ADB TO CUT RP GROWTH FORECAST; RP NOT ON BRINK OF CRISIS - ADB
MANILA, July 7, 2005 (STAR) The Asian Development Bank (ADB) is likely to cut its growth forecast for the Philippines to below five percent this year amid setbacks to its fiscal reforms and soaring oil prices, a senior official said yesterday.
But the country is not on the brink of a financial crisis despite the economic problems and political turmoil that include calls for President Arroyo to step down, said the ADB’s country director, Tom Crouch.
On the other hand, the Makati Business Club (MBC) said in a statement the Supreme Court’s order stopping the implementation of Republic Act 9337, the Expanded Value-Added Tax Law, is a big setback to the government’s effort to raise revenues as part of its fiscal reform program.
"The EVAT measure signed into law on 24 May 2005 and whose implementing rules and regulations were released on 27 June 2005 is the centerpiece of the government’s eight-point priority measure to address the fiscal deficit," read the statement.
"The Department of Finance expected to collect P28 billion-P35 billion this year from the EVAT revenues. For 2006, the measure is seen to bring in some P97 billion-P105 billion," it said.
However, Trade Secretary Juan Santos asserted yesterday that local and foreign businessmen and investors have not changed their investment plans in spite of current political developments.
Santos, who has been meeting with local and foreign businessmen, investors and business groups, is also optimistic that the peso’s weakness is temporary and that it would rebound.
Following the meetings, "they don’t seem to have changed their plans to invest," he added.
Santos said there would be major investment announcements soon.
"Korean investors are coming," he hinted, without giving details about the investment.
Earlier, reports said Japanese appliance manufacturer Uniden is planning to relocate its manufacturing operations back to the Philippines from China.
The MBC said the Supreme Court decision has once again sent negative signals to investors about the instability and unpredictability of the government’s economic policy and legislation from Congress.
"Both Congress and the executive worked almost a year on the measure and the MBC believes that the due diligence was exercised in the conduct of RA 9337’s passage. Preventing its implementation puts to waste the millions of pesos utilized for its passage."
Crouch told The Associated Press the ADB in April predicted the country’s economic growth would be moderate at five percent for 2005 and 2006, but is likely to revise its projection down below five percent given the fresh developments.
"The Philippines is not in crisis, although it does face serious economic challenges," he said.
Crouch said first quarter growth this year already has slowed to 4.6 percent from 6.4 percent in the same period last year.
"While the suspension of the EVAT is a serious setback, it need not be totally debilitating," he said.
Crouch said a slowdown in the world economy, softer demand for Philippine exports, sustained higher global oil prices and rising international interest rates exacerbate the country’s woes.
Crouch said there had been "continuity and consistency" in economic plans following the ouster of the late dictatgor Ferdinand
Marcos in 1986 and of President Joseph Estrada in 2001.
"While each administration might adjust the priorities of programs and investments, the broad strategy for economic development remains fairly stable and does not move about violently as administrations change," he said.
"Over the next few years, the economic challenges will remain the same - fiscal consolidation, improving the investment climate, and improving governance. The need for deeper and sustained reforms remains dominant."
Meanwhile, the Philippine Chamber of Commerce and Industry (PCCI) prefers a selective TRO on just three provisions of the EVAT.
Otherwise, the PCCI supports the lifting of the TRO on the EVAT Law.
The three specific provisions that the PCCI believes should be subjected to a TRO are the provision on a higher corporate tax of 35 percent; imposition of a 70 percent cap on the input VAT, and allowing the President to raise at some point the VAT rate from 10 to 12 percent.
PCCI president Donald Dee said the corporate income tax (CIT) provision, is not investor friendly and could result in "either divestments or withdrawal of current foreign investors or decrease in the influx of new investments."
Dee warned that the CIT "may cause existing legitimate business enterprises to disappear from the Bureau of Internal Revenue’s view and go underground just to escape this onerous tax burden or drive them to resort to outright tax evasion."
The 70 percent cap provision would "deter economic and business development and create additional burden to consumers," he added.
The government said the extra tax funds are needed to raise some
P100 billion pesos a year in new revenues needed to pay off massive public debts and curb a swollen budget deficit.
Philippine stocks have taken a beating while the peso has tumbled to a near-record low following the Supreme Court’s decision Friday to temporarily halt an expansion in the EVAT that was central to the government’s fiscal reform efforts.
The temporary restraining order, issued just hours after the EVAT took effect, was the latest blow to Mrs. Arroyo who faces a clamor to step down over allegations she rigged last year’s presidential election.
Last Tuesday, the Supreme Court advanced oral arguments on the case to July 14, from July 26.
Credit rating agencies have warned that a prolonged suspension of the tax threatens the country’s sovereign credit ratings, which are already at junk levels. — Marianne Go, AP, AFP
Reported by: Sol Jose Vanzi
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