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S&P optimistic PH will post GDP 6.5% or higher

Credit rating agency S&P Global Ratings is confident the Philippines will continue to expand and remain buoyant on the basis of economic policies that the Southeast Asian nation has adopted to ensure a sustainable future. S&P Asia Pacific Economist Vincent Conti bared this outlook on the Philippines during a webcast, saying GDP growth averaging 6.5 percent or higher over the next few years is “very easily achievable” for the Philippines. “And the reason for that is very favorable demographic trends that continue to benefit the Philippines, particularly providing a very mobile and effective labor force that has generated a lot of investments and consumption onshore,” said Conti. Conti added that the government’s economic policy “seems to be very stable” and is expected to have continuity. “A lot of positives from the economic policy as well. The ramping up of infra program is one of the relatively newer additions to the policy toolkit and that’s actually a positive in that it can generate even further potential growth farther into the future,” he said. This was also echoed by S&P Director for Financial Institution Ratings Ivan Tan. Tan said businesses are likewise confident with the policy environment in the country, particularly citing the tax reform program of the administration. “For instance, for the first time in quite a number of years, there are some degree of tax reforms being carried out in the Philippines,” said Tan. “This is expected to go on over the remaining years of the administration, which would serve to some extent stabilize the government’s revenue base and at the same time, hopefully provide more funds for infra which we think everyone agrees the Philippines does need,” he added. For S&P Senior Director for Sovereign Ratings and International Public Finance Kim Eng Tan, the second package of the tax reform program is “unlikely to directly affect” its rating for the country.

Reports: PH economy stronger

There is evidence refuting the proposition that the economy under President Duterte, no matter an earlier quip, is experiencing rapid growth, two independent reports have indicated. The Trading Economics report released only this month showed the economy “grew an annual 6.8 percent year-on-year in the March quarter of 2018.” A similar paper by PricewaterhouseCoopers and the World Bank Group titled “Paying Taxes 2018 Report” cited the country’s improved overall tax collection as a result of reform measures initiated by the administration. The Trading Economics report said, “Both investment and government spending rose faster while private consumption and exports continued to increase. In the three months to March, gross domestic capital formation increased by 12.5 percent, accelerating from a 8.3 percent growth in the previous quarter. Investment in intellectual property products grew by 12.7 percent, followed by durable equipment (10.1 percent); construction (8.9 percent), and breeding stocks and orchard development (4.2 percent).” Ironically, sustained economic growth over the past two years was achieved despite persistent calls to stop the government war against illegal drugs and its handling of the South China Sea issue. The report added, “Government expenditure rose 13.6 percent, faster than a 12.2 percent growth in the December quarter. Meantime, household consumption expanded 5.6 percent year-on-year, compared to a 6.2 percent increase in the fourth quarter. “Exports increased by 6.2 percent, following a 20.6 percent rise in the fourth quarter. Sales of goods rose 2.9 percent (from 12.2 percent in the fourth quarter) and those of services went up 17.9 percent (from 14.5 percent). Imports rose by 9.3 percent, following an 18.1 percent rise in the preceding quarter.” Although the report focused on statistical analysis and not on qualitative factors, one thing was clear. No matter his critics and loud calls for his ouster, President Duterte continues to thwart them with a sanguine economic performance. Duterte’s numbers also show him getting the jobs done despite rising inflation best indicated by buoyant commodities prices. The spike in world crude prices as well as the rising interest rates and the weakened peso all threaten to derail the economy. Nevertheless, the economic growth in the first five months of 2018 remain within the government target. Build, Build, Build Central to the administration’s program is the ambitious infrastructure development project called the ‘Build, Build, Build!’ (BBB) amounting to P9.6 trillion ($180 billion), consisting of 75 flagship programs, of which 35 have already hurdled the approval process and ready for execution. Ten of these projects will move to the construction stage this year. The mega-projects under BBB are also complemented by so-called public-private partnerships or PPP initiatives where foreign investors co-finance the rebuilding and refurbishing of existing infrastructure, like entire city blocks, buildings and streets across country’s major urban centers. The PPP seeks to boost the country’s tourism sector by providing incentives to interested players while providing a template for future investments in major cities. Crucial to the success of these initiatives is attracting the right kind of foreign capital. Although fresh capital infusion plays a key role in any growing economy, it is also essential for countries like the Philippines to generate foreign investments that make possible sustained economic development through a direct stimulus that encourages inclusive growth. For 2018, the government targets growth ranging from 7.0 and 8.0 percent and this much acceleration over the next six years as well. Tax reforms New research by PWC and the World Bank has also credited the government for tax reforms that boost the country’s overall ranking from 126th in 2016 to 105th this year out of 190 economies. Finance Secretary Carlos Dominguez quickly welcomed the report and said, “This reflects the Duterte administration’s effort providing fast and efficient tax collection service.” He added the country’s so-called total tax time was reduced from 193 hours in 2016 to 182 hours. “This indicator refers to the total number of hours required to file taxes. The total number of tax payments in the country, on the other hand, was reduced from 36 in 2016 to 20. This indicator refers to the frequency with which the company has to file and pay different types of taxes and contributions,” Dominguez said.

