PH, Asean bank lending must be monitored – ICAEW

Ready capital raises risk of credit bubbles
SOUTHEAST Asian economies like the Philippines need to maintain vigilance over bank lending standards, particularly in consumer lending, as these loans stoke fears of a property bubble, a study said.

In the latest edition of “Economic Insight: South East Asia”, Europe-based Institute of Chartered Accountants in England and Wales (ICAEW) said a clear trend visible across Association of Southeast Asian Nation (Asean) economies is the growth of total lending to households, led by retail banks.

According to the ICAEW study, record-low interest rates and quantitative easing imposed by central banks in the Western world have propelled capital to Southeast Asia for higher returns.

This has allowed banks in Southeast Asia to borrow from global money markets at very low rates. This is enhanced by the post-crisis stagnation of some advanced economies and huge foreign direct investment flows to emerging economies, driving further cheap borrowing.

As a result, the study said lending is going to consumers across the region at an unprecedented rate. Part of the banks’ success is because of the shift from business lending to consumer lending.

“South East Asian banks are now among the most profitable in the world and the region is awash with capital. This is thanks partly to their ability to lend to their own large domestic markets combined with a rapid growth in the middle class, which is expected to expand further by between 16 percent and 28 percent over the next five years,” it said.

The ICAEW study pointed out that rapidly rising incomes and high population growth created fertile ground for investments in retail banking in Asean economies.

“In countries like Indonesia and the Philippines, penetration of financial products was extremely low and growing incomes made the prospect attractive. Traditionally high domestic consumption in the Philippines reinforced this,” the report explained.

The retail banking sector has facilitated a gradual increase in domestic consumption and helps to rebalance Asean economies between production for export and for domestic consumption, it added.

However, the study noted that during the run-up to the financial crisis, many suggested that United States and United Kingdom policymakers allowed credit growth to offset weak wage growth in lower earnings groups, artificially raising the standard of living. Ultimately, this raised the number of non-performing loans and contributed to the financial crisis.

Given this, the ICAEW study said Southeast Asian economies need to maintain vigilance over lending standards so that they heed the lessons from the financial crisis in the US and Europe in the late 2000s.

The study said it is important that economies with already high consumption rates, such as the Philippines, take care to avoid artificially raising the standard of living.

“Allowing credit growth to offset weak wage growth in lower earnings groups may ultimately raise the number of non-performing loans. And this, in turn, could result in increased risks of another financial crisis,” it said.

The ICAEW report “Economic Insight: South East Asia” is produced by the Centre for Economics and Business Research (Cebr), ICAEW’s partner and economic forecaster. Commissioned by ICAEW, the report provides its 142,000 members with a current snapshot of the region’s economic performance.

The report undertakes a quarterly review of Southeast Asian economies with a focus on Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

source:  Manila Times

Tweaks to labor laws eyed ahead of ASEAN integration

THE GOVERNMENT and a representative from a professional group have appealed to Congress to amend labor laws in order to better equip Filipino workers for the upcoming Southeast Asian regional integration.

Speaking in a briefing at the House of Representatives on Tuesday, Labor Undersecretary Reydeluz D. Conferido asked lawmakers to enact amendments to the Labor Code and other pertinent laws to accommodate the expected movement of skilled workers across ASEAN member states come 2015.

“We present the adjustment measures committed by the government to address the risks and challenges presented by the [economic] integration,” Mr. Conferido said in Filipino.

The Department of Labor and Employment is also keen on pushing amendments to professional regulatory laws to include provisions on reciprocity and the granting of temporary permits for foreigners to practice their craft in the Philippines, subject to local standards.

Mr. Conferido said the labor sector has to brace itself for the movement of professionals across the region, with the upcoming ASEAN economic integration.

Tarlac Rep. Enrique M. Cojuangco (1st district), chairman of the House committee on economic affairs, said legislators would have to point the proposals to the proper committees for the amendments to gain momentum.

