Australia: Bullish on the “Philippines” the fastest-growing economy in Asia

the chair of the Asia Society Australia, Warwick Smith

Australia bullish on Philippines

SYDNEY, Australia—the business sector in Australia is bullish on the Philippine economy, with many shakers and movers in trade and investment looking forward to partnering with the "next tiger economy in Southeast Asia."

At a business forum here Thursday night (October 25, 2012), the chair of the Asia Society Australia, Warwick Smith, enunciated the prevailing sentiment of top CEOs in this part of the globe.

"It would be fair to say that this has been a remarkable transformation that has taken place in the Philippines since the election of the President," Smith said.

He said that recently "one leading bank … indicated it's (Philippines) the fastest-growing economy in Asia, which is an area of concern to all of us here in Australia" amid the economic downturn in America and the debt crisis in Europe.

"Your commitment to growth and also the successful approach to a corruption drive as we've seen transformed the opportunities in the Philippines," said Smith, telling the President that this "transformation of the Philippines would not be taking place without strong leadership … which is about commitment."

Smith then quoted a portion of the inaugural speech of the President in 2010 which, the businessman said, went into the very heart of commitment to public service.

"My father offered his life so our democracy could live. My mother devoted her life to nurturing that democracy. I will dedicate my life to making our democracy reach its fullest potential: that of ensuring equality for all. My family has sacrificed much and I am willing to do this again if necessary," said Smith, quoting Mr. Aquino.

When Smith asked the President about the "industry, sectors, or services" he was looking into to really "bring the Philippines as the new tiger economy in Southeast Asia," the President said his administration would harvest "low-lying fruits" and focus on three particular aspects of the economy: infrastructure, tourism and agriculture.

Aquino did not mention the huge potential for mining investments in the Philippines, but his new mining policy, contained in Executive Order 79, was discussed during bilateral meeting in the capital Canberra Wednesday.

Smith also took time to quiz the President on the broader picture of finance in the global market, asking him if he had "an overall (medium-term) prognosis for where matters are going" with "leadership changes in China this year, the United States, Europe that's struggling."

The President said:

"I think there will still be pressures on everybody to become pessimistic or, if they want to be euphemistic about it, to be guarded. And when we were in the APEC (Asia Pacific Economic Cooperation) Meeting in Honolulu, Madame Christine Lagarde talked about the need to enhance domestic liquidity," he said, referring to the managing director of the International Monetary Fund.

"And, to be honest with you, it really made me pause for a thought because it seemed like we were headed towards the same situation that existed before the Great Depression wherein everybody felt that they could successfully insulate themselves from the downturn in various other economies which, in turn, actually accelerated and deepened the recession and that led to the depression," he said.

"So one would do hope that man has a capacity to improve. Shouldn't this be the point in time that we should be finding ways and means to help the so-called 'weakest link' in the chain? So either we stand together or we drown together," said Mr. Aquino.

He noted that governments in Europe were being asked to finally address the situation that used to be the proverbial "can that got kicked down."

"I'm sure that very reasonable men and women are talking and that we will become into solutions that demonstrate our collective capacity to improve as species. So how long will the continued malaise happen? The conservative will say quite a bit but I tend to be optimistic as far as the human spirit is concerned. I think what we have managed to do in the Philippines will happen in varying degrees elsewhere. I can't tell you that we are about to crest the hill but I think we are approaching that crest. All it takes is a little bit of faith and optimism in our fellowmen," he added.

Asked by the INQUIRER in an interview to expound on how his administration would pursue this economic takeoff, he said:

"Basically they said the number one asset of the Philippines has to be the people. Therefore, it has to be investments in our people and that's why the massive investments in education and in health," he said.

Aquino pointed out that this "inclusive growth" meant that the poor should benefit from the economic gains.

He also cited the current efforts to match the job requirements of the local industries with what the educational sector was producing yearly.

Meeting the Philippine media over coffee right after the business forum, Aquino reported on the economic gains of his two-nation, five-day state visits to New Zealand and Australia.

