July 26 (Bloomberg) -- The worst U.S. recession in five decades probably eased in the second quarter as trade and government stimulus mitigated the damage from declines in housing, inventories and consumer and business spending, economists said before a report this week.
The world’s largest economy shrank at a 1.5 percent pace following a 5.5 percent drop in the first three months of 2009, according to the median forecast of 66 economists surveyed by Bloomberg News ahead of Commerce Department figures due July 31. Other reports may show orders for long-lasting goods fell and sales of new houses rose.
Leaner stockpiles set the stage for a return to growth this quarter as manufacturing and homebuilding stabilize, while efforts to revive demand globally boost exports. Consumer spending, which accounts for 70 percent of the economy, may be slower to recover as unemployment is projected to keep rising and home values are likely to fall further.
“The recession has decelerated sharply and is starting to form a bottom,’ said Joel Naroff, chief economist at Naroff Economic Advisors Inc. in Holland, Pennsylvania. “I think we’ll see some growth in the third quarter.” Naroff was the top forecaster in 2008, according to a survey by Bloomberg Markets magazine.
A drop last quarter would be the fourth consecutive decrease in GDP, the longest losing streak since quarterly records began in 1947. The decline so far has been the deepest since 1957-58.
GDP Revisions
The Commerce report will also include GDP revisions that may affect figures going back to when the government started keeping annual records in 1929.
Stocks rallied last week and bond prices fell on signs the economy was bottoming. The Dow Jones Industrial Average broke above 9,000 for the first time since January, gaining 4 percent over the five days to end the week at 9,093.24. Ten-year Treasury notes posted a second weekly loss, yielding 3.66 percent late on July 24.
Orders for durable goods last month fell 0.6 percent, economists project another report from Commerce on July 29 will show. Bookings rose in the prior two months. Excluding demand for transportation equipment, which is often volatile, orders were forecast to be little changed.
Machinery exporters are among those seeing signs of improvement. Caterpillar Inc., the biggest maker of earthmoving equipment, posted second-quarter profit that exceeded analysts’ highest estimate and raised its full-year forecast, saying stimulus programs are starting to support global demand.
Stimulus Working
“We are seeing signs of stabilization that we hope will set the foundation for an eventual recovery,” Chief Executive Officer Jim Owens said in a statement July 21. “Credit markets have improved significantly. Fiscal policy and monetary stimulus have been introduced around the world, and we are seeing signs, particularly in China, that they are beginning to work.”
The economy will grow at an average 1.5 percent rate in the last six months of the year, according to economists surveyed by Bloomberg in the first week of July. Unemployment, which reached a quarter-century high of 9.5 percent in June, will top 10 percent by the first three months of 2010, the survey showed.
The projections are in line with estimates by Federal Reserve policy makers.
“The pace of decline appears to have slowed significantly, and final demand and production have shown tentative signs of stabilization,” Fed Chairman Ben S. Bernanke told Congress last week. “The labor market, however, has continued to weaken.”
Housing, Manufacturing
Both manufacturing and housing are showing signs of forming a bottom. Existing home sales have risen for three months, while the Institute for Supply Management’s gauge of factory activity has shown a lessening pace of contraction since January.
New-homes sales probably rose 2.9 percent in June, to a 352,000 annual rate, economists surveyed projected a Commerce report on July 27 will show. Purchases reached a record low in January.
Home prices continue to fall, albeit at a slower pace. The S&P/Case Shiller index of 20 major metropolitan areas, due July 28, will probably show property values fell 17.9 percent in May from a year earlier, according to the median forecast. The measure was down 18.1 percent in the 12 months ended April.
Dropping real-estate prices and rising joblessness have tattered household finances. A survey from the New York-based Conference Board on July 28 may show consumer confidence fell in July for a second month, the survey showed.
Finally, the Federal Reserve on July 29 will issue its compendium of regional economic anecdotes known as the Beige Book. Central bankers will use the survey at their next meeting in August to help formulate policy.