PH manufacturing sustains growth

“Input cost inflation remained steep, as a combination of domestic and external factors were responsible for the upward pressure.” The manufacturing sector maintained its growth at the close of the first semester, the Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI) of IHS Markit reported Monday. “As the first half of the year concluded, the Philippines manufacturing economy continued to recover from the implementation of the TRAIN (Tax Reform for Acceleration and Inclusion) tax reforms at the start of the year. The latest Nikkei survey showed improving demand conditions at the end of the second quarter,” IHS Markit principal economist Bernard Aw said. Although manufacturing PMI slid to 52.9 in June from 53.7 in May, the sector’s output and orders increased last month, while employment levels were broadly steady. Local demand and rising exports supported production last month, the report noted. This prompted companies to boost their purchasing activities to further increase their stocks. But the IHS Markit survey mentioned that the higher production usage limited the inventory gain leading to lower inventories of finished products in June – the first time for the country to record falling inventories in the last four months. “Firms attributed the depletion to higher demand from distributors and increased sales,” the report added. Moreover, Aw said that inflation pressures remain strong in the country resulting to higher factory gate price. “Input cost inflation remained steep, as a combination of domestic and external factors were responsible for the upward pressure,” the economist said. “The depreciation of peso, increased taxes, supply shortages, higher global commodity prices, especially for fuel, all contributed to inflation,” he added. Meanwhile, the Philippines’ manufacturing score last month was the third strongest among ASEAN countries. The country’s production PMI was behind Vietnam’s index of 55.7 and Singapore’s 53.6. The country’s manufacturing performance was better than Indonesia’s 50.3, Thailand’s 50.2, and Myanmar’s 50. Malaysia’s manufacturing sector, among the surveyed countries in the region, posted a deterioration with index posting 49.5 in June. The index is a gauge of a country’s manufacturing sector’s health. Readings above 50 signal growth, while below 50 mean deterioration.

DTI warns vs fake ‘procurement agency’

“The commission, by law, has the power “to do anything or enter into any transactions which it considers necessary or desirable for the proper performance of its functions.” The Department of Trade and Industry (DTI) on Sunday issued a public advisory against a deceptive website that promotes itself as the official procurement agency of the government. The DTI said in its advisory, “This is to warn the public of online transactions involving the Philippines Project Award Commission (PPAC), Champs Court and Champions Court Business Consulting Agency Services or any company represented by Cresente N. Abalos.” The government agency said that PPAC and its principal of disguising themselves as the “central procurement agency of the Philippine Government” through its website www.philippinesprojectawardcommission.info. The DTI added, “In the course of such (PPAC, Champs Court and Champions Court Business Consulting Agency and Abalos), has transacted with foreign entities and issued to them Official Payment Receipts purportedly issued by the Bureau of Import Services (BIS).” A check on PPAC’s website showed that it claims to be the “Official Portal of the Commission Board,” with the Philippine flag prominently displayed on the upper left portion beside the company name as well as pictures of the government’s economic team and President Rodrigo Duterte, on their various official engagements involving investments signing. The website stated as one of its functions, “The Commission, which currently convenes its meeting weekly at the premises which are occupied by the Office of the Contractor General, basically attains its stated objectives by: Reviewing and endorsing recommendations for the award of government contracts of $1 million to above $30 million in value; making recommendations to cabinet for the award of contracts above $60 million in value.” It also said it would make “recommendations to the cabinet for improving the efficiency of the procedures for the granting and implementation of government contracts.” However, the website did not specify if the word “cabinet” refers to members of the official cabinet of Mr. Duterte. Although PPAC said, it could review and recommend the awarding of government contracts up to more than $60 million. ‘Powers of the Commission’ According to PPAC, the commission, by law, has the power “to do anything or enter into any transaction which it considers necessary or desirable for the proper performance of its functions.” Moreover, the commission said it could also make regulations about the required qualifications for the registration of contracts as well as the procedure for the submission of tenders for government contracts and the requirement for contractors to enter into performance bonds. The PPAC also covers the rules governing bidding in government contracts, its website said and set guidelines for the circumstances in which the registration of contracts may be canceled. The company listed its address at 12/A Administrative Building, Quezon Ave., West Triangle, Quezon City.

