Chamber of Commerce and Industry Australia Philippines Incorporated

Philippine Economic Outlook

31st March 2009

National Economic and Development Authority

Exports Recover By 6.1 Percent in May

07.10.2007

After a three-month slowdown merchandise exports rebounded in May by 6.1 percent, bringing total export revenues to $20.4 billion over the five-month period.

Data from the National Statistics Office (NSO) showed significant recoveries were recorded in electronic products export (11.8%) as well as in exports of agro-based products (9.2%).

"The outward shipments of electronic products improved in May as industry sources attributed the increase in worldwide semiconductor sales to the higher memory requirement of personal computers and cellular phones," Socioeconomic Planning Secretary and NEDA Director-General Romulo L. and NEDA Director-General Romulo L. Neri said in his memorandum to the President.

He added that the increase in exports of agro-based products was also due to the "absence of weather disturbances in the first half of the year."

Petroleum and mineral exports also went up by 42.0 percent and 49.9 percent, respectively. The mining sector also continues to a reliable growth driver in the export industry contributing an average of 2.2 percent to the monthly export growth rate.

However, garments and machinery declined by 23.6 percent and transport equipment by 0.20 percent. The decline in these items is an offshoot of the current slump in Japan’s industrial production. This is the longest decline in almost two years, raising concern that growth is slowing in the world’s second-largest economy.

Meanwhile, the United States and Japan remain the top two sources of foreign demand despite the recent export drop to these countries on a cumulative basis.

End-April GIR Hits the US$25 Billion Mark

04.07.07

The country’s gross international reserves (GIR) hit the US$25.0 billion mark as of end-April 2007. The preliminary end-April 2007 level was US$0.3 billion higher than the end-March 2007 level of US$24.7 billion. The increase in reserves was due mainly to the BSP’s foreign exchange operations and income from investments abroad. Robust foreign exchange inflows continuinvestor sentiment remained strong given the country’s solid macroeconomic fundamed during the month as entals. This enabled the BSP to build up its reserves even as it serviced its own foreign obligations and those of the National Government, including through prepayments of the BSP’s term loan facility (US$130 million originally maturing in October 2007 and April 2008) and the NG’s remaining Brady Bonds (US$126 million originally maturing in June 2018). In terms of reserve adequacy, the current GIR level could cover about 4.7 months of imports of goods and payments of services and income. This level is also equivalent to 5.0 times the country’s short-term external debt based on original maturity and 2.7 times based on residual maturity.1

Net international reserves (NIR), including revaluation of reserve assets and reserve-related liabilities, likewise rose to US$25.0 billion from the end-March 2007 level of US$24.7 billion. NIR refers to the difference between the BSP’s GIR and total short-term liabilities.

Bangko Sentral ng Pilipinas

FCDU Loans Dropped in Last Quarter of 2006

04.12.2007

As of end-December 2006, outstanding loans granted by Foreign Currency Deposit Units (FCDUs) of banks amounted to US$3.5 billion, down by 12.5 percent from the end-September 2006 level of US$4.0 billion. On a year-on-year basis, the FCDU loan portfolio dropped by 14 percent as total loan repayments outpaced new loans granted.

FCDU refers to that unit of a local bank or local branch of a foreign bank authorized by the Bangko Sentral to engage in foreign currency- denominated transactions such as accepting deposits and lending in foreign currency.

The contraction in the stock of FCDU loans in the last quarter of 2006 resulted principally from net loan repayments of about US$493 million. Loan disbursements amounted to US$1.2 billion, of which around 78 percent carried short-term maturities. On the other hand, repayments totaled US$1.7 billion, of which US$1.1 billion pertained to short-term accounts, including repayments of oil companies (30.1 percent).

On a year-on-year basis, FCDU loan releases declined from US$5.0 billion in 2005 to US$4.3 billion in 2006. With principal repayments of US$4.9 billion, an overall net repayment of US$620 million was posted in 2006.

More than 89 percent of outstanding FCDU loans went to Philippine residents, with exporters and public utility firms as the major beneficiaries, followed by producers/manufacturers, including oil companies.

Meanwhile, FCDU deposit liabilities, which stood at US$18.8 billion by December 2006, recorded a growth of 3 percent quarter-on-quarter and 14 percent on a year-on-year basis. The bulk of these deposits (95 percent) were owned by residents.

