MANILA, DECEMBER 31, 2011 (MALAYA) By AMADO MACASAET - THE economy may have a difficult beginning in the coming year. It has two problems that, according to the Bankers Association of the Philippines (BAP), will make the first half of the coming year a bit difficult to handle.

Aurelio Montinola III, president of the BAP and of the Bank of the Philippine Islands, said the world economic slowdown and the distraction by the impeachment of Chief Justice Renato Corona will not help the economy in the first semester of the year.

Montinola said the negative effects of these two situations can be blunted or offset by the implementation of the public-private partnership program which, he said, the banking system is completely prepared to support.

Montinola pointed out that the emerging market will compliment the effects of the PPP. He explained that the "whole year (2012) should be positive/better than 2011 due to emerging market and the Philippines superior economic fundamentals."

Thus, he said, he hopes that the situation will improve beginning the second semester. He predicted that the coming year will be better than 2011.

Montinola believes that the Philippine economy has "superior economic fundamentals."

A good portion of the funds for the PPP should be spent in public works which create jobs and infrastructure needed by local and foreign businessmen.

The private sector partners of the PPP have huge amounts of money for loans from the banking system.

The present prime rate hovers between 6 and 8 percent. This rate has never been seen in the history of bank lending

The continuing stability of the banking system is helped immensely by more careful scrutiny of the credit reputation of new big borrowers.

Montinola earlier said that the sorry part of the story is that the big corporate borrowers who never default on their loans are now able to generate enough cash flow from their operations. They do not have to borrow in huge amounts.

The banking system, awash with cash, is seeking low-risk investments that contribute to growth and job creation. It has long been observed that while lending to small and medium enterprises as well as to the micro businesses is administratively expensive, the default rate is much lower than among the giant borrowers.

A low interest rate regime characterized the Aquino administration from the time it took over on June 30, 2010.

The other "superior economic fundamental" is the stability of the peso. There has never been a time in the past when the exchange rate moved within a very narrow and therefore manageable band.

Neither has there been a time when the country’s supply of dollars is bigger than the size of its total foreign debt. The bulk of foreign debt has long-term maturities.

The banking system is seen as the main driver of growth as it has never been as stable as it is today.

Convulsions in the equities market and other negotiable instruments may not happen at all as investors continue to take "a flight to safety." Lower margins from safe instruments, particularly sovereign liabilities, are now an accepted investment practice.

Montinola’s hopes for a better year ahead is also pinned on "the US getting better."

He also explained that "the eurozone will muddle through to not breaking up." The Philippine economy can be affected by a decline in demand in the eurozone.

Montinola did not sound worried over the steady decline in the performance of the manufacturing sector. Obviously, he believes in what he earlier told Malaya Business Insight that the economy is slowly but steadily shifting to the service sector as a self-adjusting mechanism to the negative effects of being a member of the World Trade Organization.

He is most happy about the stability of the banking system, not because he is running the country’s second-biggest bank.

He is extremely satisfied that the banks are beginning to recognize the huge potentials of small and medium enterprises. In fact, he said, competition in micro-lending is palpably intense.

The property sector will continue to grow. Even Ayala Land, considered as the most respected property developer, has gone down to the middle market with its Avida brand of apartments and detached homes.

Chief News Editor: Sol Jose Vanzi

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