BoC modernizes system to automate procedures

The Bureau of Customs (BoC) has completed all the requirements for a World Bank (WB) loan designed to modernize and improve the country’s flow of trade. Lapeña made the announcement as he said that WB’s Philippines Customs and Trade Facilitationn Project (PCTFP) that aims to support export-led economic growth by assisting BoC to reduce trade costs, improve transparency and increase revenue collection. The project is estimated to cost over P8 billion ($150 million). Surprisingly, a homegrown online platform that is also the world’s first fully-integrated blockchain-based end-to-end shipping and logistics platform, which aims to solve all logistics challenges by simplifying processes, improving tracking and security, and easing of transaction documentation, is being offered by Shiptek Solutions founder and CEO Eugenio Ynion, Jr. to the BoC for free. XLOG to prevent smuggling According to Ynion, XLOG has a built-in security feature that will make smuggling almost impossible. He said, “Our platform is also an effective way to prevent and eliminate smuggling with the built-in security features. Who will attempt to engage in smuggling when the paper trail can be easily traced? XLOG does not allow fictitious identities, addresses, and businesses as practiced by smugglers in cahoots with corrupt Customs personnel.” Ynion explained the most crucial step in moving cargo from the point of origin to the point of destination is the documentation process. The shipper is the one who prepares the packing list in all shipment that is then used in filing other documents, like the bill of lading. These documents contain the value of the cargo and are used to compute the correct tariff. However, in most cases, the packing list, bill of lading and other important documents are falsified by smugglers that allow them to pay lower duties. With XLOG, Ynion said, faking documents is not possible because they are encoded using blockchain that makes them immutable. In addition, XLOG’s platform streamlines the entire logistics and shipping process making them more efficient and less tedious for importers.