Saturday, July 25, 2009
Bank of Israel May Hold Interest Rate at Record Low: Week Ahead
July 26 (Bloomberg) -- The Bank of Israel will probably hold its benchmark interest rate at a record low tomorrow as the economy contracts and unemployment climbs, a survey showed.
The rate will remain at 0.5 percent for a fifth month, according to eight of the nine economists surveyed by Bloomberg. One economist predicted it would rise to 0.75 percent. The Jerusalem-based central bank will announce its decision at 5:30 p.m. tomorrow.
Governor Stanley Fischer has lowered the base rate by 3.75 percentage points since October to mitigate the effects of the global financial crisis. The economy contracted an annualized 3.7 percent in the first quarter and unemployment rose to 8.4 percent in May, its highest in almost three years.
“The Bank of Israel won’t rush to raise the interest rate due to the uncertainty regarding the degree of recovery in the global market and the worsening in the labor market,” Rafael Gozlan, chief economist at Leader Capital Markets, said by phone from Tel Aviv.
While inflation accelerated to an annual 3.6 percent in June from 2.8 percent the previous month it is likely to moderate beginning in September, Gozlan said. The government’s target range for inflation is 1 percent to 3 percent.
“We believe that the restrained global inflationary environment, together with the weakening of the domestic labor market, will support inflation of about 1 percent or 1.5 percent in the coming year,” Gozlan said.
Inflation Outlook
Inflation will reach 2.5 percent over the next year, according to a Bank of Israel poll of economists released on July 16, up from the 2.4 percent expected in the previous survey.
The shekel traded at 3.8678 late on July 23, compared with 3.8882 on July 17.
Last week, Israel’s benchmark 5.5 percent Mimshal Shiklit bond due in 2017 rose 0.2 shekel to 105.55, with the yield falling 1 basis point to 4.97 percent. The Tel Aviv Stock Exchange’s benchmark TA-25 Index rose 4.7 percent to 915.44
The rate will remain at 0.5 percent for a fifth month, according to eight of the nine economists surveyed by Bloomberg. One economist predicted it would rise to 0.75 percent. The Jerusalem-based central bank will announce its decision at 5:30 p.m. tomorrow.
Governor Stanley Fischer has lowered the base rate by 3.75 percentage points since October to mitigate the effects of the global financial crisis. The economy contracted an annualized 3.7 percent in the first quarter and unemployment rose to 8.4 percent in May, its highest in almost three years.
“The Bank of Israel won’t rush to raise the interest rate due to the uncertainty regarding the degree of recovery in the global market and the worsening in the labor market,” Rafael Gozlan, chief economist at Leader Capital Markets, said by phone from Tel Aviv.
While inflation accelerated to an annual 3.6 percent in June from 2.8 percent the previous month it is likely to moderate beginning in September, Gozlan said. The government’s target range for inflation is 1 percent to 3 percent.
“We believe that the restrained global inflationary environment, together with the weakening of the domestic labor market, will support inflation of about 1 percent or 1.5 percent in the coming year,” Gozlan said.
Inflation Outlook
Inflation will reach 2.5 percent over the next year, according to a Bank of Israel poll of economists released on July 16, up from the 2.4 percent expected in the previous survey.
The shekel traded at 3.8678 late on July 23, compared with 3.8882 on July 17.
Last week, Israel’s benchmark 5.5 percent Mimshal Shiklit bond due in 2017 rose 0.2 shekel to 105.55, with the yield falling 1 basis point to 4.97 percent. The Tel Aviv Stock Exchange’s benchmark TA-25 Index rose 4.7 percent to 915.44
Friday, July 24, 2009
Japan’s 10-Year Bonds Decline as Rising Stocks Damp Demand
July 25 (Bloomberg) -- Japan’s government bonds completed a second weekly loss after the Nikkei 225 Stock Average rose for an eighth day yesterday, the longest rally since November 2005.
Demand for the relative safety of government debt waned after speculation the global recession is easing pushed the yen down to a two-week low against the dollar on July 23, improving the outlook for exporters’ earnings. Foreign investors sold 48.9 billion yen ($515.3 million) in Japanese bonds during the week ended July 17, the Ministry of Finance said in Tokyo this week.