In New Zealand, he said the government of Prime Minister John Key pledged to help the Philippines increase the expertise in harnessing geothermal power.

The Philippines and New Zealand are two of the two largest producers of geothermal power in the world, but it was New Zealand that helped the Philippines harness this alternative power source in the 1970s.

Also, Alliance Select Foods International, Inc. formalized its $2.18-million share purchase agreement to acquire 80 percent of Akaroa Salmon NZ Ltd., a pioneer in salmon farming in New Zealand.

The New Zealand-based firm is also a processor of fresh and smoked salmon.

"What is impressive is we are becoming a multinational," he said, pointing that the Alliance Select Foods, Inc. bought into a salmon farm.

Australian firm Austal will start building boats in shipping yards in Balamban, Cebu.

On its website (http://www.austal.com/en/about-austal/Overview.aspx), Austal says it is a global defense prime contractor.

"The company designs, constructs and maintains revolutionary platforms such as the Littoral Combat Ship (LCS) and the Joint High Speed Vessel (JHSV) for the United States Navy, as well as an extensive range of patrol and auxiliary vessels for defense forces and government agencies globally. Austal also designs, installs, integrates and maintains sophisticated communications, radar and command and control systems."

Telstra, a top telecommunications company in Australia which has about 10,000 workers in the Philippines, is seeking "further expansion and directly hiring their employees," said the President.

AG&P is also starting a ₱200-million project in Batangas, Aquino said.

AG&P is a modular engineering, fabrication, assembly and asset management services provider to the offshore and onshore oil & gas, mining, power and civil infrastructure sectors (https://agp.ph/).

MacQuarie Group, a banking and lending firm, has partnered with the Government Service Insurance System for a US$600-million fund to invest in infrastructure projects in the country.

Lastly, the Philippines also signed a new air services agreement with both New Zealand and Australia.

INQUIRER Business

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5 US Warships are now in the Philippines

USS George Washington – Super Carrier

Along with the US USS George Washington the super carrier another 2 warships in Palawan and 2 escorts of the super carrier.

As of October 26, 2012 the following US Warships are now in the Philippines

1. USS George Washington – Super Carrier
2. USS McCampbell – Escort for the Super Carrier
3. USS Cowpens – Escort for the Super Carrier
4. USS John McCain
5. USS Mustin

USS McCampbell (DDG-85) is an Arleigh Burke-class destroyer in the United States Navy - Escort for USS George Washington

USS Cowpens  is a Ticonderoga-class guided missile cruiser currently in service with the United States Navy - Escort for USS George Washington

USS John S. McCain (DDG-56) is an Arleigh Burke-class destroyer in the United States Navy- in Palawan Wescom

The USS Mustin (DDG-89) is an Arleigh Burke-class guided missile destroyer in the United States Navy - in Palawan Wescom

Two U.S. Warships in Palawan

Two more US warships have docked in Palawan, the island province that has territorial jurisdiction over some of the Philippines-claimed islands in the disputed West Philippine Sea.

US authorities identified the ships as the USS John McCain and the USS Mustin.

An official of the Armed Forces of the Philippines (AFP) -Western Command (Wescom) confirmed that the two US naval vessels arrived Monday two days ahead of the arrival of the aircraft carrier USS George Washington at the Manila Bay.

The USS George Washington, the US Navy's only forward-deployed carrier, is accompanied by guided missile destroyer USS McCampbell and USS Cowpens, a Ticonderoga-class guided missile cruiser. Both McCampbell and Cowpens are now docked at pier 15 in the Manila South Harbor.

Asked about the presence of the two US ships in Palawan, Lt. Col. Neil Estrella, the Wescom spokesman, said that just like USS George Washington, USS McCain and USS Mustin are in the country also for a five-day regular port call.

"They are here for port calls. Foreign naval ships regularly visit us as part of fellowship and to enhance friendship between allied nations," said Estrella.

The docking of the US warships in Palawan came at the same time Chinese Navy vessels were spotted in the West Philippine Sea.

