the Philippines unveil 72 billion-peso ($1.7 billion) Stimulus Package

Asian policy makers are bolstering efforts to protect their economies from weakening global growth, as Indonesia unexpectedly cut interest rates and the Philippines unveiled a stimulus plan.

Bank Indonesia lowered its reference rate by a quarter of a percentage point to 6.5 percent yesterday, defying the predictions of all 15 economists surveyed by Bloomberg News. Philippine President Benigno Aquino announced a 72 billion-peso ($1.7 billion) spending package today as his government cut growth estimates, while Singapore's central bank is forecast by economists to say this week that it will slow or end its currency appreciation.

"We want to be ahead of the curve in anticipating the impact of the global economy," Perry Warjiyo, Bank Indonesia's director of economic research, said in a Bloomberg Television interview today. "It will impact through the region, and we will see there is a decelerating trend of inflation and a downward revision to economic growth. Sooner or later, central banks need to rebalance the preference of their monetary policy response."

Emerging-market nations have turned from fighting inflation to supporting growth as a struggling U.S. recovery and deepening European crisis threaten the global economy. Brazil, Turkey, Russia and Pakistan have cut borrowing costs in 2011, while Asian countries from the Philippines to South Korea have refrained from further rate increases in recent weeks.

Taking Insurance

"It's primarily because of the weaker global economic backdrop that they are taking out some insurance against the global economic headwinds," said Leif Eskesen, a Singapore- based economist at HSBC Holdings Plc.

The MSCI Asia Pacific Index of stocks has slumped 15.4 percent this year as investors pare bets on emerging markets. Some Asian currencies have tumbled against the dollar in the same period, led by a slide of about 9 percent in the Indian rupee, according to data compiled by Bloomberg.

Indonesia's rupiah has weakened 3.5 percent in the past month. Bank Indonesia said yesterday it has sufficient foreign- exchange reserves to support the currency.

"We are confident we can stabilize the market," Warjiyo said in the interview today.

Asian nations from Malaysia to the Philippines are shifting their focus to shielding growth even as elevated inflation prompts policy makers in countries such as Vietnam and India to persist with monetary tightening.

India's industrial output rose 4.1 percent in August from a year earlier, less than the median 4.7 percent estimate in a Bloomberg News survey, a report showed today.

Philippine Spending will boost

Aquino said today the additional spending he authorized for the stimulus package includes 5.5 billion pesos for infrastructure. The Philippine government cut its growth forecasts for the Southeast Asian nation for 2011 and 2012.

"If the fiscal stimulus does its job, this should give the necessary push to keep our economic growth in a solid upward trajectory," central bank Governor Amando Tetangco said today. The Philippines has sufficient liquidity, a stable exchange rate and a "manageable" inflation outlook along with "fiscal space" to help support economic growth, he said in an e-mail reply to questions.

Bangko Sentral ng Pilipinas will consider global developments, including Indonesia's rate cut and the slump in Philippine exports in next week's policy meeting, Tetangco said.

"In most jurisdictions, inflation seems to have become less of a pressing concern," he said. "The weakness in advanced economies is seen to weigh more on emerging economies than previously anticipated."

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The Philippines Offers the Best Value Investing

Philippines Mining Boom

The Philippines will attract $18 billion in mining investments over the next five years as global commodity prices soar.

Mining output had already spiked 31 percent year on year in the six months to June to P63.92 billion ($1.48 billion), according to Environment and Natural Resources Secretary Ramon Paje.

A new mining law allowed foreign investments in 2005, and high metals prices were drawing even more investor interest.

“In terms of investments, the aggregate amount of $3.835 billion has been invested in the sector over the last six years. Total investments are projected to reach $18 billion by 2016,” he told a mining conference in September 2011.

The Philippines has an untouched mineral wealth estimated by Heffernan Capital Management at over $1 trillion, valuable metals like copper, gold and chromate deposits are among the biggest in the world.

Mining has had a checkered history in The Philippines, environmental issues, foreign investment restrictions, and accidents have slowed the industry for decades.

Ramon Paje said with just 30 major mines in operation, the Philippines was still not producing enough to take advantage of climbing gold, nickel, copper, iron and chromite prices.

Seven major projects should boost both mining investment and output over the next few years.

Xstrata PLC, LON:XTA $5.9 billion Tampakan project in the southern Philippines, one of the largest undeveloped copper-gold deposits in the Western Pacific, should start producing in 2016.

Tampakan project is estimated to yield an average of 375,000 tonnes per annum of copper and 360,000 ounces per annum of gold in concentrate over a 17 year life of mine.

Japan’s Sumitomo Metals, Australia’s Oceana Gold, and Britain’s FCF Minerals also plan to go ahead with separate nickel, copper-gold, and gold-molybdenum projects, according to Paje.

The three projects have a combined investment value of more than $1.8 billion.

Chamber of Mines of the Philippines president Philip Romualdez also told the conference President Benigno Aquino’s recent state visit to China drew $2 billion in mining commitments.

Economy starts bubbling

The Asian Development Bank (ADB) has slightly lowered its 2011 growth forecast for the Philippine economy amidst subdued government spending and exports, but increased public and private investment should see a pickup in economic activity next year.

In its latest Asian Development Outlook 2011 (ADO), ADB trimmed its gross domestic product (GDP) forecast for the year to 4.7%, from 5.0% seen in April.

Growth for 2012 is projected to pick up to 5.1%, with brighter prospects seen for investments, which since 2010 have been a major contributor to GDP growth.

“Job creation remains lackluster, with the youth unemployment rate more than double the overall jobless rate,” said ADB Chief Economist Changyong Rhee.