“The weaker yen brightens the short-term economic outlook, pushing up stocks” and that is negative for bonds, said Takashi Nishimura, a Tokyo-based analyst at Mitsubishi UFJ Securities Co., a unit of Japan’s largest bank by assets.
The yield on the 1.4 percent bond due June 2019 rose 5.5 basis points to 1.375 percent this week in Tokyo, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price fell 0.484 yen to 100.217 yen. The yield touched 1.395 on July 23, the highest level since June 29.
Five-year yields gained one basis point this week to 0.675 percent. Ten-year bond futures for September delivery fell 0.18 this week to 138.40 at the Tokyo Stock Exchange.
The Nikkei 225 Stock Average climbed 1.6 percent yesterday.
Moving With Stocks
“Selling will dominate the market given the increasing correlation with stock movements,” said Koji Ochiai, a senior market economist in Tokyo at Mizuho Investors Securities Co., a unit of Japan’s second-largest bank.
Benchmark 10-year yields had a correlation of 0.75 with the Nikkei 225 in the past week, compared to a relationship of 0.42 the prior five-day period, according to data compiled by Bloomberg. A value of 1 means the two moved in lockstep.
Losses in bonds were tempered as 10-year yields near the highest level in more than three weeks attracted investors.
“The feeling of buying on dips seems to be strong,” said Shuntaro Take, a Tokyo-based portfolio manager at Tokio Marine & Nichido Fire Insurance Co., a unit of Japan’s biggest casualty insurer. “There might be a lot of people who are targeting near the 0.7 percent level to buy five-year securities.”
The difference in yield, or the spread, between 20- and 10- year Japanese debt held near the widest level since April 2008. The gap was about 77 basis points yesterday.
“Twenty-year bonds are being bought after the spread widened,” said Akio Kato, leader of a six-member team investing in Japanese bonds in Tokyo at Kokusai Asset Management Co., which runs the $47 billion Global Sovereign Open fund, the world’s second-biggest managed debt fund. “Concerns that the government will issue more bonds to spur an economic growth have pushed yields up for long-term bonds.”
The government is planning to sell a record 130.2 trillion yen in bonds this fiscal year to help pay for 25 trillion yen in stimulus measures. Japan’s bonds maturing in more than 10 years have handed investors a loss of 1.5 percent since April 1, according to indexes compiled by Merrill Lynch & Co.
Demand for the relative safety of government debt waned after speculation the global recession is easing pushed the yen down to a two-week low against the dollar on July 23, improving the outlook for exporters’ earnings. Foreign investors sold 48.9 billion yen ($515.3 million) in Japanese bonds during the week ended July 17, the Ministry of Finance said in Tokyo this week.
“The weaker yen brightens the short-term economic outlook, pushing up stocks” and that is negative for bonds, said Takashi Nishimura, a Tokyo-based analyst at Mitsubishi UFJ Securities Co., a unit of Japan’s largest bank by assets.
The yield on the 1.4 percent bond due June 2019 rose 5.5 basis points to 1.375 percent this week in Tokyo, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price fell 0.484 yen to 100.217 yen. The yield touched 1.395 on July 23, the highest level since June 29.
Five-year yields gained one basis point this week to 0.675 percent. Ten-year bond futures for September delivery fell 0.18 this week to 138.40 at the Tokyo Stock Exchange.
The Nikkei 225 Stock Average climbed 1.6 percent yesterday.
Moving With Stocks
“Selling will dominate the market given the increasing correlation with stock movements,” said Koji Ochiai, a senior market economist in Tokyo at Mizuho Investors Securities Co., a unit of Japan’s second-largest bank.
Benchmark 10-year yields had a correlation of 0.75 with the Nikkei 225 in the past week, compared to a relationship of 0.42 the prior five-day period, according to data compiled by Bloomberg. A value of 1 means the two moved in lockstep.
Losses in bonds were tempered as 10-year yields near the highest level in more than three weeks attracted investors.