Mr. Conferido said that while ASEAN agreements would allow local professionals to be recognized across member states, the country has to do its part to open its labor market and relax provisions on foreign employment.

So far, workers from the following professions are covered by mutual recognition agreements among 10 ASEAN countries: engineering, architecture, nursing, medicine, dentistry, accountancy, surveying qualifications, and tourism.

Under the agreements, member nations have set common competency standards to acknowledge certified professionals across countries.

DOCTORS, TOO
Maria Minerva P. Calimag, president of the Philippine Medical Association, said the region’s integration could result to a “work force crisis” in the country, given that local doctors can now migrate to neighboring countries with greater ease.

Ms. Calimag likewise called on Congress to amend the Philippine Medical Act of 1959, and for the Professional Regulatory Commission to assess local board exams to see if these are at par with regional standards.

An official of the Philippine Overseas Employment Administration (POEA), meanwhile, said laws are also needed to protect “vulnerable” sectors -- among them, domestic workers and entertainers abroad.

“We need to step up in terms of providing protection for vulnerable occupations. We are banking on strengthened and enhanced activities that promote ethical recruitment practices,” POEA Director Levinson C. Alcantara said.

The official said that as of last year’s end, there are some 1.8 million Filipinos are working overseas.

The country is looking at entering into bilateral agreements with other ASEAN countries against human trafficking and illegal recruitment of workers, said Mr. Alcantara.

The officials, however, stood firm that the country’s human resource is at par -- if not beyond -- that of regional counterparts.

source:  Businessworld

Asia can’t ‘decouple’ from advanced economies -- BIS paper

ASIA-Pacific markets, including the Philippines, will remain strongly linked to developments in advanced economies outside the region, a Bangko Sentral ng Pilipinas (BSP) official said.

BSP Deputy Governor Diwa C. Guinigundo said the near-zero interest rates adopted by major economies following the 2008 global financial crisis have boosted investor appetite for relatively higher-yielding, but riskier, assets in emerging markets.

Those assets, he noted, include equities, government and corporate bonds, and credit default swaps.

The central bank official made the statements in a paper titled “What have emerging market central banks learned about the international transmission of monetary policy in recent years? The Philippine case” written for the Basel-based Bank for International Settlements.

Mr. Guinigundo noted “large swings” in the country’s registered foreign portfolio investments -- or hot money -- in 2013 and early this year, in reaction to the US Federal Reserve announcement of a gradual end to its massive stimulus program. With the start of quantitative easing last January, outflows of portfolio investments rose to $3.1 billion from $1.6 billion a month earlier.

“The volatility in foreign portfolio investment took a toll on the stock market as foreign investors became more cautious, despite the positive news of a robust Philippine GDP (gross domestic product) growth for all quarters and credit rating upgrades throughout 2013,” he said.

The Philippine economy grew at a higher-than-expected 7.2% in 2013, topping a 6-7% growth goal and faster than 2012’s 6.8%.

The country won its first ever investment grade rating from Fitch Ratings in March 2013. Standard & Poor’s and Moody’s Investors Service followed suit in May and October that year, respectively.

Mr. Guinigundo said concerns over tighter liquidity conditions and higher interest rates in the US also fueled volatility in the peso-dollar exchange rate.

“As investors sought relatively safer assets, EME (emerging market economies) currencies, including the peso, started to depreciate,” he noted.

Against this backdrop, the official, said: “It is highly unlikely that the Asia-Pacific region will decouple from developments elsewhere in the near future.”

“Conditional on underlying macroeconomic volatility, advanced economies outside the Asia-Pacific region are likely to continue having large effects on the economies in the region,” Mr. Guinigundo said, underscoring the need to develop a “formal framework” to mitigate potential shocks. -- D.E.D. Saclag
 
source:  Businessworld

AEC game plan unveiled in October

MANDAUE, CEBU -- The Department of Trade and Industry (DTI) is expected to unveil in October the country’s ASEAN Economic Community (AEC) Game Plan, former Socioeconomic Planning chief Cielito F. Habito said.

