Teves and Tetangco offer bullish perspective on Philippines

Two of Manila's top finance officials reckon the country is in a virtuous circle. They discount the impact of a setback in Senate elections and the resignation of Treasurer Omar Cruz.
In spite of a setback for the Philippines government in the recent Senate elections, the countryÆs two top finance officials sounded positive notes during their roadshow to meet investors in Hong Kong yesterday.

Central bank governor, Amando M Tetangco, noted: ôWe are quite bullish on the economy in 2007ö, and added that the March inflation rate of 2.2% was the lowest in 20 years. He also noted that with the peso at a six-and-a-half year high this was a positive factor û since it both aided price stability, and also made it cheaper in peso terms for the government to service its foreign debt. On another positive note, he said that remittances from Filipino overseas workers rose 24% in the first quarter.

Finance secretary, Margarito B Teves, pointed to the governmentÆs record in reducing its fiscal deficit. He admitted that 2007 had become more challenging û due to higher spending on social services and infrastructure û but said the government was on course to meet its target of a deficit of not more than Ps63 billion this year, and a balanced budget in 2008.

He also added that the rating agencies were very focused on the ratio of government debt to GDP and ôwith the high growth of the economy the debt to GDP ratio will also decline. We expect it to be 58% this year versus 64% last year, and 43% by 2010ö.

On the subject of the recent election, Teves noted that the process was ôrelatively peacefulö and his sense was that international investors had recognised this and regarded this as a positive. As to the governmentÆs setback in the Senate elections û in which the number of opposition senators increased û he said pragmatically: ôWe will continue to work with the Senate and hope that they will see the merits of economic and fiscal reform measures we will present to them. We will try and convince them it will be good for the country.ö

He added: ôIndividual senators act on their own and so we will have to be patient as we present to them our reforms in the next Congress.ö

Just prior to the election, the countryÆs treasurer, Omar Cruz surprised investors and bankers by resigning. Over the past couple of years the ex-Citibanker had won the favour of the market for delivering on his promises, and expertly accessing the debt markets. Under his stewardship the spread on Philippines five-year sovereign debt tightened 350bp, and the government saved around Ps130 billion on interest costs.

Teves commented on CruzÆs resignation: ôWe regret his departure. He has done very well as treasurer. We tried to convince him to stay and prevailed the first time, but couldnÆt the second time. He wants to stay with his ailing mother. His replacement will be named soon, and will be a person of similar experience. But our policies will remain the same and a smooth transition can be expected.ö

Tetangco meanwhile forecast that the economy would continue to be fuelled by the growth in bank credit. ôWe want to see double digit growth in bank credit. Low interest rates should spur credit growth plus activities relating to the governmentÆs infrastructure investment activities.ö

Another major potential boost for the economy could be a surge in the mining sector. The Philippines is one of the worldÆs most mineralised countries but has not tapped its mining sector since the 1980s. UBS estimates the country û whose metal resources include nickel, gold, cobalt and copper û has exploitable mineral reserves of $700-$800 billion (which equates to around seven to eight times GDP). Teves noted that mining investments amounted to just $700 million between 2004 and 2006 but this number is estimated to jump to $6 billion between 2007 and 2010 û particularly thanks to Chinese interest.
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