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Philippine Growth Likely Passed 5.2%, Aquino Says

Philippine President Benigno Aquino
Benigno Aquino, the Philippines' president. Photographer: Julian Abram Wainwright/Bloomberg

The Philippine economy likely grew at least 5.2 percent in the first quarter, the fastest pace in more than a year, according to the nation’s president.

“First quarter excluding agriculture, I was told already” indicates a 5.2 percent expansion, President Benigno Aquino said in an interview at Malacanang Palace in Manila May 4. “So far agricultural figures that have been sent my way, the prognosis is it has expanded also -- so it will not serve to bring down the 5.2 but it will probably enhance it.” The official gross domestic product report is scheduled for May 31.

The acceleration would bring the Southeast Asian nation nearer to Aquino’s 7 percent target for sustained growth, and underscores forecasts for the central bank to be done cutting interest rates. Aquino, 52, plans to strengthen the economy by stepping up investment, which is currently the second-lowest in Asia relative to GDP, according to Credit Suisse Group AG.

“Manila has been the place to be in early 2012,” Edward Teather, a senior economist in Singapore at UBS AG, wrote in an April 26 research note. “The improved growth data supports our call that the BSP is done easing policy rates,” he wrote, referring to the Bangko Sentral ng Pilipinas. UBS analysts last month boosted their projection for the increase in the country’s GDP this year to 4.5 percent, from 3.3 percent previously.

Indonesia, Southeast Asia’s largest economy, expanded 6.3 percent in the first quarter from a year earlier, the country’s statistics bureau said today, compared with a 6.49 percent pace reported earlier for the previous three months.

Stocks Outperform

The Philippine Stock Exchange Composite Index has climbed almost 20 percent this year, outpacing the benchmarks of neighbors including Malaysia, which is up nearly 4 percent, and Indonesia, which has advanced 8 percent. With gains in exports in January and February, optimism on the outlook for growth has helped stoke the Philippine peso, which closed last week at 42.32 per dollar, about 1 percent from its strongest since 2008.

The main stock index fell 1.5 percent to 5,216.35 and the peso declined 0.2 percent to 42.39 per dollar as of the midday trading break today. The benchmark 10-year bond yield rose eight basis points, or 0.08 percentage point, to 5.917 percent, a five-week high, according to midday fixing prices at Philippine Dealing & Exchange Corp.

Philippine businesses need to prepare for further appreciation in the exchange rate, Aquino said, reiterating a “comfort” zone for the currency of 41 to 45 per dollar. He said the nation needs to build on success in setting up call centers by moving up the “value chain,” to so-called backroom services, which typically include accounting and legal support. Insurance applications and medical transcriptions are other areas, he said.

“It has been in the range we are comfortable with, which is 41 to 45,” the president said of the exchange rate. “There are days, though, when one has to look forward to the day when it breaches that. We are hoping we still have time to be able to address that situation before it does.”

Market Decides

Aquino, who began his six-year term in June 2010, declined to specify when the peso might strengthen past 41. He said that the policy is to “let the market forces decide.”

The government plans to award eight to 10 infrastructure projects this year, Aquino said in the interview in the palace’s Ramos Room, named after Fidel Ramos, who as armed forces vice chief of staff in 1986 withdrew support from dictator Ferdinand Marcos to back Aquino’s mother, Corazon. Ramos succeeded Corazon Aquino as president, serving 1992-1998.

A planned infrastructure initiative in excess of $16 billion has been delayed in part by efforts to get better terms on the projects, Aquino said. An improving sovereign credit rating means borrowing costs are dropping, giving a better position from which to negotiate terms and conditions.

The Philippines’s foreign-currency sovereign rating has been raised to two steps below investment grade by Moody’s Investors Service and Standard & Poor’s, and to one level below by Fitch Ratings, since Aquino took office. Neighbor Indonesia won the status from Moody’s in January and from Fitch in December, with S&P keeping it one step below.

Credit Rating

“If it comes, we expect it to happen within our term obviously,” Aquino said of investment-grade status. Aquino cannot by law run again after his term is up in 2016. “Let the market speak for us,” he said, citing the country winning cheaper borrowing costs than some higher-rated nations.

The Philippines sold 10-year peso-denominated securities at an average yield of 5.16 percent on March 13, compared with 7.64 percent in an auction in June 2010, the month Aquino took office, according to data compiled by Bloomberg.

Ratings companies want to see a consistent reduction in the nation’s fiscal deficit, Aquino said. The government is focused on making potential tax cheaters “scared” of being caught out, after tax revenue as a share of GDP tumbled since the Ramos years. International Monetary Fund data show the ratio slumped to 17 percent in 2011, from 21 percent in 1997, Ramos’s last full year in office. He reiterated his stance that new taxes would be considered only after boosting collection rates.

‘Sin Tax’

Aquino predicted that proposed changes to liquor and tobacco taxes will be approved by lawmakers this year. The government has estimated the so-called sin-tax levies could raise 60 billion pesos ($1.4 billion) a year. “I’ll be surprised if the tax measure doesn’t pass this Congress,” he said.

Another measure Aquino said is coming “soon” is a revamped mining-extraction policy that may help revive a stalled Xstrata Plc gold-copper project valued at $5.9 billion. Xstrata’s plans were stymied by a ban by local authorities on open-pit mining.

The guidelines will cordon off 78 areas for eco-tourism, and the state’s share of revenue from resource contracts will be raised from the current 2 percent ratio, Aquino said. Asked whether the new national policy would allow the Xstrata project to proceed, he said “I think so.”

He also said he’s open to the idea of joint development of oil and gas in waters that are disputed with China, “so long as our sovereignty is respected.”

The president highlighted plans by two shipbuilders and a steelmaker to invest in the Philippines, with operations so large that a combined 700 hectares (1,730 acres) have been set aside. An electronics manufacturer plans to invest 20 billion pesos more in operations that will add 5,000 jobs, Aquino said. He declined to name any of the companies.

“The dream was manufacturing -- how do you get manufacturing back in this country,” said Aquino, whose father was a senator assassinated in 1983 and grandfather a government official during the 1940s Japanese occupation. “The dream is happening now.”

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