June 4, 2012, GMA News

Even before President Benigno Aquino III arrives in London for his three-day visit to the United Kingdom, news and dossiers on the political, economic and social conditions in the Philippines would have preceded him.

Tuesday last week, global credit rating agency Moody’s gave a fresh vote of confidence in the country, lifting the rating on its sovereign debt to “positive” from “stable,” nudging the Philippines closer to coveted investment grade status, a Reuters report said.

Moody’s rating for international sovereign debt of the Philippines is at “Ba2” while Standard & Poor’s has it at “BB” and FitchRatings pegged it at “BB+”. The ratings are shy of investment grade.

The Economist blogger Michael Morgenstern notes the “oft-cited” HongKong and Shanghai Banking Corp. (HSBC) forecast on the Philippines becoming the 16th largest economy in the world by 2050.

“Future prospects are indeed enticing: besides the unexploited mineral resources, business-process outsourcing is booming, already employing some 600,000 people. Remittances from all those Filipinos overseas have remained strong through economic crises,” Morgenstern observed.

The Economist blogger is frank. “In fact, the Aquino administration has little concrete to show for its two years in power,” he said.

“The centerpiece of its programme, public-private partnerships to tackle the inadequate infrastructure which is such a hindrance to all the nation’s economic hopes, is only now stuttering to life after just one of the ten projects scheduled for approval last year saw contracts awarded,” Morgenstern also noted.

He does have a few kind words about Aquino as a man, but his appraisal of “the reluctant president” indicates that he yearns for more than just “halo effect.”

“If Mr Aquino’s presidency is to be remembered as more than an interlude under a decent, likeable man who did his best, he needs to give some dynamic leadership to the reforms the Philippines so badly needs. Noynoying just does not cut it,” Morgenstern said.

David Wootton, Lord Mayor of London, spoke at the opening of trading day at the Philippine Stock Exchange in Makati on May 21. Wootton was in Manila to lead a business mission seeking to boost partnership between Britain and the PHL. Reuters photo

Corruption platform

It would also be no secret to UK Prime Minister David Cameron, prospective British investors, academics, analysts, and the Filipino community in London that the Philippine Senate convicted and permanently removed from public service, now former Chief Justice Renato Corona, who had served as chief of staff of Aquino nemesis, former President Gloria Arroyo.

Reuters reported that the Senate ruling on Corona “could give Aquino more influence to push reforms through Congress, such as a proposed sin tax on alcohol and tobacco that would raise about $1.4 billion more this year for the government.”

“That would go some way to address chronically low revenue collection and support his plans to improve decrepit infrastructure that remains a major barrier to growth,” Reuters also said.

Last week, international and local news networks also reported on what Aquino economic officials described as a “rousing” 6.4 percent expansion of the Philippine economy in the first quarter of this year—largely due to rebounding exports, a fast-growing service sector, and a 64 percent boost in public spending on infrastructure projects.

UK investors in PHL

There is an active British Chamber of Commerce in the Philippines, which has dozens of UK, Hong Kong and Singapore-based corporate members. The chamber, on its own and in coordination with the Joint Foreign Chambers (JFC), closely monitors and continually scans the economic and political risks of investing in the Philippines.

The BCCP has a list of “current lobbying issues.” It and airline KLM, a BCCP member, have been urging the Department of Finance to remove what they consider as “discriminatory” the common carrier’s tax levied on foreign airlines flying to and from the Philippines.

“KLM is now being supported by Cathay Pacific (also a BCCP Corporate Member), and the relevant American ariline carriers (Delta and Continental). A letter has been drafted by JFC and supported by EU-MAT and ourselves seeking resolution of this anomaly,” said Keith Perrin, BCCP chairman.

KLM no longer flies direct to Manila.

‘Sin taxes’

UK distillers are particularly keen on what they view as “discriminatory excise tax rates levied against foreign importers of distilled spirits, particularly affecting Diageo – a BCCP Premier Member,” according to Perrin.

For this reason, this UK business sector will be looking for an update from President Aquino on the status of the pending bills to reform the Philippines’ excise tax system.

The BCCP chairman said the European Union market Access Team (EU-MAT) “will continue to encourage the Philippine government to prioritize legislation to rationalize excise taxes on spirits and tobacco.”

“It is in the interests of the Philippines to have duty paid on legitimate alcohol and tobacco distribution, which would greatly increase government revenue collection and reduce smuggling and counterfeiting,” Perrin said.

Another key issue is access in the banking sector. The BCCP and banking giants HSBC and Standard Chartered want regulators to ease or remove “restrictions on expansion of branches in key areas of Metro Manila, including Makati City.

Also of concern to them are the “constitutional restrictions on acceptance of collateral in the freehold land and/or property on foreign banks,” according to the BCCP chairman.

Perrin said these “constitutional restrictions…led to difficulties in expanding business loans and meeting industry-wide lending requirements on the agriculture/agrarian sectors.”

On Aquino’s key area of interest—corruption—the BCCP supports the Integrity Initiative of the European Chambers of Commerce in the Philippines (ECCP).

“In addition to the 29 BCCP members who have signed with the ECCP, 11 other BCCP members have likewise declared their intention to follow this code and clearly will be in great shape to show their commitment to all and be confident of being compliant with UK Law,” Perrin said.

Key issues to watch

In a report, Reuters noted that investors and analysts want to see if Aquino “can take advantage of his high approval ratings to crack down on endemic corruption that has slowed growth and turned off investors for decades.”

It listed some key issues to monitor as regards the Philippines, including:

The outcome of the one-on-one meeting between US President Obama and Aquino in Washington.
New security arrangements between Washington and Manila to increase the US military footprint in the Philippines, and the US fighter jets and warships the Philippines is able to buy.
Fresh approaches by Manila to pursue its claims on the disputed Spratly Islands. Aquino told Reuters in September that Manila was looking into at least five other options to pursue its claims after China rejected arbitration.
Commercial activity in the South China Sea. Manila has awarded two oil and gas contracts there, and an Anglo-Filipino company may start drilling oil wells later this year in the Reed Bank, another area claimed by China.
Spending on upgrades of air and naval equipment, including radar stations. The Philippines says it needs to build a basic defence capability, and its actions are in no way aggressive.

According to Reuters, “the (Aquino) government’s strength has been economic management, including reducing the budget deficit by improving revenue collection and controlling spending, but the worsening outlook for the global economy is hitting the Philippines.” — with Reuters/Earl Victor Rosero, GMA News