Estrella said USS McCain and USS Mustin, currently in Puerto Princesa City, are also part of the USS George Washington carrier strike group.

On Thursday, USS George Washington commanding officer Capt. Gregory Fenton said, "I would characterize this port visit as a routine port visit, as a breaker from our normal operations which we conduct."

Fenton said they are "very sensitive to the areas that are under dispute" such that they "do make a very conscious effort to stay away from those areas."

"I believe that we are firmly committed to helping support the nations that are involved in those disputes. But ideally, we'd like to see them sort out those disputes via diplomatic channels," he added.

He stressed, however, that their presence in the area would help safeguard freedom of navigation.

"One of the reasons we deploy throughout the region is so we can carry forth the banner of freedom of navigation. It is very important to us, given the trade that travels throughout the region on the seas," said Fenton.

The USS George Washington's visit to the country will allow the ship's crew to take a break from the arduous operational tempo that comes with forward-deployed life.

Its sailors will also have the opportunity to interact with the locals via several community service projects set up by the ship. Projects include interacting with school children, teaching basic first-aid at a local hospital facility, and general cleaning and landscaping.

"My Sailors willingly volunteer their time because they genuinely want to help their fellow man," said Fenton.

"This is a constant in each of our port visits and this fact is not lost on a lot of people; these men and women have a significant impact on the many lives they help. At the end of the day, we all walk away feeling like we've made a difference in someone's life, and that is truly the most rewarding feeling that anybody can have," he said.

The George Washington and its embarked air wing, Carrier Air Wing 5, provide a combat-ready force that protects and defends the collective maritime interests of the U.S. and its partners and allies in the Asia-Pacific region.

Manila Bulletin

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Philippines Needs to Boost Sin Tax to Win Investment Ratings Upgrade

Philippines tax commissioner

The Philippines must pass a law increasing the excise levy on liquor and tobacco, or sin tax, to meet its goal of winning an investment-grade rating in four years, Tax Commissioner Kim Henares said.

"This is one of two measures that the three major rating agencies have identified as important," Henares said in an interview in Bloomberg's Manila office yesterday. "We want to correct a defective system that will increase our revenue and use the funds for health care. Once passed, we think the measure will trigger rating upgrades and positive outlook."

Standard & Poor's raised the nation's credit rating twice in the past two years, bringing it to one level below investment grade in July, citing a reduced debt burden and improved public finances. The bill that seeks to boost annual collections by at least 60.6 billion pesos ($1.46 billion) and introduce an inflation-adjustment mechanism will test the resolve of President Benigno Aquino, a smoker himself, to battle some of the country's biggest companies.

"One of the key ratings constraints of the Philippines is the low revenue mobilization relative to peers," Christian de Guzman, a Singapore-based assistant vice president at Moody's Investors Service, said by e-mail. "It would be an indication that the Aquino administration can leverage its high approval ratings and political capital into meaningful progress on legislative reforms."

Shares Rise

The Philippines' benchmark stock index, which has risen 24 percent this year, rose 0.1 percent at the close in Manila. The yield on the benchmark three-year bonds fell the most in a month, dropping by 7 basis points to 3.97 percent, its lowest level in more than two weeks, according to midday fixing prices at Philippine Dealing & Exchange Corp. The peso rose 0.4 percent to 41.208 per dollar.

When he was elected to office two years ago, Aquino pledged to fight corruption and tackle an entrenched culture of tax evasion that's contributed to the budget deficit and hampered growth as neighbors prospered. Aquino, with the highest approval rating for a president since actor Joseph Estrada in 1999, also received rating upgrades by Fitch Ratings and Moody's.

The tiered excise sin tax rates were approved in 1996 based on cigarette and beer costs at the time, and weren't raised until an amendment in 2004 that called for increases every two years, according to Henares.

The government collected about 26 billion pesos in excise taxes from tobacco last year. It wants to boost revenue from smokers by 30 billion pesos in the first year, intending to collect the rest from alcohol drinkers.

'Moderate Smoking?'

