Philippine peso is second best performing currency in Asia
Cagayan de Oro City (11 September) -- "The single turning point that changed people's mind about the Philippines was that she was able to pull off the expanded tax and at such a difficult time."
This was how Fernando Zobel de Ayala, brother of Ayala's Chief Executive Officer and head of its Ayala Land Unit, described Pres. Gloria Macapagal Arroyo's determination of imposing new tax measures aimed at raising money and improving the country's fiscal house in order.
The tax take in 2006 was 22% higher than in 2005, lifting government revenue to 16.3% of the gross domestic product (GDP).
To further reduce the deficit, the President started privatizing the nation's debt-burdened power industry in 2005. In addition, she encouraged foreign investment in the mining sector which anti-mining activists and the Catholic Church had blocked for years.
Since then, institutional investors have been returning to the country's bond and stock markets. Likewise, since the new tax took effect in January 2006, the Philippines Stock Exchange Index (PSE) has climbed 58%, outstripping most Asian markets over the same period.
Net stock investment by foreign investors hit a record $870.8 million in June, according to the PSE, up from just $12.9 million in January 2004.
Also, the Philippine peso has risen 13.6% against the US dollar since the tax took effect, partly due to the inflows of foreign money, making it the second best performing currency in Asia this year, after the Indian rupee.
Rather than borrowing overseas, local companies are once again turning to the stock market to raise funds. There were numerous initial public offerings (IPO) in the PSE in 2005 and 2006, following years in which offerings were rare.
Particularly, eight (8) IPOs were aimed specifically at foreign investors, raising $1.56 billion, last year, while five (5) IPOs have hit the market, so far, this year. With business confidence on the mend, inflation and interest rates have declined.
Local and foreign businesses have begun investing again and multi-national companies are adding plants and shipyards. In May, Texas Instruments (TI) pledged $1 billion to build a new chip testing and assembly plant at the old US Air force Base at Clark Field, 62 miles North of Manila to complement a plant it already has here.
Kevin Ritchie, TI's senior vice president for technology and manufacturing, said at the time that the country's skilled work force encouraged the company to raise its investment.
Meanwhile, Philippine officials said the company was also looking for reliable power and water, which are more available now that power privatization is underway. (PIA 10) [top]