Indicators counter negative market views

Economic indicators belie the claims of a downturn in business confidence as the twin impact of President Duterte’s brash remarks on US President Barack Obama prior to last week’s Asean summit in Laos and his issuance of Proclamation 55 imposing a state of national emergency in the aftermath of the Davao City bombing that killed 14 people.

Stock-market analysts had attributed the recent fall in the stock market index to the growing apprehension among world leaders on Mr. Duterte’s bloody war on drugs and its rising number of casualties, as well as his recent proclamation to tap the military in his anti-drugs campaign.

Foreign funds pulled $58 million from local equities last Wednesday, the most in almost a year, and sold a net $333 million in an 11-day run of outflows. The index is down 2.3 percent this quarter, the only decliner among major Asian markets.

Positive response

But the Department of Finance (DOF) said the huge demand for the Bureau of Treasury’s (BTR) auction of P65-billion Retail Treasury Bonds (RTBs) recently was a manifestation of the confidence of investors despite security concerns raised by the bombing in Davao City and the subsequent declaration of a state of national emergency by Mr. Duterte.
The proceeds from the auction of the RTBs will be used to increase infrastructure spending, which is part of the 10-point economic agenda of the Duterte administration.

“The positive response of the market to the Duterte administration’s inaugural offering of RTBs—as illustrated by what the BTr itself has described as ‘considerable demand’ for these bonds on Day One of the auction—has demonstrated that investors remain bullish on the Philippines and were not affected by safety concerns arising from the recent bombing in Davao City,” DOF spokesman Paola Alvarez said.

National Treasurer Roberto Tan said the BTR raised P65 billion during the auction due to strong demand.

“Originally announced at P30 billion, the committee increased the amount on offer to P65 billion as bid rates aligned with secondary market levels, and propped up by considerable demand, which was more than four times the original offer amount,” Tan said in a report to Finance Secretary Carlos Dominguez III after the first day of the auction.

The tenders for these bonds, which have a 10-year tenor at a coupon rate of 3.5 percent, totaled P123.735 billion.

The BTR intends to increase the offer amount depending on orders from the public, and will conduct its information drive on the features and advantages of investing in RTBs in key cities across the country.

“The government wants the ordinary retail investor to have easier access to safe government-debt securities. This issuance is part of the government’s initiative of making government securities available to retail investors and promoting investment-consciousness among Filipinos,” Tan said.

Expressions of concern

In a statement on Thursday, the American Chamber of Commerce of the Philippines Inc. (AmCham Philippines) said “language from Philippine leaders” and “their international policy” have created concerns among investors.

The business group also mentioned the investors’ concern on upholding the rule of law.

“The increased number of killings during the heightened anti-drug campaign is harming the country’s image, as portrayed by the international media, and some investors are now asking whether this campaign reduces the rule of law,” the group added.

“Traditionally excellent bilateral relations between the United States and the Philippines have recently been strained by language from Philippine leaders. Although statements of regrets soon followed, such words and their international policy also create investor concern,” according to the chamber.

Moody’s take

Even the credit watchdog Moody’s Investors Service finds the declaration of national emergency having limited immediate impact on the country’s credit rating of one notch above investment grade.

“The near-term sovereign credit impact of these developments is limited as we do not expect them to change economic and fiscal policies or outcomes,” Moody’s said.

Moody’s said the economic growth of 6.9 percent a year in the first half was a stronger performance than similarly rated peers.

“We do not expect recent events to meaningfully derail this economic momentum,” it said, citing that while Mindanao has about 24 percent of the Philippines population, it only accounted for 14.8 percent of gross domestic product in 2015 and contributed 0.8-percentage point to the country’s real GDP growth of 5.9 percent in the same year.

“At this stage, as long as the interventions under the state of lawlessness do not affect business nationwide, we assume that investment decisions will not be materially affected,” Moody’s said.

More jobs

The National Economic and Development Authority (Neda) also reported an improvement in the unemployment rate to 5.4 percent in July from 6.5 percent last year and underemployment rate to 17.3 percent from 21 percent last year, which are both the lowest levels since 2005.

“Our growing economy, which is largely driven by output expansion in the services and industry sectors, has created more and better jobs,” said Socioeconomic Planning Secretary Ernesto M. Pernia.

“The unemployment rate in July 2016, the lowest recorded for all July rounds in the past decade, increases the likelihood of achieving the Philippine Development Plan target of 6.5 to 6.7 percent for 2016,” he added.

Youth unemployment rate dropped to 13.5 percent in July 2016 from 16.3 percent in the previous year, a record low since 2006.

“But while this is good news, this still means that there are 4.3 million young Filipinos who are underutilized because their skills are not being enhanced by education, training or employment. Government needs to strengthen its JobStart program, which provides assistance to young Filipinos in finding decent jobs” Pernia added.

Output of local factories is also rising, the government said.

Production of transport equipment, construction-related goods, and food pushed the manufacturing sector to another strong growth in July 2016, Pernia said.

Manufacturing growth

“The upbeat private consumption and investments continued to drive manufacturing growth. This growth shows that our economy has remained resilient to the continuing weakness in global demand for export-oriented manufactured goods caused by uncertainties such as low commodity prices and the EU debt crisis,” he added.

“Government interventions to support the performance of the manufacturing sector must be continued to ensure that the sector sustains its upward trajectory. Public and private investments in research and development must be encouraged to enhance the competitiveness of domestic manufacturers in the global market,” said Pernia. LUIS LEONCIO