Thriller in November

The so-called media "bad boys" will keep harping on the bad news as long as there is lots of bad news to write about. And we had a handful these past few months. Allow me for a change to allot today’s column with the recent seemingly positive developments happening on the economic front.

Christmas came early for investors in the stock market after the composite index rose to its best in over eight months, with daily value turnovers recently exceeding over a billion pesos. This is definitely a surprising feat for a market that had turned anemic following the "Hello Garci" scandal and the political noise that came with it.

The peso too posted a strong recovery against the US dollar, recently hitting its strongest level in five months on the back of strong remittances from our workers overseas, as their share in the country’s economic growth reached unparalleled levels in history.

This year, the central bank expects dollar remittances to attain a record high of over P10 billion, thanks to the increasing number of higher level of Overseas Filipino Workers, e.g. nurses, teachers and other professionals being hired abroad.

Is it the EVAT?

Economists and foreign fund managers are one in saying that largely instrumental for the stock market and the peso’s rally is the new value-added tax (VAT) law, which finally took effect after months of delays and despite lingering protests. Even GMA boasted so.

I continue to have reservations about imposing higher taxes at a time when consumer prices, transport fares, and utility rates are rising. Taxes are all the more obnoxious if these are demanded on people even as corruption remains rampant and government services are at their worst.

I believe the Filipino people deserve more, especially now that they’ve embraced the expanded VAT even when it hurts. But let not this opinion cloud us of the apparent economic up tick noticeable at this time.

Crude break

With its implementation starting Nov. 1, the expanded VAT removed the VAT exemption previously enjoyed by the oil, electricity and transport sectors.

But while most were thinking that this would mean an automatic 10-percent additional cost in the prices of oil and electricity, what was most feared didn’t happen as predicted because of certain "mitigating" factors that were put in place.

Fundamentally, with the consequent removal of the excise taxes and a reduction in the import duty on fuel, the VAT’s effect on these commodities was reduced to around six percent. The law also removed the national franchise tax for electricity and created a structure that effectively shielded the poor or those under the "lifeline rate" from paying the VAT. Electricity sourced from renewable energy sources were also zero-rated.

More importantly, though, international crude prices started to tumble down. Thus, the increased tax-take on petroleum products was negated by the reductions in the cost of imported oil. Whether the downtrend in international crude prices will continue is anybody’s guess. But in the meantime, consumers are glad that pump prices are dropping, though not as fast and as much as everyone would hope.

Buoyed optimism

With the effectivity of the new VAT, some investors are now positioning ahead of an expected upgrade in the country’s credit ratings outlook. Past downgrades made by Moody’s, Standard & Poors and Fitch had taken into account the country’s deteriorating fiscal position, which they now feel would be substantially addressed by the VAT.

It also helps that recent developments in the corporate sector, particularly the generally strong third quarter earnings reported by a number of companies, are also buoying this optimism. We’ve seen the likes of PLDT, which posted record-high earnings of P25 billion for the first nine months of the year, and the same is true with rival Globe Telecom which has recovered from a poor second quarter performance. Petron Corp. has also continued to benefit from soaring oil prices and a recent move to export a third of its oil production to enjoy better profit margins overseas. Companies in other sectors also have posted healthy earnings growth, judging from the performance of such companies as call center Paxys Inc. or property firm Belle Corp. Banks are also starting to reap the benefits of legislative incentives given to them to clean up their non-performing assets. Surprisingly, many companies in consumer business and property development have managed to outperform the economy, exhibiting rising earnings despite higher prices of oil, water, electricity, and other basic services and items. I guess this is another pleasant fallout courtesy of all the extra dollars that are coming in from Filipinos working abroad.

Political weakness

But let’s not be too overly optimistic. Yes, we may be having some good news these last few weeks but there are a number of problems still hovering in the horizon, specifically on the political front. And we know only too well how such developments can easily take away any economic gains.

Another tax measure expected to generate the bulk of revenues considered crucial in government’s effort to resolved the fiscal crisis – a presidential order that would raise the VAT across-the-board to 12 percent from the current 10 percent come January next year – has yet to be decided upon.

The big question on investors‚ minds these days is: Will the President fully commit to her government’s fiscal reform program by raising the VAT? Months after a botched impeachment trial, and more importantly, the threat of another impeachment proceeding next year, can she now afford to commit a politically unpopular act?

Don’t throw in that penny yet. Living in the Philippines is like living in a great telenovela. Anything can happen in the next few months.

Weekend of poker joust

Members of the Poker Club of the Philippines had a field day during the weekend with a couple of well-attended non-wager poker tournaments held at Eastwood City Mall and Valle Verde Country Club.

The first of a series of "Business & Leisure" Poker Mall Tour sponsored by Honda Cars Philippines kicked off last Saturday at Citywalk, Eastwood City Mall with Oscar Ocampo, a photographer with three months poker-playing experience, Chuck Reyes and Joe Davies grabbing the first three slots for the finals to be held on 10th December at the same site.

The veterans lorded over the young upstarts in the 2nd Members‚ Only No-limit Hold’em tournament held Saturday morning at Valle Verde Country Club. Jun Lanas, a former journalist and a poker player for more than a decade, bested Rudy Bernardo and Mauri Bulauitan to win the P30,000 grand prize. Patience honed by experience and well-timed brinkmanship plays won the day for Jun Lanas in the exciting "last man standing" tourney format.

Other non-wager poker tournaments with galore of valuable prizes are scheduled in the coming weeks. Those interested to join and sharpen their skills in tournament play may visit www.PokerClubofthePhilippines.com <http://www.pokerclubofthephilippines.com/> or call the Club Secretariat (c/o Cindy) at 817-9092 or 816-6195 for details.

Should you wish to share any insights, write me at Link Edge, 4th Floor, 156 Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected] or at [email protected]. If you wish to view the previous columns, you may visit my website at http://bizlinks.linkedge.biz <http://bizlinks.linkedge.biz/> .