The overall FCDU loans-to-deposits ratio (which relates the current period’s loan portfolio to the level of FCDU deposits two quarters back) declined to 19.8 percent in December 2006 from 23.6 percent in September 2006 and 26 percent as of end-2005. This was the consequence of both the contraction in outstanding loans and the expansion in deposit liabilities.

Investor Relations Office, Republic of the Philippines

This release is also posted at www.iro.ph For questions, please email

Bangko Sentral ng Pilipinas

End-March GIR Posts Another Record High

04.04.2007

The country's gross international reserves (GIR) hit another record high at US$24.7 billion as of end-March 2007, up by US$0.2 billion from the end-February 2007 level of US$24.5 billion. The increase in reserves was due mainly to the National Government's (NG) deposit of the program loan proceeds from Japan Bank for International Cooperation (JBIC), as well as the BSP's foreign exchange operations and income from investments abroad.

The build-up in GIR was achieved even as the BSP serviced its own debt and those of the NG, as well as prepaid its term loan facility (US$675 million) originally maturing in September 2007. Without this prepayment, the GIR level as of end-March 2007 would have breached the US$25.0 billion mark.

In terms of reserve adequacy, the end-March 2007 GIR level could cover about 4.6 months of imports of goods and payments of services and income. This level is also equivalent to 4.9 times the country's short-term external debt based on original maturity and 2.7 times based on residual maturity.

Net international reserves (NIR), including revaluation of reserve assets and reserve-related liabilities, likewise rose to US$24.7 billion from the end-February 2007 level of US$24.5 billion. NIR refers to the difference between the BSP's GIR and total short-term liabilities.

Investor Relations Office, Republic of the Philippines

This release is also posted at www.iro.ph For questions, please email

Investor Relations Office

Merrill Lynch Remains Overweight on the Philippines

03.13.2007

13 March 2007, Tuesday, Manila – In a recently published report following their visit in Manila in end-February, representatives from Merrill Lynch, one of the world’s leading financial management and advisory company, re-affirmed their overweight recommendation on Philippine debt, viewing the May national elections as having a limited impact on the macroeconomy.

"We do not think that there is a major risk of slippage on the expenditure front… we do not foresee any inflationary impact of the election process," Benoit Anne, Vice President for Emerging Markets Research of Merrill Lynch, said.

The report recognized the Economic Team’s firm commitment to fiscal adjustment, citing the attainment of this year’s P63 billion fiscal deficit and a balanced budget for next year remain high on the government’s agenda. It believes that the Bangko Sentral’s inflation target of 4-5 percent for 2007 appears realistic and does not foresee “any significant loosening of monetary policy in the near future.” Merrill Lynch also sees no vulnerability on the external sector front expecting the balance of payments to remain robust on the back of strong worker remittances and portfolio investment.

Merrill Lynch believes the elections will not raise any major issue, but that the main focus will continue to be the tax revenue performance of the Bureau of Internal Revenue in particular, which will remain to be a significant factor in the success or failure of the government’s fiscal strategy over the medium term. “We recognize that the potential for raising BIR revenue collection is substantial but we think that it may only materialize after a few years of sustained efforts”, according to Mr. Anne.

In his trip notes, Mr. Anne also cited the quality of fiscal adjustment as a major issue on the fiscal front. While he believes government will strive to meet its fiscal objectives, he raised the need to address medium term challenges related to accelerating the pace of spending and growth of investment.

With the above considerations, Merrill Lynch believes growth will continue to be healthy in the near term. “We forecast growth to reach 5.8 percent this year and over 6 percent in 2008. The main sources of growth will continue to be private consumption and exports. On the supply side, the services boom will provide the main impetus to economic activity”, Mr. Anne said.

Finance Secretary Gary B. Teves said, "We are pleased that Merrill Lynch has recognized the economic team's commitment to fiscal consolidation as reflected by the full implementation of the EVAT last year. This, in addition to other tax administrative measures, has helped successfully bring down the National Government deficit in 2006 to below program. We are equally committed this year to quality spending on critical infrastructure and social services that will help us keep our upward growth trajectory."