’Derailed TRAIN to hurt poor‘

“The law also addresses long and overdue corrections in our tax laws and introduces a more progressive tax system where the rich and the poor contribute to give better services to our people.” Improved social services are the main benefit from the Tax Reform for Acceleration, and Inclusion (TRAIN) that may fall on the wayside if efforts to derail it succeeds, Finance Undersecretary Paola Alvarez said. Alvarez, also spokesperson of the Department of Finance (DoF), told Daily Tribune that poor Filipinos will be mainly affected if TRAIN is suspended as what some legislators are proposing. “Right now, the DWSD (Department of Social Welfare and Development) has already released the initial unconditional fund assistance under the 4Ps (Pantawid Pamilyang Pilipino Program) to its beneficiaries through Land Bank,” she said. The administration is now plugging the leakages in the cash dole program to maximize its benefits. Another benefit from the first phase of TRAIN’s implementation is free education in state colleges and universities that President Duterte promised as well as the increase in pensions for senior citizens and Filipino indigents. Mr. Duterte recently signed Republic Act (RA) 10931 or the Universal Access to Quality Tertiary Education Act that provides for free tuition and other school fees in state universities and colleges (SUC), local state universities and colleges (LUC), and state-run technical vocational institutions (TVI). This year, the government allocated P40 billion for RA 10931 under the 2018 General Appropriations Act (GAA) funds. Among the most critical feature of TRAIN is the provision for a universal health care program that will be funded from increased sin tax collections as well as alcohol, sugar, sweets and other beverages. Alvarez said TRAIN’s provision states explicitly higher take from sin taxes will go to the Department of Health (DoH) to fund the government’s health programs. The DoF is targeting to collect some P150.2 billion from sin taxes this year. “All these sin taxes will go directly to the DoH. So what we get from tobacco excise tax, as well as alcohol, sugar, sweet and beverages will fund the government’s health care programs for new hospitals, clinics and even free medicines,” she said. “If you remove TRAIN, then all these projects will be derailed,” Alvarez added. Rody’s pledge When Mr. Duterte assumed office on June 30, 2016, he pledged to uplift the lives of the Filipinos by bringing inclusive growth that will have a profound impact on the grassroots level. Two years later, his economic managers introduced the Tax Reform for Acceleration and Inclusion law, also known as TRAIN, a comprehensive tax reform package to raise government revenues to finance its ambitious, massive projects, provide universal healthcare, free education and even lowering the personal income taxes of individuals. Duterte declared when he signed the law on December 19, 2017, “This is the administration’s biggest Christmas gift to the Filipino people as 99 percent of the taxpayers will benefit from the simpler, fairer and more efficient tax system. “The law also addresses long and overdue corrections in our tax laws and introduces a more progressive tax system where the rich and the poor contribute to give better services to our people.” But only a few months after the implementation of TRAIN, several sectors were already calling for the derailment of the law as a reaction to the rising inflation in April and May because of the runaway increase in prices of basic commodities and petroleum products then. There were calls to suspend the implementation of the law, particularly the collection of the additional excise tax on oil products. The suggestion was quickly dismissed by the economic managers of the administration saying that TRAIN law is crucial for the government’s “Build, Build, Build” infrastructure programs that are seen to catapult the economy into record growth. The administration’s economic team maintained suspending TRAIN and adopting other band-aid solutions will only have a minimal and short-term impact on inflation and will stifle the country’s growth and delay progress toward becoming an upper-middle-income country by 2019, such that around six million Filipinos would be lifted out of poverty by 2022. “We remain committed to doing all we can to invest in our people, and build safer communities and better infrastructure so that everybody will prosper,” the team said in a statement. Alvarez shared the sentiments of the government’s economic team. In an interview with the Daily Tribune, Alvarez explained how vital TRAIN law is for the government’s many programs that are aimed at supercharging the Philippine economy and pushing a sustainable and robust growth. TRAIN will reduce poverty Alvarez explained the TRAIN law would significantly raise the government’s revenue collection efforts that would reduce poverty from 21.6 percent to a targeted 14 percent by 2022. It was estimated 70 percent of the incremental revenues under the TRAIN will help support the government’s infrastructure modernization program which will also include strengthening of the country’s military and law enforcement capabilities, while 30 percent will go to social services to fund, among other anti-poverty measures, a targeted cash transfer program for the poorest 10 million households. Under the approved TRAIN, the inflationary impact of the measure initially estimated at 0.9 percent will slightly go down to 0.7 percent which would have an even more minimal effect on food, electricity and transportation costs. The TRAIN law, which is divided into five packages, is also aimed at fixing the structural problems of the tax system that has become unfair, complex and inefficient. This tax reform will also raise the revenues needed to make real, positive change for the Filipino people, she stated. “It is the first time we have done a tax reform without any pressure from the outside, no crisis, no external pressure,” she said. 0.4% effect on inflation Calls for the suspension of TRAIN grew louder when inflation hit 4.6 percent in May, but Alvarez insisted the law pushed up inflation by only 0.4 percentage point, lower than DoF estimates of 0.7 percentage point. Other factors, such as the rise in global oil prices and the better collection of cigarette excise taxes drove inflation to 4.5 percent in April this year. DoF data showed that the TRAIN made a direct impact on the prices of only a limited category of goods—non-alcoholic beverages, tobacco, electricity, gas, and other fuels, and transportation—which was felt in the first quarter. While inflation reached 4.5 percent in April, month-to-month inflation, however, declined from 1.0 percent in January to only 0.5 percent in April. Year-to-date inflation was recorded at 4.1 percent by the DoF. The April 2018 inflation was driven mainly by the higher prices of corn, fish, tobacco and personal transport. These price increases were due to a variety of factors, and cannot be solely attributed to the impact of TRAIN. Tobacco prices, for instance, rose by 46 percent year-on-year in the first quarter mainly because of better tax collection. Alvarez explained, “Some of the legislators (calling for TRAIN suspension) do not understand what we have been explaining. The effect of TRAIN to inflation is only 0.4. What this means is that even if you do not have law, all the other factors are bigger, will still make the prices of oil go up. We don’t control it. Number 2, the peso depreciation is happening not because our economy is becoming weaker. What is happening is because we have so much importation of capital equipment that our demand for the dollar is increasing.” Surely, this TRAIN is one ride that will take us to economic progress.

