First-quarter deficit over half of full-year target

LOWER REVENUES blamed on the global economic downturn and higher expenditures widened the budget deficit to P119.7 billion in the first quarter, the government yesterday reported.

The January to March shortfall accounts for 60% of the P199.2-billion ceiling set for 2009 and is more than double the P51.6 billion incurred in the same period last year. It is also higher than the programmed P110.1 billion for the quarter.

"This [deficit] is largely due to lower revenues that were adversely affected by the slowdown in economic activity as reflected in the lower imports and the decline in collections," Finance Secretary Margarito B. Teves said.

"Infrastructure spending increased by 73.5% ... while maintenance and other operating expenses increased by 41.2% ... mainly due to additional disbursements for the conditional cash transfer program."

Total revenues for the period hit P235.4 billion, lower than the target of P251.8 billion. Total expenditures amounted to P355 billion.

The tax bureau collected P154.8 billion, lower than its P165.3-billion goal, which tax chief Sixto S. Esquivias IV said was due to a law exempting minimum wage earners from income tax and slower economic activity.

Customs, meanwhile, collected P43.1 billion, also below its target of P51.3 billion. Customs deputy commissioner Alexander M. Arevalo said the shortfall was due to a decline in imports.

The Bureau of Treasury contributed P20.7 billion while other offices earned P16.8 billion.

The government has said it would have to borrow more to fund the higher shortfall and yesterday, National Treasurer Roberto B. Tan announced that this year’s borrowing mix would be tweaked to include more overseas loans.

"We will manage ... by adjusting the borrowing mix from 75-25 in favor of domestic [loans] to 72-28. The new figure for external borrowings is P174.9 billion versus P147.4 billion previously and domestic borrowing figure is now P439 billion from 442 billion," he said.

"We are looking for additional ODA (official development assistance) financing of around $500 million."

Mr. Teves said the Asian Development Bank had offered the P500 million worth of ODA but added the government was still deliberating whether to accept it. — ADBR

Zero growth this year for RP

BY PAOLO LUIS G. MONTECILLO, Reporter

THE INTERNATIONAL MONETARY FUND (IMF) no longer expects the Philippines to grow this year, noting the substantial impact — albeit less harsh than in advanced economies — of the global economic downturn.

Government officials discounted the forecast, however, pointing to signs of export improvements. A foreign analyst, meanwhile, said multilateral institutions were fixated on tying economic recoveries to an upturn in the United States.

In its latest World Economic Outlook where the country’s growth forecast was cut to zero percent from 2.25% previously, the Washington-based lender said the Asian region was being "severely hit by the combined effects of lower global demand and tighter credit conditions."

The same prognosis of zero growth was applied as a whole for five Association of Southeast Asian Nations (ASEAN-5) economies but the IMF’s Manila representative, Denis Botman, stressed "the Philippines remains one of the few countries in Asia to avoid [a] recession in 2009".

For the world’s advanced economies a 3.8% contraction was forecast, while for newly industrializing neighbors Korea, Taiwan, Hong Kong, and Singapore an overall decline of 5.6% was predicted.

The global economy is now expected to contract by as much as 1.3%, down from a 0.5-1.0% decline projected last month.

The IMF forecast is the latest in a series of growth downgrades for the country, among them Fitch Ratings’ 0.5% (from 2.0%) and the government’s own target of 3.1-4.1% from an earlier, and already reduced, 3.7-4.4%.

Indonesia and Vietnam were the only two ASEAN-5 countries expected to grow this year, by 2.5% and 3.3%, respectively. At the other end were Thailand and Malaysia which were forecast to suffer 3.0% and 3.5% contractions, respectively.

All five, however, are expected to grow next year, with the Philippines seen posting a modest 1% gain, the lowest among the ASEAN-5.

Government officials, for their part, said there was little reason for the economy to stagnate this year.

Noting that the first quarter result is expected to be at least 2.1%, National Economic and Development Authority deputy director general Augusto B. Santos said "The country will have to contract for the next three quarters" for zero growth to be achieved.