“The feeling of buying on dips seems to be strong,” said Shuntaro Take, a Tokyo-based portfolio manager at Tokio Marine & Nichido Fire Insurance Co., a unit of Japan’s biggest casualty insurer. “There might be a lot of people who are targeting near the 0.7 percent level to buy five-year securities.”
The difference in yield, or the spread, between 20- and 10- year Japanese debt held near the widest level since April 2008. The gap was about 77 basis points yesterday.
“Twenty-year bonds are being bought after the spread widened,” said Akio Kato, leader of a six-member team investing in Japanese bonds in Tokyo at Kokusai Asset Management Co., which runs the $47 billion Global Sovereign Open fund, the world’s second-biggest managed debt fund. “Concerns that the government will issue more bonds to spur an economic growth have pushed yields up for long-term bonds.”
The government is planning to sell a record 130.2 trillion yen in bonds this fiscal year to help pay for 25 trillion yen in stimulus measures. Japan’s bonds maturing in more than 10 years have handed investors a loss of 1.5 percent since April 1, according to indexes compiled by Merrill Lynch & Co.
Sri Lanka Gets $2.6 Billion Loan From IMF to Aid its Economy
July 25 (Bloomberg) -- The International Monetary Fund, which has mounted rescues from Iceland to Ukraine in the past year, said it approved a $2.6 billion loan to Sri Lanka.
The Washington-based lender’s executive board voted today on the 20-month arrangement aimed at helping the island nation rebuild its economy after the end of a 26-year civil war and replenish its international reserves. About $322 million will be made available immediately, the IMF said in a statement today.
“This money is mainly for reserves and balance-of- payments,” Jaliya Wickramasuriya, the country’s ambassador to the U.S., said in an interview in Washington.
Sri Lanka’s reserves declined by more than half in the six months that began in September to as little as $1.4 billion as the global recession hurt export earnings, prompting it to start talks with the IMF in March.
The IMF has said Sri Lanka’s government has undertaken a program aimed at rebuilding reserves, reducing the fiscal deficit, strengthening the financial sector and reconstructing areas damaged by the conflict.
“The global financial crisis has had a significant impact on Sri Lanka’s economy,” Takatoshi Kato, IMF deputy managing director, said in the statement. “Persistently high budget deficits forced the government to rely on short-term financing from international markets. The global shock resulted in a sudden stop to this financing.”
Sri Lanka’s central bank this month raised its 2009 growth forecast to as much as 4.5 percent from an earlier estimate of 2.5 percent after the government in May defeated the Liberation Tigers of Tamil Eelam, a separatist group.
Sri Lanka aims to cut its budget deficit to 7 percent of gross domestic product in 2009, from 7.7 percent last year, central bank Governor Nivard Cabraal said in a July 21 interview.
The Washington-based lender’s executive board voted today on the 20-month arrangement aimed at helping the island nation rebuild its economy after the end of a 26-year civil war and replenish its international reserves. About $322 million will be made available immediately, the IMF said in a statement today.
“This money is mainly for reserves and balance-of- payments,” Jaliya Wickramasuriya, the country’s ambassador to the U.S., said in an interview in Washington.
Sri Lanka’s reserves declined by more than half in the six months that began in September to as little as $1.4 billion as the global recession hurt export earnings, prompting it to start talks with the IMF in March.
The IMF has said Sri Lanka’s government has undertaken a program aimed at rebuilding reserves, reducing the fiscal deficit, strengthening the financial sector and reconstructing areas damaged by the conflict.
“The global financial crisis has had a significant impact on Sri Lanka’s economy,” Takatoshi Kato, IMF deputy managing director, said in the statement. “Persistently high budget deficits forced the government to rely on short-term financing from international markets. The global shock resulted in a sudden stop to this financing.”
Sri Lanka’s central bank this month raised its 2009 growth forecast to as much as 4.5 percent from an earlier estimate of 2.5 percent after the government in May defeated the Liberation Tigers of Tamil Eelam, a separatist group.
Sri Lanka aims to cut its budget deficit to 7 percent of gross domestic product in 2009, from 7.7 percent last year, central bank Governor Nivard Cabraal said in a July 21 interview.
