SWISS INVESTMENT BANK: POLITICAL NOISE STUNTING PESO GROWTH
MANILA, APRIL 7, 2006 (STAR) By Paolo Romero - One of the world’s top investment banks has warned that persistent political uncertainty in the Philippines is hampering private investment spending and further appreciation of the peso.
Switzerland-based UBS, in its Asian Economic Monitor for April, said that it believes the Philippine peso can sustain its recent gains due to large and rapidly growing remittances from overseas Filipino workers (OFWs), which support the country’s balance of payments.
"However, political ‘noise’ is likely to keep appreciation pressure in check, in particular as we approach July when renewed impeachment proceedings against President Arroyo could be launched," UBS said in its report.
Since the so-called "Hello, Garci" scandal erupted in June last year, Mrs. Arroyo has continued to battle destabilization campaigns waged by her political opponents, the latest of which was an alleged "right-left" coup plot last February that was supposed to have been staged by rightist military officers and communist rebels and supported by some opposition politicians and businessmen.
The President’s allies quashed an impeachment bid against her last year but opposition leaders vowed to file a stronger one this year.
Mrs. Arroyo said adding weight to her sagging popularity are her painful fiscal reform measures, including increasing the VAT and cracking down on smuggling and tax evasion aimed at wiping out the deficit and reducing the country’s dependence on debt to fund infrastructure projects.
The UBS report said it expects the government’s fiscal consolidation to continue this year but predicted that deficit reduction might fall short of government projections.
The country’s growth, the UBS report said, slowed in 2005 due to lower private consumption, weaker export growth and a renewed contraction in investment spending. It said it expects consumption to continue to slow down this year on the back of the 12-percent value-added tax imposed last February and the expansion of the VAT base by the government.
But the rapid growth of OFW remittances, which reached a record $10.6 billion through formal channels, "is likely to put a floor under consumption growth."
It said exports were unlikely to be a source of additional growth momentum as global demand is expected to slow down until the second half of this year.
The UBS report said the key for the Philippine Gross Domestic Product (GDP) growth to break out of the 4.5 percent to 5.5 percent range is the revival of investments in the country.
"A history of poor fiscal management, minimal infrastructure spending by the government and low savings rates has left the Philippines with the lowest investment-to-GDP ratio in Asia," the report said.
It added that while the Arroyo administration is pushing for greater infrastructure spending this year through its pump-priming program, "overall investment growth still hinges on the involvement of the crucial private sector."
"Persistent political uncertainty is likely to continue to limit private sector investment spending, though there should be room for some upside from the power and possibly the transport sectors if privatization of energy assets is pursued more vigorously," the UBS report said.
Press Secretary Ignacio Bunye, however, said the goal of the President is to pave the way for the country’s economic takeoff, and no amount of destabilization moves will stop this momentum.
In a statement, Bunye also said the government’s fiscal reform program has been making steady and significant headway as shown in the increase in revenue collections of the government’s key revenue-generating agencies.
He said the Bureau of Customs and the Bureau of Internal Revenue (BIR) have exceeded their revenue collection targets for the first quarter of the year.
The BIR said it exceeded its revenue target for the first quarter of 2006 by P3 billion, while the BOC generated a total of P42.277 billion, or 9.5 percent higher than its P38.623 billion target for the period.
"Our fiscal reform program has been making solid headway. Revenue collecting agencies are breaking their own records," Bunye said, expressing optimism that the two agencies would meet their revenue collection targets for 2006 as the government continues to intensify its campaign against tax cheats, smugglers and corrupt officials while it continues to crack down on unnecessary expenditures.
Mrs. Arroyo has set the Customs bureau’s collection target this year at P192 billion and P675 billion for the BIR.
"We will continue to seal the revenue leakage by running after tax dodgers and corrupt officials while keeping an eagle eye on our austerity programs," he said. <
Chief News Editor: Sol Jose Vanzi
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