Mr. Habito, currently Chief of Party of the US Agency for International Development (USAID) Trade-Related Assistance for Development (TRADE) project, said some key elements of the game plan are already being implemented just as “AEC is already here” as indicated by the elimination of tariffs on 99.6% of products traded within the region.

Mr. Habito cited the clustering and shared services facilities program of the DTI, conduct of seminars nationwide on Doing Business in Free Trade Areas, drawing up of industry road maps by the Board of Investments and inclusive finance efforts by the Bangko Sentral ng Pilipinas.

He also noted that the government is set to sign in November the multilateral agreement in air services to provide open skies in major ports of entry in the country.

He noted, however, that Congress has yet to approve the proposed fair competition law.

“This is very important. This is a law that’s been there for 20 years now. I was still NEDA (National Economic and Development Authority) secretary when this was first proposed in Congress. It was always thwarted by vested interests,” Mr. Habito said in his presentation during the Visayas Area Business Conference here Friday.

TRADE is helping DTI -- which chairs the Committee for ASEAN Economic Community (CAEC) under the Philippine Council for Regional Cooperation -- craft the AEC game plan.

The AEC aims to establish a single market and production base with free movement of goods, services and investments across the 10 ASEAN member countries by end-2015.

“It’s not just trade liberalization. It’s also about a lot of policy commitments and economic reforms that the 10 ASEAN member countries promised to undertake in order to move towards integration,” Mr. Habito noted.

The Philippines, for its part, has 439 policy commitments such as the adoption of open skies, trade facilitation, passage of a competition law, and other institutional policies, he said. About 87% has been complied with.

“We only have about 13% of our policy commitments left to be done by next year. That implies that we’re almost already there,” he said.

Among the 10 ASEAN members, he said the ASEAN Secretariat’s latest scorecard showed a compliance rate of 84%-89%.

Mr. Habito assured businesses that there won’t be a “tsunami” of ASEAN products into the Philippines by 2016 since 99.6% of products have been traded at zero tariffs among the ASEAN-6 members Brunei, Indonesia, Malaysia, Singapore, Philippines and Thailand since January 1, 2010.

“This means that we are all almost there, and AEC is not just coming in 2015 but is mostly already here.”

The proposed AEC Game Plan consists of four broad strategies or the 4Cs -- Compliance, Competitiveness, Communication and Collaboration. -- Marites S. Villamor


source:  Businessworld

Philippines and the demographic dividend (2)

Second of two parts

In my discussions with corporate CEOS in year 2000-03, I ventured the guess that after East Asia, China and India, the next Asian countries that would benefit from the demographic dividend and experience good economic growth could well be the Malay states of Malaysia, Indonesia and the Philippines.

These countries are now developing rapidly – with Malaysia first in the line, followed by Indonesia, and now the Philippines, which surprisingly has become the fastest growing economy in Asean.

A bright star in Asia
The most positive reading of Philippine prospects is the analysis cum forecast of international banking giant HSBC, which issued it at the recent HSBC Premier Forum in Makati.

Its glowing review is anchored mainly on favorable Philippine demographics, which it projects will translate into dynamic economic growth for several decades, if the country capitalizes on its demographic transition and dividend.

Speaking at the forum, HSBC economist Trinh Nguyen declared: “We believe the Philippines is destined for a bright future ahead.” Characterizing the transition as a “demographic sweet spot,” Nguyen said the Philippine population is gradually changing from one that has high fertility and high mortality rates to one of low fertility and low mortality.

As a result, she said, the demographic profile of the country will shift from having a lot of dependents to having more workers and fewer dependents.

Nguyen noted that the past two years have already shown positive progress in the Philippine economy, adding that the country’s trend rate of economic growth (the average sustainable growth rate over an extended number of years without inflationary pressures) has increased from 5 percent to 5.5 percent.

