MANILA, OCTOBER 10, 2003  (STAR) By Des Ferriols  - Foreign portfolio investments or hot money surged by over 120 percent during the first nine months of the year but the month-on-month data of the Bangko Sentral ng Pilipinas (BSP) indicated persistent volatility of hot money flows due to rising political concerns.

The BSP reported yesterday that foreign portfolio investments amounted to $423.5 million during the first nine months of the year, surging by 127 percent from $186.2 million in the same period last year.

According to the BSP, this data came from the five major custodian banks which report foreign exchange flows on a weekly basis.

BSP officer-in-charge Alberto V. Reyes said that investments by non-residents in government securities, money market instruments and in peso bank deposits amounted to a net inflow of $159.3 million and $293.6 million, respectively. This exceeded the $29.4 million net outflow from investments in stocks listed at the Philippine Stock Exchange, Reyes said.

These figures indicated that foreign investors are more optimistic about government securities and money market instruments than in the stock market which has not been able to recover from its slump since 1997.

Reyes said the inward remittance of non-residents was slightly lower at $1.052 billion compared to last year’s $1.078 billion.

Reyes said these dollars came in to fund portfolio investments during the nine-month period.

Based on BSP data, the highest net inflows were recorded in July this year due mainly to huge gains in Wall Street and reports of improvements in the government’s budget deficit.

Reyes said foreign hot money was also Foreign portfolio encouraged by the decline in domestic interest rates.

Despite the improvement in July, however, foreign hot money flows dropped dramatically the following month as investors became pessimistic over the country’s political stability right after the July 27 military mutiny.

According to Reyes, hot money flows were also affected by the suspension order issued by the Court of Appeals against BSP Governor Rafael Buenaventura and the controversy over the alleged laundering of campaign funds by first gentleman Miguel Arroyo.

Foreign chambers seek changes in SEC rules By Zinnia B. Dela Peña Star 10/11/2003

Several foreign business chambers are seeking changes to the Securities and Exchange Commission’s (SEC’s) proposed rules on the submission of foreign currency-denominated financial reports.

In a draft memorandum circular, the SEC said corporations with 70 percent of their revenues, cost and expenses paid in a currency other than the peso can file financial reports in dollars or other foreign currencies starting Jan. 1, 2004.

SEC general accountant Roberto Manabat said a number of business groups, particularly foreign chambers, have requested for the reduction of the 70 percent threshold to a simple majority (51 percent) to allow more companies to use US dollars or other foreign currency in presenting their financial statements.

The circular is meant to address the needs of companies whose main revenue-generating activities involve foreign currencies such as the US dollar and the Japanese yen, among others.

It is also intended to "more clearly reflect income considering that the use of Philippine pesos results in foreign exchange gains or losses which may distort the real financial condition of companies whose transactions are denominated and settled in foreign currency," the SEC said.

The move is in light of a ruling issued by the Bureau of Internal Revenue last March, allowing companies to use foreign currency- denominated financial reports.

Under the proposed guidelines, any qualified entity presenting functional currency (other than the Philippine peso) financial statements is required to restate its prior year financial statements as if the company had been booking its transactions in prior years using such currency.

Companies may opt to maintain multi-currency books of accounts to keep track of both the functional currency transactions and Philippine peso transactions in order to facilitate reporting requirements for other regulatory bodies.

Non-monetary items that are measured at fair value in a foreign currency shall be translated using the exchange rates at the date such fair value was determined.

Qualified entities are also required to disclose in their financial statements the amount of exchange differences included in net profit or loss for the period. They must also disclose net exchange differences charged or credited to retained earnings or otherwise classified as equity as a separate component of equity and a reconciliation of the amount of such exchange differences at the beginning and end of the period.

With the SEC bent on adopting international accounting standards (IAS), more companies with large foreign exchange borrowings are expected to be in the red or incur even higher losses starting next year.

All companies filing financial statements with the SEC are required to immediately book their foreign exchange losses to show their true financial status.

Under the IAS, corporations are obliged to write off their foreign exchange losses immediately.

The adoption of the IAS is intended to align the financial reporting system of Philippine corporations with global accounting standards. The IAS is used by most developed countries worldwide.

It is also in line with efforts to ensure that accurate, timely and quality information regarding a company’s financial status and performance is provided to the public.

The SEC is working with the Bangko Sentral ng Pilipinas, BIR, Board of Accountancy, and the Professional Regulation

Commission as well as other regulatory agencies and professional associations in attaining a high quality and independent audit environment.

The SEC said while financial statements are primarily the responsibility of the management of the reporting corporation, the fairness and accuracy of the representations made therein are part of the independent certified public accountants’ responsibilities.

Reported by: Sol Jose Vanzi

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