"There are already signs that the US economy is recovering. That is our biggest export market," he said. "Definitely, there will be a [growth] slowdown, but a contraction is unlikely."

HSBC economist Frederic Neumann, meanwhile, said the economy could still manage to gain, by at least 1% this year and somewhere between 3-4% next year.

The IMF forecast, he said, is "too conservative."

"Multilateral institutions are very skeptical on the view that markets could not grow without the US. But we think there is a genuine growth in domestic demand in Asian economies," he told a briefing yesterday.

"I think people were taken ... with [the speed at] which the recession spread [from] the US. But they forget that there are underlying forces which lead to a fundamental disengagement of the emerging markets from the developed world."

Another economist, meanwhile, said zero growth would mean more people going hungry given the country’s relatively high population growth.

"The effect is poverty is going to increase — and hunger of course," University of the Philippines economist and former Budget Secretary Benjamin E. Diokno said.

Despite the "early signs" of economic recovery in the US, an uptick in consumption is still not expected to shore up demand for exports. "The consensus is that it is going to be a weak recovery [for exports]. We cannot expect that consumption will go back up just like that," Mr. Diokno said.

Presidential economic adviser Jose "Joey" C. Salceda also expects growth lower than the official government targets, but is not as pessimistic the IMF.

"I think growth will stay in the sub-2% level, which is technically a recession since this is slower than the population growth," he said yesterday.

A "meaningful" recovery to pre-crisis levels, he said, will have to wait three more years.

The IMF’s Mr. Botman, meanwhile, told reporters that the downward revision came with prospects of continued export demand weakness and a projected 7.5% decline in remittances (from flat growth previously).

But "despite the projected decline in remittances, private consumption growth is expected to remain relatively robust as a result of lower inflation and commodity prices, offsetting the negative contribution to growth from investment and net exports," he said.

"We see a slowdown in private consumption, but it will continue to be positive, with a 2.7% growth, and contribute to growth in 2009 and 2010," he said.

"[Also], it cannot be excluded that OFWs (overseas Filipino workers) rise to the occasion once again," he said.

He said the government’s adjustment of the deficit ceiling for the year was "appropriate" and called for a "modest" expansionary economic policy up to next year. — with a report fromGerard S. dela Peña

BSP pushes to alter its charter

By Ronnel Domingo Philippine Daily Inquirer

Posted date: April 22, 2009

MANILA, Philippines -- The Bangko Sentral ng Pilipinas is pushing for changes in its charter to allow examiners to access deposit accounts and enable the monetary authority to gather evidence against bank fraud. Juan de Zuñiga Jr., BSP assistant governor and general counsel, said proposed amendments to the New Central Bank Act of 1993 were already pending in Congress. The changes—contained in Senate Bill No. 871 sponsored by Sen. Edgardo J. Angara, and House Bill No. 5858 filed by Rep. Jesus Crispin C. Remulla—will enhance the BSP’s administration of monetary, credit and banking system, as well as strengthen its supervisory powers. Zuñiga said the BSP would need greater authority in supervising and examining banks, and get around deposit secrecy, which has become a legal obstacle in gathering evidence against perpetrators of bank fraud. “Fraudulent transactions and unsafe and unsound banking practices, coursed through deposit accounts, have been shielded from the reach of BSP examiners,” Zuñiga said. “This limitation on BSP powers is one reason why we have problems such as (that related to) the Legacy group.” The lawyer was referring to a network of at least 12 rural banks against which the BSP has filed four complaints of syndicated estafa and two cases of falsification of public and commercial documents with the Department of Justice. Named respondents in the complaints were Legacy owner Celso G. delos Angeles Jr. and several officers and employees of the company. BSP data show that banks’ total deposits in the fourth quarter of 2008 amounted to P3.2 trillion, or 14.4 percent higher than the P2.8 trillion posted in the same period of 2007. Representing about half of the funding base, savings deposits declined year-on-year by 5.4 percent to about P1.4 trillion.