"Between the two, we think smoking is more hazardous to health," Henares said, explaining the focus on tobacco. "Have you ever heard of moderate smoking?"

Seven of the 10 leading causes of death in the Philippines, where 28 percent of people aged 15 and older smoke, are diseases related to tobacco consumption, according to data from the Department of Health.

The Philippines has the fourth-lowest price per pack of cigarettes worldwide, according to the World Health Organization, and has one of the lowest excise tax rates, Henares said. A Marlboro pack of 20 cigarettes sells for 40 pesos, about a 10th of its cost in Singapore.

The low price has encouraged usage, placing the nation at the top in the region for per-capita consumption, based on government data. Smoking costs the economy about 188 billion pesos, including expenses related to health care, productivity losses and premature death, according to government estimates.

The Bloomberg Initiative provided a $255,626 grant to an advocacy that seeks to reform and increase tobacco taxes in the Philippines, according to its website. The grant ends in April 2013. The program was started by Michael Bloomberg, the founder and majority owner of Bloomberg News parent Bloomberg LP.

Fiscal Boost

The tobacco and liquor levy and the rationalization of tax incentives can increase fiscal revenue as a percentage of gross domestic product to at least 16 percent from about 15 percent now, Henares said.

The tax bill "could broaden the fiscal revenue base, and potentially increase fiscal space for the government to increase capital expenditures, public investment and other discretionary spending items such as health and education," Philip McNicholas, Fitch's Hong Kong-based director of Asia Pacific Sovereigns, said in an e-mail. "This could lead to a higher investment rate for the economy as a whole and potentially higher-trend GDP growth."

Corporate Opposition

San Miguel Corp. (SMC), the nation's largest company, has about 90 percent of the beer market. Eduardo Cojuangco, Aquino's uncle, is the chairman of San Miguel. Philip Morris Philippines Manufacturing Inc. and Fortune Tobacco Corp., controlled by billionaire Lucio Tan, formed a venture in 2010 that was projected to control 90 percent of the market.

"We support the president's reform agenda," Michael Tan, son of the billionaire, said in an interview today. "What we don't want is to have an increase that is so huge that it will disrupt what's working. We are for a reasonable and moderate increase."

In March, the companies opposed the 60 billion-peso sin tax proposal. The Philippine Tobacco Institute, in a paid ad, said the measure will increase the tax on low-cost brands by more than 1,000 percent. San Miguel and rival Asia Brewery Inc., also controlled by billionaire Tan, said in a separate ad that month that a 140 percent increase in the tax on economy beer brands will hurt sales and put 8,000 jobs at risk.

Additional revenue from the bill approved by the House of Representatives in June was cut to 31.4 billion pesos, almost half the Department of Finance target, according to a government presentation. The Senate ways and means committee under Senator Ralph Recto endorsed a version this month that cut the revenue goal to 15 billion pesos, according to his sponsorship speech.

Competing Interests

Recto quit as head of the committee on Oct. 15 and withdrew the measure. A group called Action for Economic Reforms called on the senator to resign and in an Oct. 12 statement said "civil society groups describe the ways and means committee report as Philip Recto or Recto Morris report."

"In any taxation exercise, you are always caught in a vise-grip of competing interests," Recto said in a speech the day he resigned. "If you try to seek the middle, chances are you will be crushed in between."

The Senate will resume discussions on the bill in early November and the country has enough time to pass the law by December, Henares said. What's acceptable to the government is no less than 40 billion pesos in incremental revenue and the defects must be addressed, she said.

Face Delay

"We will face delay in getting the upgrades that may already be in the pipeline if we don't pass it in a credible form this Congress," the tax commissioner said. "Think also of the poorest of the poor who will benefit from health services that we can provide from the sin tax revenue."

The Bureau of Internal Revenue, which collects more than 60 percent of the government's annual earnings, will "without a problem" collect a record 1 trillion pesos in taxes this year, Henares said. She declined to say if the agency's 1.066 trillion-peso target will be met. Revenue in the first nine months of the year rose 13 percent to 772.5 billion pesos from a year earlier.

Bloomberg 

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