PESO  SEEN  HITTING  52:$1  IN  2006  IF  EVAT  IS  RAISED  TO  12%

MANILA, December 30, 2005
 (STAR) By Des Ferriols - Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said the peso is likely to hit the 52 to a dollar level in 2006, especially if the expanded value added tax (EVAT) is adjusted to 12 percent as originally planned.

Market analysts have been bullish about the performance of the peso, tagged as the best-performing currency in Asia and one of the best performers in the world.

As surging dollar remittances from overseas Filipino workers buoyed the peso to a new 31-month high, analysts said the local currency could appreciate to an average of 52 to 53.5 to $1 in 2006.

"That is entirely possible," Tetangco said, adding that despite the sustained appreciation of the peso, monetary officials are still expecting the foreign exchange rate to be stable.

At the last trading of the year, the peso stayed firm, closing marginally lower at 53.090 from Wednesday’s close of 53.080 to the dollar.

Tetangco said the peso is expected to remain strong, indicating that the projected appreciation against the dollar would be gradual but steady.

"This year, we recorded the volatility of the peso at only 1.4 percent, one of the lowest volatility rates in the region," Tetangco said. "Yet at the same time, the appreciation was close to six percent, year-to-date."

Tetangco said he expects the peso to outdo its performance in the latter part of 2006 and test levels above 53 to $1, particularly since OFW remittances would continue to come in during the first quarter of the year.

Tetangco had originally projected that the peso would trade between 53 to $1 and 55 to $1 in 2006, P2 better than the BSP’s official projected range for this year of 55 to $1 to 57 to $1.

As the peso reached 53.04 to the dollar on Wednesday, however, Tetangco said there were indications that the currency was packing more strength and momentum than originally projected.

Tetangco said that based on both fundamental and technical factors, there were indications that the peso would be able to sustain its momentum until 2006.

The peso’s sustained improvement, however, hinged on the full implementation of the expanded Value Added Tax (EVAT) which included the increase in the tax rate from 10 percent to 12 percent by February 2006.

According to Tetangco, implementing the final portions of the tax reform would significantly improve investor confidence and this has a direct impact on dollar inflows.

"The impact on the peso is not direct but it’s significant and measurable," Tetangco said. "Obviously, additional revenues would improve our fiscal position and showing that kind of commitment to reforms would attract inflows."

The National Government (NG) is expecting to increase its revenue collection by 20 percent in 2006 which would allow it to pare down its deficit to at least P125 billion.

By 2008, the government said it would be able to balance the budget for the first time in 10 years.

This year, the NG said it was P40 billion ahead of its programmed deficit and the full-year figure was likely to reach only P140 billion against its ceiling of P180 billion.

Tetangco said the increase in remittances from overseas Filipino workers (OWFs) would also support the peso since the BSP would have the flexibility to smoothen the volatility in the peso-dollar exchange rate.

Gov’t to cushion EVAT impact The Philippine Star 12/30/2005

Malacañang is set to implement more mitigating measures to cushion the impact of an expected increase in the expanded value-added tax (EVAT) rate from 10 to 12 percent by Feb. 1, economic managers said yesterday.

In separate interviews, Socio-Economic Planning Secretary Augusto Santos and Budget Secretary Romulo Neri said President Arroyo would preside over a Cabinet meeting on Monday at the Palace to finalize the measures.

"These measures are on top of those already implemented earlier," Santos said in a telephone interview.

He explained that the increase in the prices of basic commodities and other goods is mainly due to high oil prices and not the EVAT.

Government economic managers project an inflation rate of 8.1 to 8.5 percent once the 12-percent EVAT rate is implemented.

Santos and Neri, however, did not disclose the additional measures the government is planning to cushion the impact of higher EVAT, saying these would be announced once they are finalized.

In Baguio City, two members of Mrs. Arroyo’s economic team gave assurances that the impact of the 12 percent EVAT on prices of fuel, electricity and basic goods would be minimal and would not be felt sharply by consumers.

Energy Secretary Raphael Lotilla and Trade Secretary Peter Favila said the President met them in Baguio to discuss the impending increase of the VAT rate and to make sure vendors and businesses would not take advantage of the public.

Lotilla and Favila told reporters the feared price increases would be minimal. Businessmen, they said, might even consider absorbing the increase because two percent is so small.

Favila said they would ensure that food supplies remain adequate and readily available to forestall surges in the prices of commodities.

Republic Act 9337 or the Reform VAT Law signed last May by Mrs. Arroyo gives her the authority to increase the value-added tax rate to 12 percent in 2006. The government aims to raise P80 billion to P120 billion next year from the tax.

Finance Secretary Margarito Teves said last week that the increase would push through despite the clamor of some sectors to defer the increase because of recent hikes in prices of basic commodities.

He said the government could end up losing P35 billion annually if it suspends increase of the EVAT rate.

Santos earlier said proceeds from the EVAT would allow the government to increase infrastructure spending to generate jobs and pump-prime the economy.

Favila, for his part, said revenues from EVAT would trickle down to the people in the form of better health and social services, quality education and agri-infrastructure facilities.

Before Christmas last week, the President issued separate memos to members of her Cabinet including Teves, Lotilla, Favila, Labor Secretary Patricia Sto. Tomas, Agriculture Secretary Domingo Panganiban, Health Secretary Francisco Duque, and Social Welfare Secretary Lualhati Pablo, to implement a series of measures to help protect low-income earners from the high cost of living.

These measures include the exemption of minimum-wage earners from withholding tax; acquiring compressed natural gas-powered buses to be used as shuttle service for government employees; intensifying price-monitoring activities; facilitating the transport and sale of agricultural products and goods in markets; and selling medicines at lower prices in government outlets. — Paolo Romero, Aurea Calica

Chief News Editor: Sol Jose Vanzi

All rights reserved