BSP pushes to alter its charter

By Ronnel Domingo Philippine Daily Inquirer

Posted date: April 22, 2009

MANILA, Philippines -- The Bangko Sentral ng Pilipinas is pushing for changes in its charter to allow examiners to access deposit accounts and enable the monetary authority to gather evidence against bank fraud. Juan de Zuñiga Jr., BSP assistant governor and general counsel, said proposed amendments to the New Central Bank Act of 1993 were already pending in Congress. The changes—contained in Senate Bill No. 871 sponsored by Sen. Edgardo J. Angara, and House Bill No. 5858 filed by Rep. Jesus Crispin C. Remulla—will enhance the BSP’s administration of monetary, credit and banking system, as well as strengthen its supervisory powers. Zuñiga said the BSP would need greater authority in supervising and examining banks, and get around deposit secrecy, which has become a legal obstacle in gathering evidence against perpetrators of bank fraud. “Fraudulent transactions and unsafe and unsound banking practices, coursed through deposit accounts, have been shielded from the reach of BSP examiners,” Zuñiga said. “This limitation on BSP powers is one reason why we have problems such as (that related to) the Legacy group.” The lawyer was referring to a network of at least 12 rural banks against which the BSP has filed four complaints of syndicated estafa and two cases of falsification of public and commercial documents with the Department of Justice. Named respondents in the complaints were Legacy owner Celso G. delos Angeles Jr. and several officers and employees of the company. BSP data show that banks’ total deposits in the fourth quarter of 2008 amounted to P3.2 trillion, or 14.4 percent higher than the P2.8 trillion posted in the same period of 2007. Representing about half of the funding base, savings deposits declined year-on-year by 5.4 percent to about P1.4 trillion.

Permaplans closes pre-need biz permanently

by doris dumlao/PDI/4.22.09 MANILA, Philippines—Another pre-need company, Permanent Plans (Permaplans), has lost its dealership license from the Securities and Exchange Commission.

But Permanent Plans Tuesday said that the SEC decision to suspend its license was no longer necessary because it had decided not to sell new plans given the turbulent financial environment.

The SEC announced on Monday at the resumption of the Senate probe of the troubled pre-need industry that it had revoked the license of Prudential Plans to sell pre-need plans because of a deficiency in its trust fund.

Permaplans president Juan Miguel Vazquez said that his company had already informed the SEC of its intention to stop selling new pre-need plans.

Pre-need plans (education, pension and memorial) are contracts that provide for future services or payment of money at the time of actual need.

In a statement, Vazquez said Permaplans no longer believed in the viability of the pre-need industry as currently set up amid the economic downturn.

But Vazquez said the SEC decision to suspend Permaplan’s license came as a surprise.

He said it was unnecessary given the company’s decision not to sell new plans and to limit itself to servicing all claims. Contrary to the SEC decision, the company’s contracts allow Permaplans to change the mode of payment, he said.

Payment in kind

SEC Secretary Gerard Lukban said Permaplans’ license was suspended because the regulator did not approve of its proposal to offer alternative modes of payment to plan holders.

“They were proposing a dacion en pago (payment in kind) but their plans have to be serviced in cash. This (proposal) wasn’t approved in their registration statement,” Lukban said.

Lukban said Permaplans was in a situation different from Prudentialife, as the latter had applied for flexibility under a multi-year capital build-up program while the former had not.

Undue alarm

He said the SEC had wanted to keep the suspension of Permaplan’s license under wraps to give the company time to sort out its settlement initiatives without causing undue alarm to the public.

Permaplans has 10,800 plan holders as of end-December last year, based on company estimates.

Vazquez, who is also president of Philippine Federation of Pre-Need Plan Companies Inc., said his company was concerned about the protection of all its plan holders and was committed to promptly settle their claims.