“Further increases in investment along with policy and governance reforms are needed to boost jobs.”

Government spending fell back in the first half of 2011 after high election and typhoon-linked outlays in 2010 with government agencies taking a more cautious stance amidst an anti-corruption drive.

However, private investment grew strongly, while private domestic consumption also increased, supported by a firmer labor market and remittances from overseas workers.

Merchandise export growth, in contrast, was weaker than expected. Electronics, which make up about half the economy’s exports, are still affected by insipid global demand and supply chain disruptions linked to the earthquake in Japan.

Inflation averaged 4.8% over the first eight months, driven by higher food and oil prices. In response, the central bank raised policy interest rates and banks’ reserve requirements twice. Net portfolio investments in the first seven months remained high, helping to push stock prices to record highs in August, but foreign direct investment remains subdued with delays in bids for planned infrastructure projects.

For 2012, increased investment supported by upgrades in sovereign credit ratings and resilient consumer spending will help GDP growth to pick up. Inflation forecasts are retained at 4.9% for 2011 and 4.3% in 2012, assuming that global oil and food prices moderate as expected.

“The Philippine Development Plan 2011-2016 focuses on improvements in the business environment to raise investment and employment with higher outlays on infrastructure supported by public-private partnerships,” said Neeraj Jain, Country Director for ADB’s Philippines Country Office.

‘Some of the public-private partnership infrastructure projects that have been planned must get under way to achieve the growth we forecast for 2012.”

Undervalued Real Estate in the Philippines

Foreign investors looking to invest in real estate-related businesses have ranked Manila as their last choice among various key cities in the Asia-Pacific.

According to the Emerging Trends in Real Estate Asia Pacific 2011 survey conducted by the Urban Land Institute (ULI), global real estate investors gave Manila a score of 4.56 points out of a possible 9, placing the city a few points below “fair” and somewhere within the realms of “abysmal.”

Topping the survey was Singapore with a score of 5.96 points, followed by Shanghai with 5.87, Mumbai with 5.79, and Hong Kong with 5.70.

In an interview with the Inquirer, ULI global trustee and South Asia chairman Simon Treacy said the Philippines, in general, was suffering from a negative image, prompting investors in publicly listed real estate firms to bypass the country when deciding on where to allocate their funds.

“Manila is at the bottom of the pack because the Philippines hasn’t gone to the next level. The country’s image hasn’t really improved. Even with the new administration, there’s still a negative perception of the country,” Treacy said.

“The Philippines rarely ranks when it comes to investment allocations. Since the Philippines doesn’t get a lot of airplay, its real estate prospects become undervalued. Marketing is very important, on a national level, because not a lot of real estate investors look to the Philippines when deciding where to put their capital,.”

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Net Foreign Direct Investment Inflows surge 142% in March 2011 - Banco Central

The Banco Central Sa Pilipinas / Bangko Sentral ng Pilipinas (BSP) reported  June 9, 2011 that net foreign direct investment (FDI) inflows surged 142 percent in March as equity infusion more than doubled while withdrawals declined.

BSP Governor Amando Tetangco Jr. said that net FDI inflows amounted to $167 million Dollar in March or $98 million lower than the $69 million inflows booked in the same month last year.

"All FDI components yielded positive balances during the month," Tetangco stressed.

Data showed that equity placements jumped 113 percent to $64 million Dollar in March from $30 million in the same month last year while withdrawals slowed down by 47 percent to $18 million from $34 million.

The net inflow of other capital account consisting largely of intercompany borrowing between foreign direct investors and their subsidiaries or affiliates in the Philippines jumped 146.2 percent to $96 million in March from $39 million in the same period last year while reinvested earnings fell 26.5 percent to $25 million from $34 million.

In all, Tetangco said net FDI inflows retreated by 16.6 percent to $471 million in the first quarter of the year from $565 million in the same period last year due to the tensions in Middle East and North African (MENA) states, the debt crisis in Europe, and the disasters in Japan.

"Investors remained cautious on account of the uncertainties brought about by the ongoing sovereign debt problems in Europe, the political unrest in the MENA region as well as the disasters that struck Japan," the BSP chief stressed.

Equity placements retreated by 7.6 percent to $121 million from January to March compared to $131 million in the same period last year while withdrawals plunged 53.5 percent to $40 million from $86 million.

Data showed that reinvested earnings plummeted 38.3 percent to $113 million from $183 million while other capital fell 17.8 percent to $277 million from $337 million.

FDI inflows retreated by 12.7 percent to $1.71 billion last year from $1.96 billion in 2009 as equity placements plunged 42.5 percent to $1.15 billion while equity withdrawals increased by 10.8 percent to $307 million.

The drop was attributed to the decline in equity capital investments in new and existing projects as investor sentiment was generally marked by cautiousness and uncertainties surrounding the sovereign debt crisis in some parts of Europe, geopolitical tensions in Korea, asset price bubble and overheating concerns in fast growing emerging markets.

Likewise, the BSP explained that large-scale investments arising from the privatization of a local power corporation and the acquisition of shares of a local beverage manufacturing firm were recorded in 2009.

These included the investment made by China's largest electricity provider State Grid Corp. and Monte Oro Grid Resources Corp. in state-owned National Transmission Corp. (Transco) that bagged a $3.95 billion concession contract as well as the decision of Japanese brewer Kirin Holdings to acquire a stake in Manila-based San Miguel Brewery of diversified conglomerate San Miguel Corp. worth ₱ 65.8 billion.

Monetary authorities are confident that FDIs would continue to pour into the Philippines to fund projects under the Aquino administration's public private partnership (PPP) scheme.

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