Identifier
Created
Classification
Origin
09MANILA107
2009-01-16 04:57:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Manila
Cable title:
Financial Crisis Impact on Assistance to the Philippines
how-toVZCZCXRO8411 OO RUEHCHI RUEHCN RUEHDT RUEHHM DE RUEHML #0107/01 0160457 ZNR UUUUU ZZH O 160457Z JAN 09 ZFR FM AMEMBASSY MANILA TO RUEHC/SECSTATE WASHDC IMMEDIATE 2907 RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS IMMEDIATE RHHMUNA/USPACOM HONOLULU HI//FPA//
UNCLAS SECTION 01 OF 03 MANILA 000107
SENSITIVE
SIPDIS
STATE FOR EAP/MTS, EAP/EP/ EEB/IFD/OMA
STATE PASS EXIM, OPIC, AND USTR
STATE PASS USAID FOR AA/ANE, AA/EGAT, DAA/ANE
TREASURY FOR OASIA
E.O. 12958: N/A
TAGS: EFIN ECON ECIN RP CN XE XD
SUBJECT: Financial Crisis Impact on Assistance to the Philippines
MANILA 00000107 001.2 OF 003
////////////////////////////////////////
ZFR PLS CANCEL MANILA 00107 WILL ZFR
BE RESENT UNDER NEW MRN
////////////////////////////////////////
MANILA 00000107 002.2 OF 003
////////////////////////////////////////
ZFR PLS CANCEL MANILA 00107 WILL ZFR
BE RESENT UNDER NEW MRN
////////////////////////////////////////
MANILA 00000107 003 OF 003
in the corporate income tax rate from 35% to 30% and from a tax
relief package for minimum wage and salaried workers that went into
effect in July 2008 in response to high food and consumer price
inflation. The 2004 passage of a controversial value added tax law
improved government finances and helped the country avert a fiscal
crisis, but weak tax collection, currently at only 14.5% of GDP,
remains a challenge and lags most of the Philippines' Asian
neighbors. There are also continuing challenges and weaknesses in
infrastructure project implementation and public expenditure
management.
11. (U) The government successfully raised $1.5 billion from the
international bond market on January 7 - achieving its full-year
foreign commercial borrowing target at a coupon rate of 8.5%,
roughly 30-40 basis points more than what comparable Philippine
bonds due in 2019 yielded ahead of this issue. The government seeks
another $1 billion from multilateral and bilateral donors, according
to Philippine Finance Department and Treasury Bureau officials.
Actions of Other Organizations
--------------
12. (U) The Philippines has not requested an International Monetary
Fund program. The Asian Development Bank expects higher
requirements for budget support than agreed under its Country
Operations Business Plan 2009-2010 and will hold discussions in the
first quarter of 2009. The Philippines requested assistance from
the World Bank to counter the impact of the crisis during the annual
meetings last October 2008. The World Bank agreed in December 2008
to a $200 million Development Policy Operation to support the
Philippine Government's efforts to address the challenges of high
food prices in the short and long term. These funds will support
conditional cash transfers and other social safety nets for
vulnerable households. The Philippines has asked assistance from
the World Bank and USAID to help determine the risks and potential
impacts of the global financial crisis and economic downturn on the
Philippines.
Impact on Assistance Programs
--------------
13. (U) According to the International Monetary Fund, the widening
interest rate spreads between Philippines and U.S.-based debt yields
could negatively affect bank profitability in the Philippines. The
World Bank's new Country Assistance Strategy notes increased
vulnerability to external shocks, changes in investor sentiment, and
the possible adverse impact on overseas worker remittances, exports,
and foreign direct investments. The European Community delegation
in the Philippines is still responding to concerns from the food
price crisis of early 2008 rather than the current financial crisis.
Australian and Japanese assistance programs are monitoring the
situation closely, but have not reported any operational changes due
to the global financial crisis.