35-percent loss

“A major factor to this decision was a 35-percent loss of our trust funds last year as a result of the ongoing global financial crisis,” Vazquez said.

He said Permanent Plans would increase its capital and trust fund with additional assets in order to settle fully all the claims of its plan holders.

“We expect to pay all our plan holders in the form of cash and other assets in the next four to six months,” he said.

Vazquez apologized to the public for the inconvenience, saying that the company sincerely believed that its offer to the plan holders was the best option to protect them.

“We are not required to put in these additional assets but we are offering to do so. We also do not want to go to court for rehabilitation because this will take time and delay the payment to plan holders,” he said.

Executive session

Lukban said the SEC would hold an executive session on Wednesday to discuss the situation of the pre-need industry and determine what other measures could be taken to help the sector.

“This is an extraordinary situation. They are feeling the impact of a global financial crisis,” Lukban said.

He noted that Prudentialife, for instance, was weighed down by paper losses given the turbulent financial markets.

“It’s unfortunate that this comes at a time that the Legacy issue is there. Unlike Legacy which unilaterally ceased operations, we are in close contact with these pre-need plan companies and are coordinating to look for ways to protect investors,” Lukban said.

Memorial plans

He said there were some pre-need products, such as memorial plans, which were still selling briskly even under tough economic times.

But Lukban said that the SEC had its rules and that companies which could not follow these rules would have to face sanctions.

The Legacy Group’s pre-need firms—Legacy Consolidated Plans Inc., Scholarship Plan Philippines Inc. and All Asia Plans Corp.—ceased operations in January ahead of any sanctions from the SEC.

The three pre-need firms have P1.3 billion in obligations to more than 50,000 plan holders.

Among the Legacy plan holders are more than 12,000 police officers and soldiers, who have paid close to P320 million.

24 firms offered relief

At the end of February, the SEC approved a basket of measures seeking to perk up the sluggish pre-need industry.

The 24 providers of pension, education and memorial plans with operating license for 2009 were given the option to avail themselves of some regulatory relief.

The relief included a leeway to build up their capital over a few years, and to infuse real estate assets and unlisted shares into the trust fund.

A trust fund is an asset account that includes stocks, real estate and bonds. It must provide a sufficient source of money at any given time to pay for current and future obligations.

The pre-need firms were given until April 15 to submit their individual business plan to the SEC. “It’s not mandatory. It’s a management prerogative if they want to avail themselves of these,” he said.

2 firms meet requirements

Lukban said only two pre-need companies decided to avail themselves of the regulatory leeway by submitting a multiyear capital build-up plan—Prudentialife and Coco Plans.

Coco Plans was able to comply with the requirements but Prudentialife’s plan to use certain assets to beef up its trust fund was not approved by the SEC.

Lukban said Prudentialife’s management had assured the SEC that its trust fund was enough to cover its obligations to about 400,000 plan holders.

Prudentialife’s trust fund is estimated at about P12 billion.

Hopefully, Lukban said other pre-need companies would stay afloat.

Case-by-case basis

Asked whether the industry was still viable, he said: “It’s on a case-by-case basis,” he said.

The 22 other pre-need companies with SEC license for 2009 are: AMA Plans, Ayala Plans, Caritas Financial Plans, CityPlans, Cocoplans, Danvil Plans (formerly Berkley International Plans), Destiny Financial Plans, Eternal Plans, First Country Plans, First Union Plans, Grayline Plans, Himlayang Pilipino Plans, Loyola Plans Consolidated, Manulife Financial Plans, Mercantile Careplans, Paz Memorial Service, Philam Plans, Provident Plans International, St. Peter Life Plan, Sun Life Financial Plans, Transnational Plans and Trusteeship

Stiffer sanctions on banks eyed

by Jun Vallecera / Reporter

b. mirror/ Monday, 20 April 2009 23:04

THE Bangko Sentral ng Pilipinas (BSP) is pursuing a more aggressive penalty schedule for erring banks and financial institutions to replace an existing schedule that merely slaps the wrists of business executives.