Emerging economies need to fast track infra development

“Transport infrastructure is clearly our most urgent need. It immediately contributes to economic expansion and broadens the revenue base of countries. Businesses are able to improve productivity dramatically and households are able to improve incomes with the modernization of transport infrastructure.” Emerging economies in Southeast Asia should fast track the modernization of their respective transport infrastructure systems to boost economic expansion and raise revenues, while also improving cross-border connectivity to accelerate efforts in building a common market in the region. Finance Secretary Carlos Dominguez III underscored the urgency in infrastructure development while addressing the Asian Infrastructure Investment Bank (AIIB) Governors’ Business Roundtable held at the Regal Room of the Trident Hotel in Mumbai, India. “Transport infrastructure is clearly our most urgent need. It immediately contributes to economic expansion and broadens the revenue base of countries. Businesses are able to improve productivity dramatically and households are able to improve incomes with the modernization of transport infrastructure,” said Dominguez. For the Philippines, the big-ticket projects under its massive “Build, Build, Build” program that the Duterte administration is now implementing to bring both an immediate and strategic impact on economic growth have long gestation periods and require long-term financing, which is why the support of development partners such as the AIIB is “indispensable” to this program’s success, Dominguez said. The “Build, Build, Build” program consists of 75 flagship projects, of which 35 have already hurdled the approval process and are ready for execution. Ten of these projects will move to the construction stage this year. “To be sure, strategic infrastructure projects are costly. We are building a strong basis for our infrastructure program by modernizing our revenue systems, pursuing financial sector reforms intending to broaden participation and strengthening our banking system to enable capital accumulation,” Dominguez said. “But we will rely heavily on our development partners for strategic financing support.” He said institutions like the AIIB can enable shorter tenors for the Philippines’ key projects and “superior cost advantages” over commercial funding sources by ensuring longer maturity and more favorable financing terms. The Duterte administration plans to increase infrastructure investments from 6.3 percent of the gross domestic product (GDP) in 2018 to 7.3 percent by 2022 through its 75 flagship projects. “It will greatly benefit emerging economies such as ours if our development partners are able to include a grant element of 25 percent and superior access to knowledge, experience, and technology,” Dominguez said. Dominguez said recipient economies expect development institutions like the AIIB to help them obtain the best advantage by expediting the processing of financing package without compromising the quality of project preparation and implementation. “We look to the AIIB for more immediate and longer-term financing that will guarantee the success of our infrastructure investment program and the strong expansion of our domestic economies,” he said. As of April 11 this year, the AIIB Board of Directors has approved 26 infrastructure projects across Asia to be financed by the bank amounting to around $4.52 billion. In the Philippines, the Metro Manila Flood Management Project Phase 1 (MMFMP1), is the first project co-financed by AIIB with the World Bank. It was signed in December last year and declared effective on March 15, 2018.