The Philippine economy grew by 7.2 percent in 2013, compared with 6.6 percent in 2012 and 3.7 percent in 2011. To sustain this growth, however, the HSBC economist urged Philippine policymakers and officials to maximize the benefits of the demographic transition by being mindful of a growing consumer market.

“If the demographic transition is capitalized, the Philippines will be one of the brightest stars in Asia,” Nguyen pointed out.

“What the Philippines has is rising demand. By 2050, the country’s population is projected to reach 150 million,” she added.

As a result of this transition, the majority of the population will become consumers, making possible the attraction of consumption-oriented firms into the country which are important to maintaining economic growth.

Nguyen noted that early signs of interest on the supply-side are already apparent.

“We are seeing [the entry of] FDIs into the Philippines as more consumption-oriented firms are trying to look into the country,” she said.

HSBC predicted that the Philippines will leapfrog 27 places to become the world’s 16th largest economy by 2050, due to its demographic advantages.

End of dividend for other Asian nations
Significaantly, Nguyen disclosed her ana-lysis at almost the same time that the Financial Times published an op-ed piece that confidently reported that many Asian countries are bracing for the end of their “demographic dividends.”

In a commentary entitled “The end of Asia’s demographic dividend,” FT’s Asia editor David Pilling cited another HSBC economist Frederic Neumann as his main source. Neumann, he said, has predicted a contraction in the work forces of China, Hong Kong, South Korea, Taiwan, and Singapore.

Pilling wrote: “At least these economies, with the exception of China, are already fairly prosperous. But some less well-off countries will soon run out of steam. Thailand’s demographics will turn in 10 years. Even Vietnam, whose workforce is growing apace, will see a sharp deceleration before too long.”

“If these are the hares—the countries that came out of the demographic traps first—Asia does also have some tortoises. Those that can look forward to years of favorable demographics include the Philippines, Malaysia, Indonesia and everybody’s demographic darling, India. The latter will add the equivalent of Europe’s workforce over the next 15 years,” Pilling said.

But Pilling warned that countries with favorable demographics cannot just sit back and relax. And he made a pointed example of Philippine handling of its demographic assets:

“The Philippines shows how easily one can squander one’s demographic birthright. Its natural resource is its people but because of a lack of good jobs at home, about 10 per cent of Filipinos work abroad, remitting cash on which their relatives – and the Philippine economy as a whole – rely,” he said.

This underlines how urgent and important it is for Filipino leaders and technocrats to understand the full import of the demographic window of opportunity, how the dividend operates in the economy and in society, and what policies will be most effective in capitalizing and enhancing the country’s enjoyment of the dividend.

How the demographic dividend helps
IN a policy paper prepared for the Futures Group in Washington DC, “Understanding the demographic dividend,” John Ross provided an excellent introduction to the demographic dividend, and key insights on how it operates to benefit countries and economies.

The demographic dividend is delivered through several mechanisms.

1. Labor Supply. The generations of children born during periods of high fertility finally leave the dependent years and can become workers. But good policies, preferably in place before the demographic transition, are required to educate and train them so they are not just unemployed.

2. Women’s empowerment. Women now have fewer children than before and are released to take jobs outside of the home; also they tend to be better educated than older cohorts, and are therefore more productive in the labor force.

3. Job creation. This assumes wise government policies to create more jobs and seize upon the “dividends” of the changed age distribution. If they fail to do this, countries may struggle with the social unrest of millions of unemployed citizens.

4. Savings. Working-age adults tend to earn more and can save more money than the very young. The shift away from a very young age distribution favors greater personal and national savings.

5. Savings for industrial investments. Personal savings grow and serve as a partial resource for industrial investments that fuel economic growth.

6. Human Capital. Having fewer children enhances the health of women. Their participation in the labor force, in turn, enhances their social status and personal independence. They tend to have more energy to contribute both to their families and to society.

8. Family income. Income can be focused more on better food for infants, including girls, who are often given less to eat. Incomes can go toward prolonged education for girls, and for teenagers of both sexes to improve their life prospects.

