The Philippines’ Storm-Tossed Straits
Philippines President Aquino’s economic management reputation which resulted in unanimous sovereign investment-grade promotion was dented by the initial detached and slow response to the record typhoon Haiyan devastation in the Visayas islands which was the region’s worst since the Indian Ocean tsunami a decade ago. Rebuilding and damage costs in the $10 billion range will shave estimated GDP growth to 7 percent and raise inflation to 3 percent with coconut and rice price squeezes. The 2 percent of output fiscal deficit target should stay intact, but the trade gap will reach 5 percent on emergency construction imports with pre-Christmas remittances rising before the disaster to offset it and keep the peso around 45 to the dollar. Half the country’s provinces suffered electricity and phone outages and thousands were killed just after a severe earthquake as officials declared a “state of calamity” dispatching the military to aid with cleanup and security. The Robinsons mall in Leyte was looted just after the family-owned retail operator listed on the stock exchange for $625 million to support a slight index gain. The benchmark interest rate remained at 3.5 percent at the last central bank meeting, and bonds may be issued to fund rebuilding with short-term debt/reserves at only 10 percent. In October Moody’s assigned a Baa3 rating with a positive outlook praising “structurally higher growth and budget improvement” after Presidential allies won legislative control six months earlier. Sin taxes were hiked and over $15 billion in public-private infrastructure investment was planned before the upgrade, which also cited anti-corruption strides including new asset disclosure norms.
In Thailand in contrast a bill to offer former prime minister Thaksin and others amnesty for financial and political offenses provoked a firestorm as demonstrators again clashed in Bangkok and sent consumer confidence to a 2-year low, reflected in mere 1 percent Q3 GDP expansion after a flat previous quarter. Tourism was up 25 percent, but household spending dropped as a car-buying incentive ended although a rice subsidy scheme criticized by the IMF continues. A 25 basis point benchmark rate cut has not translated into bank lending as terms stiffen on NPL expectations. Government debt at 45 percent of GDP after a wave of populist credit and infrastructure project outlays has invited foreign investor caution with stock performance likewise turning negative. Shrimp exports were hurt by a disease outbreak, and gold import demand ranks just behind China and India in Asia to possibly enshrine a current account deficit propelling the baht toward 35 to the dollar. Elsewhere in ASEAN Vietnam’s MSCI frontier result was lifted by portfolio and trade liberalization hopes as the equity access cap may be bumped and state enterprises are restructured and divested under provisions of the US-led Trans-Pacific Partnership in the final negotiations stage. A “bad bank” with modest capital has begun operation to rehabilitate the sector, but human rights according to Washington are also due to cloud the imminent TPP debate.