Thursday, July 23, 2009
Emerging-Market Stocks Attract Most Funds in 6 Weeks
July 24 (Bloomberg) -- Emerging-market equity funds drew $2.6 billion in the week ended July 22, boosted by optimism that U.S. demand for exports will recover, EPFR Global said.
The inflows into emerging-market stock funds were the most since the period ended June 10, the research firm said in a statement yesterday. Global emerging market equity funds attracted $1.08 billion, while those investing in Asian excluding-Japan shares took in $973 million.
Investors have funneled almost $32 billion into emerging market stock funds this year, helping the MSCI Emerging Markets Index to a 45 percent rally. All 10 of the world’s best- performing stock markets belong to developing nations, with Peru, China and Sri Lanka posting the strongest gains.
“Flows into emerging market equity funds rebounded during the third week of July as optimism about a recovery in U.S. demand helped many individual equity markets gain between 3 percent and 8 percent,” EPFR said.
Funds investing in the so-called BRIC nations of Brazil, China, India and Russia added $2.1 billion for an 18th straight week of gains, EFPR said. Mexico funds also posted their strongest weekly inflows since June 2008, gaining 7.2 percent, the research company said.
Equity funds absorbed a total $3.44 billion while fixed income funds had a “rare” week of inflows, attracting $3.98 billion, EPFR added.
The inflows into emerging-market stock funds were the most since the period ended June 10, the research firm said in a statement yesterday. Global emerging market equity funds attracted $1.08 billion, while those investing in Asian excluding-Japan shares took in $973 million.
Investors have funneled almost $32 billion into emerging market stock funds this year, helping the MSCI Emerging Markets Index to a 45 percent rally. All 10 of the world’s best- performing stock markets belong to developing nations, with Peru, China and Sri Lanka posting the strongest gains.
“Flows into emerging market equity funds rebounded during the third week of July as optimism about a recovery in U.S. demand helped many individual equity markets gain between 3 percent and 8 percent,” EPFR said.
Funds investing in the so-called BRIC nations of Brazil, China, India and Russia added $2.1 billion for an 18th straight week of gains, EFPR said. Mexico funds also posted their strongest weekly inflows since June 2008, gaining 7.2 percent, the research company said.
Equity funds absorbed a total $3.44 billion while fixed income funds had a “rare” week of inflows, attracting $3.98 billion, EPFR added.
U.S. Stock Futures Fall on Microsoft, American Express, Amazon
July 24 (Bloomberg) -- U.S. stock futures fell, indicating the Standard & Poor’s 500 Index will slump after climbing to an eight-month high, as Microsoft Corp., American Express Co. and Amazon.com Inc. posted disappointing quarterly results.
Microsoft retreated 6.9 percent on lower profit and sales than analysts estimated. American Express slipped 5 percent after saying earnings decreased as the recession made it harder for cardholders to keep up with payments. Amazon.com lost 6.6 percent following price cuts that caused the online retailer’s revenue to miss projections.
S&P 500 futures expiring in September declined 0.4 percent to 964.70 at 10:26 a.m. in Tokyo. Dow Jones Industrial Average futures dropped 29 points, or 0.3 percent, to 8,962. U.S. stocks surged yesterday, sending the Dow above 9,000 for the first time since January, as EBay Inc., Ford Motor Co. and AT&T Inc. beat estimates and home resales increased more than forecast.
“At these levels in the market, there’s not a lot of room for error,” said Mark Freeman, who helps manage $7.5 billion at Westwood Management Corp. in Dallas. “Anything that deviates brings about a reevaluation by the market.”
Yesterday, the S&P 500 climbed to the highest level since President Barack Obama was elected on Nov. 4, advancing 2.3 percent to 976.29. The Dow gained 188.03 points, or 2.1 percent, to 9,069.29, the highest since one session after Election Day. The Nasdaq Composite Index surged 2.5 percent to 1,973.60 for a 12th straight gain, its longest winning streak since 1992.