Thus there are many interactions that increase benefits from the demographic dividend,

In one estimate, as much as one third of growth in the “East Asia Miracles” came from demographic dividends.

Beginning in 1950, East Asian countries moved quickly through falling fertility rates that resulted in a change in the percentage of their populations in the working age group. Their dividend opportunity rose quickly during the next fifty years. It is peaking just now and will fade steadily as their populations age. Their window of opportunity is beginning to close.

Neumann of HSBC says China’s workforce will contract in 2017, as will that of Hong Kong. The labor force of South Korea and Taiwan will start to shrink in 2016, while Singapore’s will do so in 2018.

Policies to harness the dividend
1. Promoting health
Evidence suggests that better health facilitates improved economic production, and it points to the importance of policies to promote health during the demographic dividend.

Some of these are:
• Insuring that infants receive good medical care.

• Protecting women’s reproductive health (and enhancing their health knowledge, since they play the central role in the health of their families)

• Stressing the health of children and teenagers, to improve educational performance.

• Focusing especially on low-income populations, with strong public sector programs. Poor health is an important cause of losses in household income.

2. Reducing unwanted pregnancies

This is important because
• About one fourth of births in the developing world outside China are unwanted or ill-timed,

• Governments should do all they can to extend services for family planning, with the public sector targeting services and resources to the poor while, at the same time, releasing the energies of the private sector to meet the needs of those who can afford to pay for family planning and other health services.

3. Education of children and youth
Next to health, the education of children and the youth is the most important policy imperative. Without an effective educational system, and the provision of free basic education, the window could be lost, and the dividend will not be fully realized

Education is directly related to employment and the enjoyment of fulfilling jobs and careers.

The dividend is wasted if people of working age do not find jobs.

Don’t call it a sweet spot
Because the period of the dividend is quite prolonged (stretching as much as two to three decades in some cases), some policymakers have called it “a demographic sweet spot.”

This is misguided and lazy. It encourages inaction. And it can delay the adoption of the policy imperatives.

One of those who have popularized “sweet spot” in Philippine discourse is BSP Governor Amando Tetangco, who has used it to drum up interest in the country among select foreign audiences. He has expressed optimism about the prospects of higher growth for the Philippine economy because of the advantages of a young population that will provide both abundant labor supply and a large domestic market for goods and services.

This neglects the crucial point that economic and social policy need to be focused and vitalized by the demographic dividend.

In population dynamics as in other realms of life, nothing comes for free. The demographic dividend provides us at best an opportunity, not a sure benefit. We have no time to waste to capitalize on our window of opportunity

Demographers and economists aver that Eastern Europe and Russia went through their demographic dividends without experiencing the corresponding win-win situation in which favorable growth conditions coincide with advances in terms of institutional development and political stability.

This must not happen to us.

But it could, if we make the colossal mistake of giving the Nowhere Man, Thief Executive and Self-taught President another six-year term.

yenmakabenta@yahoo.com

source:  Manila Times' Column of Yen Makabenta

ASEAN Exchanges on track to create ASEAN as one asset class

Speaking on behalf of ASEAN Exchanges - a collaboration of seven regional stock exchanges - Singapore Exchange CEO Magnus Bocker said "significant progress" has been made within a relatively short time.

SINGAPORE: ASEAN Exchanges, a collaboration of seven regional stock exchanges, says it is on track to create ASEAN as one asset class. The heads of the seven exchanges met in Singapore for the 21st ASEAN Exchanges CEOs meeting on Friday (Aug 22).

Speaking on behalf of ASEAN Exchanges, Mr Magnus Bocker, CEO of Singapore Exchange, said: "The collaborative action amongst the ASEAN Exchanges has been a vital force in moving things forward to achieve our goals, and this is most evident in the significant progress we have made over a relatively short period of time."