BSP general counsel Juan de Zuñiga Jr. said some banks and financial institutions would normally rather suffer monetary penalties than waste an opportunity to earn immeasurably more by consciously breaking antiquated rules and guidelines that were imposed when the financial world was much simpler.

He told reporters the existing schedule of monetary sanctions for each violation is so puny that banks are more than willing to accept penalties or pay for them, rather than toe the line and lose untold billions.

In view of this, Zuñiga said the BSP is proposing a new schedule of fines to be determined by the policymaking Monetary Board of the Bangko Sentral to replace the hard-coded P30,000-per-day-per-violation that the banks can quickly pay for their infractions.

The proposed stiffer penalties form part of a much broader effort to empower the BSP to undertake quick-resolution schemes for ailing banks by compelling shareholders to infuse more capital, merge with stronger banks or undertake a quasi-reorganization and come out from them much stronger than before.

Zuñiga said banks are more than “happy” to receive what amounts to a mere slap in the wrist at the moment for deliberate breach of banking rules, “because the monetary penalty is just P30,000 per day per violation.”

Banks that engage in unauthorized activities, such as derivatives trading without the necessary license, earn hundreds of millions of pesos and pay only a fraction as penalty, Zuniga said.

“The proposal leaves the determination of the penalty to the Monetary Board plus possible forfeiture of profits,” he said.

The puny schedule of monetary penalties once forced former BSP governor Rafael Buenaventura to resort to a name-and-shame campaign against big-name banks who shamelessly exploited the country’s weak external sector and its sad political foibles to their advantage, forcing Buenaventura to take a defensive stance on the peso and make it more difficult for him to stabilize its value.

Buenaventura broke tradition and deliberately named the banks that took positions at the local currencies market and made the peso weaker by the minute.

Zuñiga said a higher penalty schedule for each infraction imposed in tandem with moral suasion could stop the deliberate violation of central bank rules.

Bank regulators still don’t know what to do with failed bank in Pangasinan

by jun vallecera/b. mirror/4.15.2009 FRUSTRATION boiled over into despair among prelates in the Diocese of Lingayen whose tens of millions of pesos in the People’s Rural Bank of Binmaley has put to doubt the future education of thousands of students set to enroll in its several institutions of learning in Pangasinan province this June. They have been asking regulators why it was that the Diocese of Legazpi was paid back its undisclosed millions when the Bicol-based G7 Bank went under, while allowing thousands of Ilocano depositors to fend for themselves as the rural bank tanked a year ago this Saturday. On Tuesday the diocese, as a member of the People’s Bank of Binmaley Uninsured Depositors Association or PBBUDA, saw a glimmer of hope when President Arroyo wrote back to inform them that Malacañang had forwarded their plaintive letter to both the Philippine Deposit Insurance Corp. (PDIC) and the Bangko Sentral ng Pilipinas (BSP). But according to PBBUDA president Armi Bangsal-Lorica, the group pleaded with both institutions before to have their hard-earned money released or untangled from the mess allegedly created by self-styled financier Fidel Lo Cu, who came to the bank as a white knight. She said in a telephone interview that depositors like herself continue to believe that Malacañang has persuasive powers over BSP Governor Amando Tetangco Jr. and PDIC president and former Land Bank executive Jose “Jopot” Nograles that they will use the full force of their respective offices to come to the aid not just of the Diocese of Lingayen but also to small depositors like herself. The PBBUDA did not just ask regulators for relief but presented a proposal designed not just to help themselves as aggrieved depositors, but to make things easier for the PDIC and the BSP as well. All of them, the Lingayen prelates included, were willing to convert their deposits into equity in a resurrected People’s Bank, but have thus far heard only grunts from the authorities, according to Lorica, whose grandfather, Julio Javier, founded the original bank taken over later by Cu. Deputy BSP Governor Nestor Espenilla Jr. said in a text message that taking over a bank as investor is not a walk in the park.