Food & Agriculture Organization said in a report dated Oct. 21.

Damaged Farmland

About 12.5 percent of rice farmland in Thailand has been damaged, along with 6 percent in the Philippines, 12 percent in Cambodia, 7.5 percent in Laos and 0.4 percent in Vietnam, as storms hit the region since September, according to the report.

Toyota and rivals including Isuzu are still unable to determine when they can restore production in the country as damages from the flood are still being assessed. Isuzu extended its production halt until Nov. 11 because of parts shortages, it said in a statement yesterday. Separately, Toyota said it will extend output reductions until Nov. 18.

The floods may push back expansion plans at Toyota and Honda until the first quarter of 2012, Tracy Handler, a Troy, Michigan-based analyst at IHS Automotive, said Nov. 5.

Japanese manufacturers including Toyota may have more difficulty shifting output away from Thailand, where they have more concentrated supply chains than U.S. and European rivals including Ford Motor Co., said Sekido of Credit Agricole.

Thailand-Centric

"Ford, for instance, can probably shift production to North America or Mexico, but Thailand probably plays a more important role for Japanese companies," he said. "American and European companies also have production lines in Thailand, but Japan is the closest geographically."

Japan is the largest investor in Thailand, representing 57 percent of projects that were granted investment incentives last year, according to Thailand's Board of Investment.

The setbacks come just as Japanese automakers and electronics manufacturers are restoring output after the March 11 earthquake and tsunami led to parts and power shortages that slashed output. The country's exporters are also reeling from the yen's gain to a postwar high on Oct. 31.

Nobuyuki Nakahara, a former Bank of Japan (8301) policy board member, urged the central bank to boost monetary easing 10-fold to weaken the currency.

"The Japanese economy will collapse unless the yen weakens to 100 yen per dollar," Nakahara, a policy board member between 1998 and 2002, said in a Nov. 4 interview in Tokyo.

Third Recession

Japan fell into its third recession in a decade after the record earthquake and tsunami on March 11. Industrial output declined 4 percent in September from August, a sharper drop than analysts surveyed by Bloomberg News forecast. Export growth slowed to 2.4 percent from a year earlier in September from 2.8 percent in August, while retail sales also fell more than expected.

The Thai disaster is affecting the global supply chain at Japanese auto and electronics makers, further disrupting output. After Toyota halted output at its Southeast Asian production base, a shortage of parts prompted the company to cancel plans to run factories overtime in North America, where it had intended to make up for production lost because of the March 11 quake.

"This will not only impact Japan's exports to Thailand, but also affect global supply chain of Japanese companies," said Yoshimasa Maruyama, a chief economist at Itochu Corp. (8001) in Tokyo. "Production of Japanese firms in the U.S., Japan and other areas may also decrease."

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