Traders look at the electronic stocks board at the Philippine Stock Exchange in Makati City yesterday. - Photo By AFP]

MANILA, November 3, 2005 (STAR) By Rica Delfinado - The peso gained strength and stocks rose yesterday as the markets cheered the long awaited implementation of the expanded value-added tax (EVAT) law, which took effect Nov. 1. The peso closed at a five-month high of 54.72 to the dollar, up 22 centavos from Friday’s close of 54.940. Stocks also surged 46.90 points, gaining 2.4 percent, and settled at a three-month high of 2,007.12 points.

The peso’s last highest rally was on June 8, 2005 when it closed at 54.670 to $1. "It’s bad news for consumers, but the EVAT implementation should be viewed positively as it will ensure long-term fiscal stability for the government," a dealer at a local commercial bank said.

The EVAT is expected to shore up the government’s finances and reduce the budget deficit to more manageable levels. Dealers said the peso was also boosted by the seasonal spike in remittances of overseas Filipino workers ahead of the Christmas season and the Bangko Sentral ng Pilipinas (BSP)’s previous action of raising key interest rates to their highest levels in three years.

The BSP raised its key overnight borrowing rate a quarter point to 7.5 percent on Oct. 20. The US Federal Reserve increased its benchmark federal funds rate by a quarter point to four percent.

BSP Governor Amando Tetangco said the Fed hike was expected. He maintained that policy makers will take that into account when they consider policy.

"The comment suggests the possibility they will raise rates further, supporting the peso," said Osamu Takashima, chief analyst in the currency and treasury division of the Bank of Tokyo-Mitsubishi Ltd. "The country will maintain its interest-rate advantage." Rising rates may draw investors’ interest to higher-yielding Philippine bonds and assets denominated in peso. Funds repatriated by Filipinos working abroad are also seen to rise by as much as 20 percent to $10.3 billion this year and by 10 percent in 2006. For the first eight months of the year, remittances totaled $7 billion, or 28 percent more than a year ago. "The remittance is really a big factor for demand and supply conditions for the peso," Takashima said. "The amount of remittances may accelerate toward the year-end and that has been supporting the currency."

In a related development, officials of the Philippine Chamber of Commerce and Industry (PCCI) defended yesterday the EVAT’s implementation and pointed to soaring fuel prices as the cause of higher prices of commodities.

PCCI president Donald Dee cited the plans of a sardine canning company to suspend operations in the country due to the high cost of fuel. "There is an effect (of the increase in prices of fuel). Nobody is buying their sardines... This is because of the high cost of operations, not the EVAT," said Dee.

He disclosed that the PCCI recently met with foreign chambers in the Philippines and business organizations to discuss the country’s economy. "Our agenda is for sustained economic growth," he said.

Dee and PCCI chairman Sergio Ortis Luiz Jr. advised militant groups to stop causing instability in the country by holding rallies as it will only continue to bring down the economy. Dee instead advised them to have talks with the government or private organizations to discuss the problem.

"The economic numbers would show that the economy is okay, but it is not really growing as expected," Luis added. "If there are no political noises, this is okay." Luis also said that the value-added tax is an old law but now the exemptions are brushed out. "This has been passed into law a long time ago. Several have already expressed protest on this because of the exemptions. For an EVAT system to work, it has to be as pure as possible, with no exemptions so that the chain will be clean," he said.

Dee, however, urged the public to monitor the government’s use of the EVAT. He said the business sector is now also closely monitoring the government, especially the Bureau of Customs. — With reports from AFP, Sandy Araneta

Noli, DTI, DA find prices stable during market check By Pia Lee-Brago The Philippine Star 11/03/2005

Vice President Noli de Castro predicted yesterday that prices of agricultural commodities such as vegetables would "normalize" soon, as stability in the produce supply is expected by tomorrow.

De Castro said that the "slight movement" in the prices of vegetables felt by consumers was caused by rainy weather and lack of supply.

Consumers noted that prices of produce, particularly carrots and cabbage, shot up at the onset of implementation of the expanded value-added tax (EVAT) last Tuesday. This prompted government agents to conduct random checks at markets to ensure that traders of agricultural products would not take advantage of the implementation of the expanded, 12-percent VAT from which agricultural goods are exempt.

"Based on our interview with the vendors, it appears that the slight movement in the prices of certain vegetables was due to the lack of supply," said De Castro, who visited the Kamuning Market in Quezon City yesterday with Trade Secretary Peter Favila and representatives from the Department of Agriculture (DA).

"Also, it appears that the holiday contributed to the slight movement of the prices because the transport of the vegetables, especially those coming from the highlands such as cabbage, was limited because of the break while some traders concentrated on selling flowers," he said. "The continuous rain or bad weather was also a factor."

Even while De Castro admitted that the increase in the pump prices of fuel could affect the prices of goods, he said the increase in the prices of agricultural products was only temporary. "We think that the (produce) supply would become stable by Friday," he said. As this developed, labor party-list group Partido ng Manggagawa (PM) sought immediate relief for workers in the face of implementation of the 12-percent EVAT.

According to the PM, the government should immediately mitigate the "deleterious effect" of the increased VAT on workers by providing for a wage increase and tax breaks, even as the group pursues the repeal of the new tax measure through mass actions starting with a Day of Protest on Nov. 10. — Katherine Adraneda

Chief News Editor: Sol Jose Vanzi

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