An overflow crowd greeted the bullish message of leading representatives of the Philippine private sector including the economy, capital markets, mining, infrastructure, real estate, human resources and outsourcing with enthusiasm on January 26, 2012, in a forum hosted by the Philippine-American Chamber of Commerce and the Philippine Consulate General and sponsored by EisnerAmper, a top international accounting firm.

“The Philippine economy is growing at a high rate and will continue to progress,” said Dr. Bernie Villegas, one of the country’s most respected economists, as he marshaled fact after fact showing the economy’s progress.

Sid Consunji, president of DMCI Holdings, spoke about the opportunities for foreign investors in infrastructure projects, real estate and government-sponsored public private partnership projects such as airports, roads and bridges.

Bien Araw, Senior Vice President of Benguet Mining, told the audience, which included many private equity fund and bank representatives, that mining is open to 100 percent foreign ownership and the Philippines is one of the most mineralized countries in the world, rich in gold, copper and nickel.

Gigi Zulueta, Asia Pacific Director of personnel firm ZMG War Howell, described how the Philippines has captured the number one spot in call centers and is making inroads in other areas such as animation, legal documentation, editing, accounting and other knowledge-based and higher value outsourcing sectors.

“People were encouraged and engaged. They stated till the end which is rare for a New York audience,” said PhilAm Chamber President Butch Meily.

Others who spoke included Consul General Mario de Leon and the Chamber’s past-President and long-time Board member, John J.P. Howley. Mr. Howley commented, “The diversity of the Philippine economy and the very sound government fiscal policies have created the foundation for sustained growth. It is a very exciting time for US-Philippine business relations.”

Founded in 1920, the Philippine American Chamber of Commerce is one of the oldest bilateral business organizations in the United States. It has played a key role in promoting Philippine-U.S. business ties over its more than 90-year history. For more information about the Chamber, please go to www.philamchamber.org.

President Obama extended the invitation to President Aquino during the Association of Southeast Asian Nations (ASEAN) Summit in Indonesia last November. The U.S. Ambassador to Manila recently confirmed that the invitation has been accepted and plans are being made for the two Presidents to meet in May or June.

No agenda has been announced, but the timing suggests that disputes between the Philippines and China over the South China Sea (which the Philippines calls the West Philippine Sea) likely will be a topic of discussion. The presidential meeting will be preceded by a “strategic dialogue” between the Secretaries of Defense and Foreign Affairs of both nations in the U.S. Capitol. Undersecretaries and Assistant Secretaries of the US and Philippine Defense and Foreign Affairs departments will also be in attendance.

It is also noteworthy that a team of U.S. legislators known for their interest in foreign and military affairs are visiting Manila this week to meet with members of the legislative and executive branches of the Philippine government. Senators John McCain, Joseph Lieberman, and Sheldon Whitehouse will arrive in Manila on Monday.

Thomas declined to elaborate on the meeting’s agenda. Asked if the West Philippine Sea would be on the agenda, he feigned ignorance. As reported in the Philippine Daily Inquirer, when a reporter asked if the US will help maintain peace in the WPS, “Thomas said, ‘What’s the WPS?’ Told that it’s the West Philippine Sea, Thomas said ‘Oh, wow!’ before bursting into laughter.”

The US has publicly stated that it takes no sides in the disputes between China and its neighbors including the Philippines, but it has supported the Philippines’ position that the disputes should be resolved through multilateral negotiations, as opposed to the bi-lateral negotiations China has proposed.

John Howley

The rationalization of fiscal incentives is among the top priorities of leading business groups including The Philippine Chamber of Commerce and Industry (PCCI), the country’s most influential and biggest business association of more than 35,000 enterprises. It is also supported by the Foreign Chambers of Commerce and other major industry and business associations.

The proposed Investment and Incentives Code of the Philippines grants most tax breaks to export-oriented enterprises, defined as enterprises that export at least 70% of their production. It also grants incentives to strategic domestic enterprises identified under the annual Investments Priorities Plan and those located in Mindanao and the 30 poorest provinces in the country.

The Department of Finance wants to assign all incentive-granting functions solely to the Board of Investments, which is under the Department of Trade and Industry. At present, incentives may be granted by a host of other bodies including the Philippine Economic Zone Authority, the Bases Conversion Development Authority, and other economic zones.

The Department of Finance wants a uniform policy on the issuance of fiscal incentives to businesses to avoid redundancies and lost revenues for the government.

The company is looking for joint venture partners for the two facilities, which will have a capacity of 100 megawatts each. The selection of a partner will be conducted through a competitive public bidding since PNOC EC is largely owned by the government. Locating mine-mouth plants near coal mines reduces transportation costs for fuel.

PNOC EC is developing three new coal mines in Zamboanga Sibugay, which should increase the company’s coal production by 800,000 metric tons per year. Commercial production is scheduled to begin at the new mines between 2012 and 2015.

The company’s 2012 plans also include construction of compressed natural gas (CNG) stations to service the planned increase of CNG buses.

Climate projections by the the Philippine Atmospheric Geophysical and Astronomical Services Administration (PAGASA) paint a grim picture for the period 2020 to 2050. By 2020, the dry seasons will be drier and the wet seasons will be wetter, and the damage to crops and water sources will be far-reaching. PAGASA also projects higher temperatures beginning in 2020 especially in the summer months.

The result could be a cycle of droughts and floods, with significant impacts on agriculture and human health and safety. The predicted climate changes could also affect the reliability of electric power as large portions of the country are dependent on hydro-power.

The Philippines, a country of about 100 million people, is in the path of typhoons that form in the western Pacific. Approximately 20 storms hit the country every year.

