By Mia M. Gonzalez. Reporter
Business Mirror - October 17, 2007

RECOGNIZING the “significant impact” of weak exports, high oil prices and overseas workers’ remittances on the country’s growth, Malacañang said on Tuesday that it will look into the possible reduction of dollar-remittance costs and the issuance of bonds to generate funds for export loans, among other mitigating measures.

Press Secretary Ignacio Bunye said the proposed measures were discussed at the National Economic and Development Authority (Neda) and National Anti-Poverty Commission (Napc) meeting in Malacañang where Acting Neda Director-General Augusto Santos reported on the economic impact of high oil prices, weak exports, and dollar remittances.

In his presentation, Santos said that while the high food and oil prices would not derail the government’s 2007 inflation target, such factors are “likely” to have an inflationary impact next year.

“Overall, declining exports will have a significant impact on GDP growth,” Bunye said in a statement that gave highlights of the Palace meeting.

Bunye said that Santos used the 2000 input-output (IO) model to simulate the impact of decelerating merchandise export growth on total export growth, for a 3-percentage point reduction in exports, or from 11 percent to 8 percent in 2007.

To help the export sector, Bunye said it was proposed that “the Department of Finance look into the possibility of issuing bonds, the proceeds of which are to be lent out to exporters.”

The DOF will also “look into the issuance of peso-denominated bonds for infrastructure.”

Bunye said the Bangko Sentral ng Pilipinas (BSP) will be invited to next week’s Cabinet meeting to report on “possible assistance to reduce the cost of financial transactions.”

Bunye said that while Santos had given assurances the 4-5 percent inflation target for the year remains “within expectations” despite rising food and fuel prices, the acting Neda chief actually noted that such factors will likely have an impact on inflation next year.

“The impact of increasing food and fuel prices remain benign given increases are within expectations, thus expected inflation remains unchanged. The impact of inflation will most likely be felt in 2008,” Bunye said.

In his presentation, Santos said the percentage-point impact on inflation for an over-1-percent increase in sugar prices is 0.017576; flour, 0.004952; and retail fuel 0.0658.

To ease rising flour prices, Bunye said it was proposed that the DOF discuss with the BSP the possibility of opening “a Letter of Credit to a flour supplier to increase his share in the market from 8 percent to 12 percent.”

If, for any reason, the supplier is not qualified to open an LC, Bunye said “the PITC (Philippine International Trading Corp.) shall be asked to provide the necessary intervention or financing.”

The DOF will also study the revenue-neutral tariff reduction on flour, which the President had earlier ordered two departments—of Trade and Industry and of Agriculture—to look into.

In view of rising sugar prices, the President ordered Agriculture Secretary Arthur Yap and chairman Romulo Neri of the Commission on Higher Education “to discuss how the farmers and LGUs can plant sorghum, taking into consideration the 2 million upland distribution and development for agribusiness as well as the necessary financing for qualified beneficiaries under the program.”

Santos reported that remittances of overseas Filipino workers “remain on-track despite the recent slowdown and is expected to pick up in the fourth quarter.”

Among the proposed measures to help reduce remittance costs is for the Development Bank of the Philippines and the Land Bank of the Philippines to “explore the possibility of having partnerships with Smart Communications and Globe Telecommunications, and pawnshops to reduce the cost of remittances.”