14. (U) Comment: As we reported in refs A and B, the impact of the
global financial crisis in the Philippines will probably be
significantly less than what is felt in many neighboring economies,
and though key sectors may suffer substantial losses, overall the
Philippines is still expected to avoid an outright financial crisis
or broad, severe economic downturn of its own. Of course, the
Philippines would suffer significantly if large numbers of overseas
workers lose jobs and remittances decline, or if food prices spike
again this year. These possibilities are not likely, but in such a
scenario an appropriate shift in the focus of assistance efforts may
be warranted. For now, however, we are maintaining our current
programs as planned and continue to monitor the situation closely.
Kenney
SENSITIVE
SIPDIS
STATE FOR EAP/MTS, EAP/EP/ EEB/IFD/OMA
STATE PASS EXIM, OPIC, AND USTR
STATE PASS USAID FOR AA/ANE, AA/EGAT, DAA/ANE
TREASURY FOR OASIA
E.O. 12958: N/A
TAGS: EFIN ECON ECIN RP CN XE XD
SUBJECT: Financial Crisis Impact on Assistance to the Philippines
MANILA 00000107 001.2 OF 003
////////////////////////////////////////
ZFR PLS CANCEL MANILA 00107 WILL ZFR
BE RESENT UNDER NEW MRN
////////////////////////////////////////
MANILA 00000107 002.2 OF 003
////////////////////////////////////////
ZFR PLS CANCEL MANILA 00107 WILL ZFR
BE RESENT UNDER NEW MRN
////////////////////////////////////////
MANILA 00000107 003 OF 003
in the corporate income tax rate from 35% to 30% and from a tax
relief package for minimum wage and salaried workers that went into
effect in July 2008 in response to high food and consumer price
inflation. The 2004 passage of a controversial value added tax law
improved government finances and helped the country avert a fiscal
crisis, but weak tax collection, currently at only 14.5% of GDP,
remains a challenge and lags most of the Philippines' Asian
neighbors. There are also continuing challenges and weaknesses in
infrastructure project implementation and public expenditure
management.
11. (U) The government successfully raised $1.5 billion from the
international bond market on January 7 - achieving its full-year
foreign commercial borrowing target at a coupon rate of 8.5%,
roughly 30-40 basis points more than what comparable Philippine
bonds due in 2019 yielded ahead of this issue. The government seeks
another $1 billion from multilateral and bilateral donors, according
to Philippine Finance Department and Treasury Bureau officials.
Actions of Other Organizations
--------------
12. (U) The Philippines has not requested an International Monetary
Fund program. The Asian Development Bank expects higher
requirements for budget support than agreed under its Country
Operations Business Plan 2009-2010 and will hold discussions in the
first quarter of 2009. The Philippines requested assistance from
the World Bank to counter the impact of the crisis during the annual
meetings last October 2008. The World Bank agreed in December 2008
to a $200 million Development Policy Operation to support the
Philippine Government's efforts to address the challenges of high
food prices in the short and long term. These funds will support
conditional cash transfers and other social safety nets for
vulnerable households. The Philippines has asked assistance from
the World Bank and USAID to help determine the risks and potential
impacts of the global financial crisis and economic downturn on the
Philippines.
Impact on Assistance Programs
--------------
13. (U) According to the International Monetary Fund, the widening
interest rate spreads between Philippines and U.S.-based debt yields
could negatively affect bank profitability in the Philippines. The
World Bank's new Country Assistance Strategy notes increased
vulnerability to external shocks, changes in investor sentiment, and
the possible adverse impact on overseas worker remittances, exports,
and foreign direct investments. The European Community delegation
in the Philippines is still responding to concerns from the food
price crisis of early 2008 rather than the current financial crisis.
Australian and Japanese assistance programs are monitoring the
situation closely, but have not reported any operational changes due
to the global financial crisis.
14. (U) Comment: As we reported in refs A and B, the impact of the
global financial crisis in the Philippines will probably be
significantly less than what is felt in many neighboring economies,
and though key sectors may suffer substantial losses, overall the
Philippines is still expected to avoid an outright financial crisis
or broad, severe economic downturn of its own. Of course, the
Philippines would suffer significantly if large numbers of overseas
workers lose jobs and remittances decline, or if food prices spike
again this year. These possibilities are not likely, but in such a
scenario an appropriate shift in the focus of assistance efforts may
be warranted. For now, however, we are maintaining our current
programs as planned and continue to monitor the situation closely.
Kenney