"Supporting us is the passage of the budget for 2007 which incorporates a P92 billion infrastructure program, 63 percent more than in 2005," agreed Budget Secretary Rolando G. Andaya. "Despite the construction ban due to the elections, on-going projects will continue to be implemented. In addition, we are involving the private sector in the implementation of high impact infrastructure projects this year such as the Northrail-Southrail Linkage Project, North-Luzon Expressway Extension Project and the Agno River Integrated Irrigation Project," he said.

Merill Lynch believes the Philippines’ rating outlook may be raised to positive later this year should the election process turn out smoothly and “clear signs that the economic reform program will be sustained” are present. A rating upgrade may then follow next year.

"We are pleased to note that Merrill Lynch continues to anchor its positive recommendations on the economy’s strong fundamentals,” said Renato Pizarro, Executive Director of the Investor Relations Office, which helped organize the visit of Merrill Lynch in Manila. “We hope that the economic team’s commitment to economic reform will further encourage a wider partnership with its stakeholders in order to sustain the economic gains achieved thus far," he said.

Inflation Continues to Slow Down to 3.9 Percent in January

02.06.2007

Consumer prices continued to abate to 3.9 percent in January as annual inflation rates of all the major commodity groups (food, beverages, tobacco, housing and repairs, fuel, light and water, services, and miscellaneous) except for clothing slowed down. This was the lowest inflation rate recorded since October 2003 (3.6%), according to the National Statistics Office. In December, headline inflation rate was 4.3 percent.

The Development Budget Coordinating Committee (DBCC) had set the target to 4.0-5.0 percent in 2007 as world oil prices eased and the peso continued to strengthen. Core inflation rate also eased to 3.9 percent in January from 4.6 percent in December.

Meanwhile, month-on-month inflation rate increased by 0.3 percent. “The increase was due to the higher prices of food, beverages, and tobacco as well as housing and repairs, which rose from 0.4 percent to 0.2 percent, respectively,” Socioeconomic Planning Secretary and NEDA Director General Romulo L. Neri said.

He added that the lower supply of fish and fish products was due to cold weather conditions while the shift in consumer preferences from meat to fish and fish products after the holiday season pushed the fish index up by 1.1 percent.

"Higher prices of LPG, selected construction materials, and rental rates in some regions including the National Capital Region (NCR) contributed to the month-on-month hike in inflation. Also, water rates increased in the NCR as this was allowed every two years in accordance to adjustments in power and fuel prices," Neri explained.

Year-on-year inflation rates for January however decreased in the NCR. Food prices continued to slow down by 5.0 percent in January from 5.2 percent in December. There were also slower price increases in cereal preparations (5.9%), dairy products (6.5%), eggs (9.0%), meat (4.6%), and miscellaneous foods (6.6%).

The annual inflation rate in areas outside NCR eased to 3.7 percent in January from last month’s 4.1 percent. However, higher annual price in rice was recorded at 1.8 percent from 1.6 percent as nine regions (Ilocos, Cagayan Valley, Central Luzon, Bicol, Western Visayas, Zamboanga Peninsula, Northern Mindanao, Davao, and the Autonomous Region in Muslim Mindanao) posted faster increases in the price of rice.

Investor Relations Office

Joint Statement by the RP Economic Managers

01.11.07

This release is also posted at www.iro.ph For questions, please email info-iro@bsp.gov.ph

We laud the Bicameral Committee for arriving at a compromise that breaks the deadlock over the P4.7 billion School Feeding Program and coming to an agreement on the 2007 national budget before Congress adjourns on 10 February 2007.

The new 2007 budget allocates P5.3 billion to the Department of Education (DepEd) for nearly 18,000 new classrooms nationwide and another P2 billion for hiring new teachers, particularly in the fields of mathematics, physics, chemistry, biology and general science. The DepEd budget also includes P2 billion to improve nutrition among school children by distributing milk, bread and noodles in public schools.

In addition to these improvements on the 2007 budget, our legislators’ hard work and willingness to put aside their differences are clear indications of their commitment to the greater good of our country and their desire to improve our people’s lives.

The Philippine government’s economic team thanks Congress for their statesmanship, which will enable the government to provide better health and education services for our people and invest wisely in infrastructure that will improve our global competitiveness and our economy.

For our part, the economic managers reiterate our commitment to transparency, accountability and efficiency in every step of the revenue collection and expenditure process and hope we can continue working together towards our vision of a more competitive, progressive and developed Philippines.