Record Pace
Microsoft, American Express and Amazon.com’s worse-than- estimated results followed two weeks of earnings reports that exceeded projections. Among S&P 500 companies that have posted second-quarter results, 74.1 percent beat the average analyst forecast, according to data compiled by Bloomberg. That would be the highest full-quarter figure on record, Bloomberg data going back to 1993 show. Three-hundred three S&P 500 companies have yet to report for the period.
Microsoft fell 6.9 percent to $23.80 in late trading in New York. The biggest software maker reported a 29 percent drop in fiscal fourth-quarter earnings and posted sales that missed analysts’ estimates, a sign that demand for Windows and Office software is still declining. Per-share profit excluding some items was 36 cents, missing the average forecast by 2.4 percent.
American Express retreated 5 percent to $27.99. The credit- card issuer reported second-quarter sales of $6.09 billion, or 1.4 percent less than analysts projected. Net income from continuing operations decreased 48 percent to $342 million.
Free Shipping
Amazon.com lost 6.6 percent to $87.66. The world’s largest Internet retailer has sought to ward off competitors by cutting prices and adding products, such as low-cost laptops and outdoor equipment. Its low prices and free-shipping offers have started to eat into profit, said Aaron Kessler, an analyst at Kaufman Brothers LP. Sales of $4.65 billion were 1 percent less than analysts estimated on average.
EBay rallied 11 percent yesterday as its earnings signaled consumers’ appetite for online commerce is starting to recover. Ford jumped 9.4 percent after topping analyst estimates by paring expenses and adding market share. AT&T added 2.6 percent as new customers of Apple Inc.’s iPhone bolstered profit. D.R. Horton Inc. led all 13 stocks in an index of homebuilders higher as sales of existing homes increased for a third straight month. Before yesterday, the Dow last exceeded 9,000 on Jan. 6.
“With the round number of 9,000 not being there for a significant amount of time, it’s encouraging,” Michael Koskuba, who helps oversee $44 billion at Victory Capital Management Inc. in New York, said of yesterday’s rally. “It’s really a result of companies reporting better-than-expected news. That’s encouraging given that we are in a difficult economic environment.”
Microsoft retreated 6.9 percent on lower profit and sales than analysts estimated. American Express slipped 5 percent after saying earnings decreased as the recession made it harder for cardholders to keep up with payments. Amazon.com lost 6.6 percent following price cuts that caused the online retailer’s revenue to miss projections.
S&P 500 futures expiring in September declined 0.4 percent to 964.70 at 10:26 a.m. in Tokyo. Dow Jones Industrial Average futures dropped 29 points, or 0.3 percent, to 8,962. U.S. stocks surged yesterday, sending the Dow above 9,000 for the first time since January, as EBay Inc., Ford Motor Co. and AT&T Inc. beat estimates and home resales increased more than forecast.
“At these levels in the market, there’s not a lot of room for error,” said Mark Freeman, who helps manage $7.5 billion at Westwood Management Corp. in Dallas. “Anything that deviates brings about a reevaluation by the market.”
Yesterday, the S&P 500 climbed to the highest level since President Barack Obama was elected on Nov. 4, advancing 2.3 percent to 976.29. The Dow gained 188.03 points, or 2.1 percent, to 9,069.29, the highest since one session after Election Day. The Nasdaq Composite Index surged 2.5 percent to 1,973.60 for a 12th straight gain, its longest winning streak since 1992.
Record Pace
Microsoft, American Express and Amazon.com’s worse-than- estimated results followed two weeks of earnings reports that exceeded projections. Among S&P 500 companies that have posted second-quarter results, 74.1 percent beat the average analyst forecast, according to data compiled by Bloomberg. That would be the highest full-quarter figure on record, Bloomberg data going back to 1993 show. Three-hundred three S&P 500 companies have yet to report for the period.
Microsoft fell 6.9 percent to $23.80 in late trading in New York. The biggest software maker reported a 29 percent drop in fiscal fourth-quarter earnings and posted sales that missed analysts’ estimates, a sign that demand for Windows and Office software is still declining. Per-share profit excluding some items was 36 cents, missing the average forecast by 2.4 percent.
