MarketWatch: Indonesia and Philippines come of age –Twin Economies

Confluence of positive factors laying groundwork for strong growth

During the Asian financial crisis of the late 1990s, Indonesia and the Philippines were bailed out by the International Monetary Fund.

 

This year, they showed the world how far they've come from those dark days by pledging a billion dollars each to replenish the IMF's kitty.

 

With rapidly growing economies and rising incomes, the two countries are home to a large and young labor force, an expanding middle class and have stable, elected governments with policies inspiring investor confidence. They also have sturdy banks and enough foreign exchange reserves — more than a year's imports in the Philippines's case — to rebuff a misguided run on their currencies.See: Banks in Indonesia and the Philippines flourish.

 

In an economically vibrant Southeast Asia, Indonesia and the Philippines stand out as the region's "New Tigers" with the potential to leave a bigger imprint on global growth for years to come while the developed world struggles with excess debt and traditional regional heavyweights China and India lose momentum.

 

"You have a real contrast, which is why these markets have been doing well," said Andrew Swan, head of Asian fundamental equities at BlackRock. "We've had 3 to 5 years of great growth. But because there is so much room for growth, this can go on for so many more years."

 

Each has also received credit rating upgrades since 2011, with Indonesia now rated investment grade by Moody's and Fitch. Their stock markets are among the world's best performing since the end of 2008 — Indonesian shares tripled during the period from beaten-down valuations, and are closely followed by Philippine equities.See: Global investors key into Indonesia and the Philippines.

 

Unlike the West, government finances are shipshape. Jakarta's gross government debt was 25% of GDP in 2011, and Manila's 41%, according to IMF data, leaving both enough room to boost their economies in case of need.

 

The Philippines has a current account surplus of 2.74% of its GDP, thanks to remittances from its vast diaspora. Indonesia swung to a deficit in the first half of this year as lower commodity prices hurt exports, and as imports of capital goods and machinery increased.

 

Agriculture employs at least a third of the workforce in both countries, and domestic consumption is an important driver of their economies. That protects them from external shocks to an extent — both escaped a recession in 2009, when the Thai, Malaysian and Singaporean economies contracted. But both also need tens of billions of dollars in foreign direct investment, especially to create infrastructure and pursue industrialization.

 

Stocks are more expensive than in north Asia, and the two nations are by no means immune to global shocks. But barring a post-Lehman Brothers'-like blowout crisis — in or outside the euro zone — potential reward is seen outweighing risk on balance.

 

(MarketWatch)

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Philippines double Flights –Saudi, Air France-KLM cites Philippine-EU prospects

FRANCO-DUTCH airline Air France-KLM sees traffic between the Philippines and the European Union (EU) picking up in the long run from currently limited volumes, an official said in an interview after a briefing last Friday.

 

Asked on the plan of Philippine Airlines (PAL) to revive flights to Europe next year after an expected lifting of the current ban in that bloc on local carriers, Jurriaan Stelder, the foreign airline's new general manager for South China Sea, said the move may temporarily divide market share but that traffic should pick up eventually.

 

KLM Royal Dutch Airlines is currently the only carrier offering flights to Europe under its Manila-Taipei-Amsterdam route.

 

"There could be a temporary effect, but in the end, the demand will exceed the capacity again," Mr. Stelder said.

 

"There might be a temporary drop in traffic, because indeed, the same passenger traffic between the Philippines and Europe will be there and you will have to divide it between the two; therefore it will affect us," he explained.

 

PAL President Ramon S. Ang told reporters in July that the company is looking to revive flights to Europe next year, hoping that current government efforts will succeed in removing the "significant safety concern" cited by the International Civil Aviation Organization (ICAO) in December 2009, which in turn prompted EU in March 2010 to ban Philippine carriers from flying to Europe.

 

William K. Hotchkiss III, director-general of the Civil Aviation Authority of the Philippines, said last June that he hoped an ICAO audit set for late next month will yield favorable results. He said ICAO's concerns, such as "strengthening the organization and the training of qualified inspectors," were "being addressed."

 

Mr. Ang had said three Boeing 777-300ER aircraft will be delivered next year in preparation for more long-haul flights, including possibly to Europe.

 

"We would welcome Philippine Airlines to fly to Europe because it will help develop the market between the Philippines and Europe," Mr. Stelder said.

 

"If you look at the market -- flights between Europe and Manila -- and if you compare that to other similar countries, like Indonesia and Vietnam, it has much less traffic," he added. "With more options to fly, the market will grow."

 

Cebu Pacific has said it is also looking at flights to Europe after it starts long-haul operations to the Middle East next year.

 

"I am confident that we will be able to hold on to our passenger numbers for sure if we continue to develop the aviation sector between the Philippines and Europe," Mr. Stelder said, noting the airline's load factor along the Manila-Taipei-Amsterdam route is "around 90%."

 

Civil Aeronautics Board data show KLM Royal Dutch Airlines flew 84,897 passengers through the country in the first half, down 34.22% from the previous year after the carrier stopped direct flights between Manila and Amsterdam amid calls to abolish the 3.5% common carriers tax on foreign airlines. While the House of Representatives approved the bill scrapping this tax last May, the measure remains at the committee level in the Senate

 

Saudi Arabia expands and doubled flight frequencies

 

An increasing demand for air travel between the Philippines and the Kingdom of Saudi Arabia prompted the two states to renegotiate and expand the number of flights between their respective airports.

 

 As a result, KSA and the Philippines agreed – during air talks last Monday and Tuesday – to increase the number of flight frequencies to 21 per week from 10, Carmelo Arcilla, Civil Aeronautics Board executive director told reporters Wednesday.

 

 Also agreed was to have an unlimited number of flights between Dammam, the Kingdom's eastern province, and Clark International Airport in Pampanga, Arcilla added.

 

 "The parties signed a new agreement increasing the allowed flight frequency for the airline of each country from the current 10 flights per week to 21, on the route Philippines to Jeddah/Riyadh and unlimited between Saudi Arabia and Clark and also between the Philippines and Damman," he said.

 

Transportation Undersecretary Jose Perpetuo Lotilla led the Philippine panel in the talk with their Saudi counterparts, with Arcilla sitting as vice chair.

 

Other members of the panel were representatives from the Departments of Foreign Affairs, Trade and Industry, Tourism, and Labor and Employment.

 

Business World Online, GMA News

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