Since its launch in April 2011, the group has launched several initiatives, including the ASEAN Trading Link, which allows for cross-border transactions. In May, three new ASEAN indices were introduced with FTSE to provide more opportunities for investors and enhance liquidity among the exchanges.

Other key initiatives include the ASEAN Stars and the Invest ASEAN retail roadshows to profile the exciting companies listed on the seven exchanges in ASEAN to mainly retail investors.

ASEAN Exchanges is a collaboration of seven exchanges from Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. It aims to promote the growth of the ASEAN capital market by driving cross-border collaboration, streamlining access to ASEAN, creating ASEAN-centric products and implementing targeted promotional initiatives.

The seven exchanges have a combined market capitalisation of about US$2.9 trillion (S$3.6 trillion) and more than 3,600 companies listed on their exchanges.  

source: Channel News Asia

Sea row overshadows talks between Asean, China

China’s Foreign Minister Wang Yi, center left, greets Vietnamese counterpart Pham Binh Minh before commencing the ministerial meeting between China and Asean in Naypyitaw, Myanmar, Saturday. AP

NAYPYIDAW—Top Chinese and Southeast Asian diplomats met for talks overshadowed by maritime tensions Saturday with Beijing’s increased boldness in disputed waters stirring international concern.

Animosity over China’s competing territorial claims with several neighbors is dominating meetings of the Association of Southeast Asian Nations (Asean), which began in Myanmar’s capital Naypyidaw Friday and are broadening to include key world powers ahead of security discussions on Sunday.

The United States has waded into the row, calling for an end to all “provocative” acts in the South China Sea, a crucial maritime route that is also believed to hold huge oil and gas deposits.

US Secretary of State John Kerry, who arrived in the early hours Saturday to attend a series of meetings with regional and international powers, is expected to underline the message during his visit.

Concern over tensions

Asean foreign ministers have expressed concern over tensions in the disputed areas of the South China Sea.

“I asked everyone to see that the situation was getting to a point where it would no doubt begin to affect the peace, security and stability of the region,” said Philippine Foreign Secretary Albert del Rosario late Friday.

He said he had urged the regional bloc to call for “a cessation of all activities that escalate tension” in accordance with the existing Asean and Chinese framework to deal with disputes in the contested waters.

Beijing claims sovereignty over almost the entire sea, including waters, islands, reefs, shoals and rocky outcrops nearer to other countries.

Asean states Brunei, Malaysia, the Philippines and Vietnam are claiming parts of the sea, while Taiwan is a sixth claimant.

Ties between China and Vietnam sunk to their lowest point in decades in May after Beijing moved a deep-sea oil rig into disputed waters near the Paracel Islands, triggering deadly anti-China riots in Vietnam.

Beijing has since removed the rig, in a move that analysts say was aimed at deflecting accusations of aggressive maritime behavior.

Seas apart

A draft statement from Asean foreign ministers, who met Friday, said the 10-member bloc had “serious concern” over recent developments in the disputed sea.

It also called for an end to “destabilizing actions.” That wording is likely to have proved contentious for China’s supporters in Asean and no final statement had been released by early Saturday.

The Philippines has been at the forefront of protest against China and has challenged Beijing’s claims before a UN tribunal.

It has also protested Chinese reclamation works in disputed reefs, including a suspected airstrip.

In March, China tried to block a resupplying mission by Manila to a shoal in the Spratlys, after also seizing another South China Sea shoal from the Philippines in 2012.

Manila wants a speedy conclusion of talks for a legally binding code of conduct, and the establishment of a dispute settlement mechanism anchored in international law.

Del Rosario said he had received support for his proposals but said they would be referred to senior officials for further consideration.

The maritime row is set to loom large over discussions at the Asean Regional Forum on Sunday.

The forum is an annual security dialogue among foreign ministers of the 10-member Asean and key partners, including Australia, China, India, Japan, South Korea, Russia and the European Union.

Read more: http://globalnation.inquirer.net/109166/sea-row-overshadows-southeast-asia-china-talks#ixzz39u8NDyLr 
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