Starting 2011 with a bang

In more recent news across the globe, dead birds fall from the sky and lifeless fish are washed ashore as chilling blizzards blast key cities. Locally, an assassin is caught on camera by his victim while the Vizconde massacre case takes on more twists and turns.

Welcome to 2011 and judging from developments during the past two weeks, it seems we ain’t seen nothing yet from a year that started with an even greater frenzy than the year that ended.

Higher fuel costs and toll fees, as well as rising bread and vegetable prices have joined in the cacophony of noises that started the year that is 2011.

By the middle of the first week, the government raised $1.25 billion from the sale of a 25-year peso-denominated debt to overseas investors. After a few hours, Moody’s Investors Service lifted its outlook on the nation’s foreign- and local-currency rating to positive from stable.

Before the week ended, President Benigno Aquino III said he will make his defeated running mate Mar Roxas his “Chief Troubleshooter,” and deferred the issuance of an order that will liberalize aviation in places like Cebu and Davao.

The cabinet started the budget call for 2012, and Finance Secretary Cesar Purisima brought up the idea of privatizing Camps Crame and Aguinaldo.

Starts to a year have never been this busy.

Inflation, rising bond yields

The Philippines is one of the few economies in the region that has managed to rein in inflation in 2010, allowing Bangko Sentral ng Pilipinas to keep its overnight borrowing rate at a record low of four percent.

Last year’s inflation averaged 3.8 percent, just a few ticks higher from the low end of its avowed 3.5-5.5 percent target range. The central bank expects consumer price increases to average 3.6 percent this year and three percent in 2012.

Rising prices, however, are making economists and investors doubt whether inflation will slow down as the central bank expects. Some are already predicting inflation will rise to an average of four percent this year or higher as food, fuel and fares increase.

That may accelerate the start of the central bank’s tightening cycle projected by most analysts to start in late 2011 to possibly the middle of the year.

Slower growth, smaller deficit

Economic growth averaged 7.5 percent in the first three quarters of 2010, putting the full-year performance safely in the high six percent level or low seven percent range.

With inflation accelerating and the absence of election spending, the government’s ambitions seven to eight percent gross domestic product expansion goal this year is going to be a stretch. The more sober GDP growth projections are in the five to six percent range for the year.

Last year’s budget deficit was definitely below the P325-billion target and possibly even below P300 billion. This year, the target is P290 billion – and with the supposed improving collection efficiency and a slew of eyed assets privatized, meeting the deficit shouldn’t be a problem.

The peso, which gained more than five percent in 2010, will continue to improve, albeit at a slower pace. As the US and global economies show signs of a more convincing recovery, the influx of hot money funds seen last year may no longer be as pronounced in 2011.

PPP, tourism, open skies

The P700-billion worth of Public-Private Partnerships that the Aquino administration aims to roll out through 2016 is obviously a very ambitious endeavor. Just half of that would be a major accomplishment.

The National Economic and Development Authority had approved seven projects for bidding starting this year. The government must ensure that the terms are very clear, transparent and binding and that these projects won’t be subject to any controversy after.

Investor confidence with the Aquino government remains very strong, and the improved outlook from Moody’s indicates a rating upgrade in the coming months. The government must take advantage of the positive sentiment as it pitches its capital-intensive projects to investors.

Tourism is one area that will benefit from the roads, railway and ports that are being planned. The biggest budget airline in the region is putting up a local venture that promises to further bring down the cost of travel for Filipino travelers.

The plan to impose an “open skies” regime, initially in areas like Cebu and Davao, will boost tourism as foreign carriers can fly directly to these destinations.

Cabinet reshuffle, new head of central bank

Changes to the cabinet are being touted and while speculations have been rife, it would be fair to say that most people currently occupying key positions are doing a splendid job. Lawmakers may not necessarily think so, and when it’s time for P-Noy to implement changes, we can only hope that he will be as discerning as when he started his regime.

What is certain is that Bangko Sentral Governor Amando M. Tetangco’s fixed six-year term will end in July. There is no prohibition for Tetangco to be reappointed, and names of possible candidates like Bank of the Philippine Islands President Aurelio “Gigi” Montinola and Deputy Governors Diwa Guinigundo and Nestor Espenilla have come up.

As with cabinet members, P-Noy will have the final say on who the next central bank chief will be.

Indeed, if the first week of the year was to go by, we are in for another unforgettable 12 months.

Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. For a compilation of previous articles, visit www.BizlinksPhilippines.net.