Interest rates still ‘too low’ to sustain PH growth

“We do think that the rate increases will be gradual and modest, and so the adjustment to higher interest rates for households and corporates will be manageable.” The current 3.5% policy interest rates of the Bangko Sentral ng Pilipinas (BSP) are still “too low” to sustain the country’s gross domestic product (GDP) growth, BMI Research, a unit of credit ratings Fitch Group, stated. BMI made the statement on the back of two successive interest rate hikes implemented by the Monetary Board in a span of six weeks to temper the runaway inflation and the weakening peso. “In our view, the interest rate is too low for an economy that is expanding by close to 7 percent, and this concern has also been echoed by bond investors, who are demanding higher returns for their expectations of higher inflation,” the Fitch think tank said. It explained that the central bank has to keep pace with the rising interest rates across the globe to mitigate the effects of the continued downward spiral of the peso and inflation. BMI Research continued, “While the BSP hiked its benchmark interest rates by a total of 50 basis points in May and June and signaled that it is prepared to continue hiking to safeguard macroeconomic stability, this is likely to be offset by rising interest rates globally. We forecast another 25 basis points rate hike before end-2018.” The Fitch unit predicts another round of rate increase before the end of this year with overnight reverse repurchase (RRP) rate to settle at 3.75 percent from the current 3.50 percent. In its policy meetings last May 10 and June 20, BSP raised a total of 50 basis points to its key policy rates. Meanwhile, an independent analysis by Moody’s also echoed the forecast of a fresh round of policy adjustment as it dismissed speculations of risk should the BSP further raise the country’s interest rates. “We do think that the rate increases will be gradual and modest, and so the adjustment to higher interest rates for households and corporates will be manageable,” said Moody’s Investors Service senior analyst Simon Chen. He added there is still plenty of room for banks to profit from the back-to-back interest rate hikes. Chen told reporters at a media briefing that he does not see any significant asset quality pressures at the moment. He added, “We do think when interest rates go up, that’s when banks will benefit with wider interest margins.” At the same time, Chen said that Moody’s is maintaining its “stable” outlook for the Philippine banking sector, as the credit rating agency believes that the country’s macroeconomic fundamentals remain strong that would allow growth in the lending space. The BMI Research cautioned the BSP that failure to keep pace with the rising interest global interest rates could further hurt the local currency. For next year, central bank’s key policy rate is expected to be stable at 3.75 percent. With PNA

imTube challenges YouTube, Instagram in video-sharing platform

“People have to be encouraged to create videos to contribute to the community. And this can be done if they are rewarded accordingly. There should be a fair incentive mechanics that will encourage you to make more video contribution for the community.” Move over YouTube, imTube is set to challenge its dominance in the video-sharing platform. Beijing-based Edan Lou, founder and CEO of imTube said that what sets his short video-sharing platform is it would be rolled out on the blockchain, meaning it encourages peer-to-peer transactions giving all parties the advantage of eliminating middlemen. “With imTube, we designed a new system for the content creators, the users, and even the advertiser,” Lou told the Daily Tribune in an interview at the sidelines of the recent Global Blockchain Summit held in Pasay City. “In our system, there is no center, no platform but we do the transaction peer-to-peer. It means that if you are a content creator and I’m the user, I can buy your song or video with a token. I can pay you directly because there is no platform and no intermediaries. That’s the call of imTube.” He explained that imTube is an incentive-driven international short-video social media ecosystem that innovatively utilizes emergent blockchain technology. It offers an open community, highly marketable pricing and mechanisms for providing creative freedom and quality assurance to content creators, content consumers and advertisers. Blockchain should reward people who deserve more Lou explained that blockchain, as a decentralized platform that rewards people for adding value to just about anything, should reward people who deserve the reward the most. He cited the social media platform that is very centralized that all the contents and the monetary rewards generated from the posts are controlled by a centralized authority – the owners of the social media. He stated, “The social media is all highly centralized, with the big companies making all the rules. They have a complete say or word for the distribution of the revenues. The distribution of the revenues lacks transparency and they don’t have a unified standard too. There is no standard for the distribution of revenues for the content creators.” Lou was referring to popular video-sharing sites, like Facebook and Instagram where content creators are given a very minimal share of the revenues generated by their posts that go viral. He explained that most of the times, people create short videos and post them on these social media sites just for fun or to contribute content. However, there should be more reason for content creators to create videos. Providing them with a reasonable reward should be a compelling reason for people to create more videos, he said. “People have to be encouraged to create videos to contribute to the community. And this can be done if they are rewarded accordingly. There should be a fair incentive mechanics that will encourage you to make more video contribution for the community,” he added. Adding blockchain into the video-sharing platforms can solve that, he said. He explained that using blockchain technology to create an open content community ecosystem would ensure the originality and free circulation of content. The roles of content creators, content consumers, and advertisers become much more flexible, he added. “All three can freely exchange their roles; anyone can be a content creator, content consumer and/or advertiser,” he said.
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