PAGASA proposes a range of measures for the government to take now, including better water management, repair and rehabilitation of dams, changes in cropping patterns, and early warning systems.

According to the international think tank Germanwatch, the Philippines is one of the countries that suffer the most from extreme weather events, including high death rates and economic losses. Analyzing data from 1991 to 2010, Germanwatch said the Philippines ranked 10th among countries when it came to exposure to severe weather conditions.

The harm caused by various weather-related disasters in the Philippines include an average of 800 deaths and $660 million in economic losses every year. If PAGASA’s projections come true, those numbers could multiply in the coming decades.

S&P cited “strong external liquidity and signs of improving growth prospects.” The Philippines is currently rated two levels below investment grade, the same as Costa Rica and lower than Indonesia, Malaysia and Thailand.

Philippine President Benigno Aquino has won credit-rating upgrades from Fitch and Moody’s Investors Service this year after intensifying efforts to narrow the country’s budget gap from a record 314 billion pesos (US$7.2 billion) in 2010.

“The Philippines’ external vulnerability has diminished,” S&P said. “We expect further rating improvements to be most likely driven by improvements in fiscal and debt credit metrics.”

The big question now is growth. While the Philippine government has made significant progress on its deficit and fiscal stability, the country’s $200 billion economy expanded by only 3.2 percent in the third quarter and is projected to finish the year well below the Aquino Administration’s growth target. Slower growth is the result of both a global economic slowdown and slower than expected roll-outs of major domestic infrastructure projects.

The report will identify macroeconomic gains and improved trust in public institutions as positive accomplishments this year, while noting weak attempts to upgrade infrastructure.

The NCC has also acknowledged that the Philippine government must move beyond trimming red tape if the country is to improve its global competitiveness ranking.

The International Finance Corp.’s (IFC) most recent “Doing Business” report commends the Philippines for a number of positive actions this year including passing the Financial Rehabilitation and Insolvency Act, but it has the Philippines falling two places to 136th out of 183 economies.

The NCC is targeting a top 30 to 50 placing for the Philippines by 2016.

The growth rate was down from last year’s 7.3%, but was better than the 3.1% growth logged for the second quarter of this year. The economy has grown by only 3.6% since the beginning of 2011, compared with 8.2% growth in the same nine-month period last year.

Socioeconomic Planning Secretary Cayetano W. Paderanga, Jr. said that the targeted growth rate of 4.5-5.5% result will be difficult to achieve. Most private sector analysts were less diplomatic, stating that the targeted growth rate will be impossible to achieve this year.

On the bright side, the Philippine service sector continues to meet and exceed growth projections. Services now account for nearly 45% of GDP and grew in the third quarter by 5.3%.

Also on the bright side, the government announced plans to move forward with multiple infrastructure projects next year, which could boost construction spending.

The Initiative will expand U.S.-ASEAN cooperation and commercial engagement in three areas: energy, transportation, and information and communications technology (ICT) connectivity across the ASEAN region. Leveraging U.S. private sector resources and expertise, USTDA and ASEAN partners intend to support activities such as reverse trade missions, feasibility studies, technical assistance and workshops that foster effective new partnerships between private sector and government entities to increase connectivity and investment in the three sectors. With a population of approximately 580 million and a combined GDP of $1.5 trillion, ASEAN is the United States’ fourth largest export market and a key market to facilitate long-term economic development that is mutually beneficial.

The Connectivity Initiative is designed to support ASEAN’s goal of fostering greater connectivity to achieve an economically integrated ASEAN Community by 2015. This vision includes enhancing connectivity in Southeast Asia in three core elements: developing physical infrastructure; streamlining institutions, mechanisms, and processes; and expanding people-to-people ties across the region.

“ASEAN is a critical venue for U.S. exports, and USTDA will continue to promote U.S. export opportunities as well as development of key infrastructure in Southeast Asia by supporting this Initiative,” stated USTDA Director Leocadia I. Zak.

All of this aggressive behavior has taken place in an area just 85 nautical miles from the Philippine island of Palawan, well within the 200 nautical mile Continental Shelf that is part of Philippine territory under the UN’s Convention on Law of the Seas. In contrast, the area is 595 nautical miles from the nearest coast of China. This means that the Philippines has unequivocal sovereign rights over the area.

Accordingly, only the Philippines can develop the sector. Only the Philippines can invite foreign investors to assist in developing the area for mining, oil exploration and the pursuit of rare minerals in accordance with Philippine laws.

Intimidation is intimidation no matter how it is cloaked in protestations of peace and goodwill. It has no place in a world where nations, big and small, have equal rights.

The rise of a rules-based international system has been the great equalizer in global affairs. Respect and adherence to international law have preserved peace and resolved conflicts. International law has given equal voice to nations regardless of political, economic or military stature, banishing the unlawful use of sheer force.

To reinforce that goal, the Philippines has offered a framework that transforms the South China Sea from an area of dispute to a Zone of Peace, Freedom, Friendship, and Cooperation by separating disputed sectors from the undisputed ones. In the words of President Benigno Aquino Jr., the declaration of a Zone of Peace is a way to ensure that “what is ours is ours, and what is disputed, we can work towards joint cooperation.”

The disputed sectors can be transformed into a Joint Cooperation Area for joint development of mining and deep water oil exploration where the countries concerned will benefit.

Philippine policy in the South China Sea is grounded on an unwavering adherence to international law. It expects nothing less from our international partners. There is no place for bullies in the South China Sea or anywhere else in today’s world.

Rene S. “Butch” Meily
President