American Express retreated 5 percent to $27.99. The credit- card issuer reported second-quarter sales of $6.09 billion, or 1.4 percent less than analysts projected. Net income from continuing operations decreased 48 percent to $342 million.
Free Shipping
Amazon.com lost 6.6 percent to $87.66. The world’s largest Internet retailer has sought to ward off competitors by cutting prices and adding products, such as low-cost laptops and outdoor equipment. Its low prices and free-shipping offers have started to eat into profit, said Aaron Kessler, an analyst at Kaufman Brothers LP. Sales of $4.65 billion were 1 percent less than analysts estimated on average.
EBay rallied 11 percent yesterday as its earnings signaled consumers’ appetite for online commerce is starting to recover. Ford jumped 9.4 percent after topping analyst estimates by paring expenses and adding market share. AT&T added 2.6 percent as new customers of Apple Inc.’s iPhone bolstered profit. D.R. Horton Inc. led all 13 stocks in an index of homebuilders higher as sales of existing homes increased for a third straight month. Before yesterday, the Dow last exceeded 9,000 on Jan. 6.
“With the round number of 9,000 not being there for a significant amount of time, it’s encouraging,” Michael Koskuba, who helps oversee $44 billion at Victory Capital Management Inc. in New York, said of yesterday’s rally. “It’s really a result of companies reporting better-than-expected news. That’s encouraging given that we are in a difficult economic environment.”
Philippines Targets Taxis, Hotels as Arroyo Seeks More Revenue
July 24 (Bloomberg) -- The Big Mouth deli was starting what promised to be another busy June day on the central Philippine vacation island of Boracay when 29 tax officers and policemen came to shut it down.
Since the 48-seat restaurant opened July 2008, it avoided paying an estimated 983,000 pesos ($20,437) in taxes by using unregistered cash machines and false sales receipts, according to the Bureau of Internal Revenue.
“This is really psychological warfare,” said Deputy Commissioner Nelson Aspe, who flew from Manila to supervise the closure of three Boracay businesses June 8. “We are sending a strong signal to our taxpayers that we mean business.”
President Gloria Arroyo is taking unprecedented steps in her final year in office to tackle an entrenched culture of tax evasion that’s contributed to the budget deficit and hampered growth while neighbors prospered. Moody’s Investors Service raised the Philippines’ debt rating yesterday, saying efforts to boost revenue will help improve the country’s finances.
“The country’s long-term fiscal outlook would improve with more progress in shoring up government revenues, both through tightened administration and the introduction of new tax measures,” Tom Byrne, a Moody’s senior vice president, said in a statement from Singapore.
The internal-revenue agency, seeking to recover about 560 billion pesos of lost taxes annually, has increased collection targets and plans to hire 3,000 more accountants and lawyers. By cross-checking taxpayer records with local authorities, it has discovered 30,000 unregistered businesses in Manila’s Marikina municipality alone.
Counting Bed Sheets
Agents are counting hotel bed sheets and will soon scour electricity bills to expose companies that under-declare income. A meter system for taxis was implemented in June.
Authorities have closed 58 restaurants, hotels and shops since January, including Big Mouth, which began getting warning letters in February, the tax bureau said. When the bureau got no response, it closed the restaurant.
“This is unfortunate because business is doing good,” said Randy David, Big Mouth’s manager, as authorities padlocked the shop. He declined to comment on the government’s allegations and said the head office in Manila handled taxes.
Benjamin Diokno, a professor at the University of the Philippines who served as budget secretary under former President Joseph Estrada, said the campaign will have “marginal” effect. “Poor governance and lack of political will” mean enforcers target only “small fry,” he said.
Least Efficient
The Philippines is the fourth-least-efficient tax collector in the world, according to Fitch Ratings. In 2007 and 2008, it booked revenue amounting to 14 percent of gross domestic product a year, two-thirds of the 21 percent the government estimates it should have received, Finance Undersecretary Gil Beltran said.
The only countries with lower revenue-to-GDP ratios are Guatemala, Bermuda and Costa Rica, according to Fitch. It rates Philippine debt BB, two levels below investment grade.
In the past 20 years, the Philippine economy expanded an average 3.9 percent annually, lagging behind Thailand’s 5.4 percent, Malaysia’s 6.5 percent and Singapore’s 6.7 percent. Growth slumped to a decade low of 0.4 percent in the first quarter as exports collapsed, crimping company profits and taxes, which were reduced to 30 percent from 35 percent by a 2005 law that took effect this year.
Revenue Drain
Arroyo, whose presidency ends in 2010, has exacerbated the revenue drain with programs to help Filipinos cope with inflation that soared to a 16-year high of 12.4 percent in August 2008. Last year, she exempted half a million minimum-wage workers from income tax and raised exemptions for salaried employees.
To help ease the crunch, Finance Secretary Gary Teves is asking lawmakers to simplify the cigarette- and liquor-levy structure and reduce tax incentives to boost collections by at least 35 billion pesos annually.
The government trimmed its 2009 spending target last month to 1.489 trillion pesos from 1.495 trillion after revenue declined 5.4 percent in January through May. It has widened the 2009 budget-deficit estimate three times this year to 250 billion pesos, the most since Bloomberg data began in 1985.
“There’s an urgency to bring about change, but how much change can really be achieved” during an economic slump, asked Vishnu Varathan, an economist at Forecast Singapore Pte. “It’s not the right time.”
Caught in Dragnet
Alice Matsuo was caught in the dragnet. Her Alice in Wonderland Boracay Resort failed to pay an estimated 5 million pesos of taxes after she fell ill with cervical cancer in 2006. Authorities closed it June 8.
Matsuo, 55, said there wasn’t anyone to do the paperwork when she got sick. “We weren’t able to pay for two years, but others haven’t been paying for years. They just keep bribing.”
The government has charged 108 tax and customs officers with corruption as part of a program started in 2003 to weed out dishonest officials, Department of Finance data show.
Taxes account for two-thirds of government revenue, putting pressure on people like Araceli Francisco, Internal Revenue regional director for the central island provinces of Samar and Leyte. She must collect 3.44 billion pesos this year from her region, 21 percent more than 2008.
“What we need is support in terms of manpower, logistics and training,” Francisco said. “Collection is becoming harder.”
Since the 48-seat restaurant opened July 2008, it avoided paying an estimated 983,000 pesos ($20,437) in taxes by using unregistered cash machines and false sales receipts, according to the Bureau of Internal Revenue.
“This is really psychological warfare,” said Deputy Commissioner Nelson Aspe, who flew from Manila to supervise the closure of three Boracay businesses June 8. “We are sending a strong signal to our taxpayers that we mean business.”
President Gloria Arroyo is taking unprecedented steps in her final year in office to tackle an entrenched culture of tax evasion that’s contributed to the budget deficit and hampered growth while neighbors prospered. Moody’s Investors Service raised the Philippines’ debt rating yesterday, saying efforts to boost revenue will help improve the country’s finances.
“The country’s long-term fiscal outlook would improve with more progress in shoring up government revenues, both through tightened administration and the introduction of new tax measures,” Tom Byrne, a Moody’s senior vice president, said in a statement from Singapore.
The internal-revenue agency, seeking to recover about 560 billion pesos of lost taxes annually, has increased collection targets and plans to hire 3,000 more accountants and lawyers. By cross-checking taxpayer records with local authorities, it has discovered 30,000 unregistered businesses in Manila’s Marikina municipality alone.
Counting Bed Sheets
Agents are counting hotel bed sheets and will soon scour electricity bills to expose companies that under-declare income. A meter system for taxis was implemented in June.
Authorities have closed 58 restaurants, hotels and shops since January, including Big Mouth, which began getting warning letters in February, the tax bureau said. When the bureau got no response, it closed the restaurant.
“This is unfortunate because business is doing good,” said Randy David, Big Mouth’s manager, as authorities padlocked the shop. He declined to comment on the government’s allegations and said the head office in Manila handled taxes.
Benjamin Diokno, a professor at the University of the Philippines who served as budget secretary under former President Joseph Estrada, said the campaign will have “marginal” effect. “Poor governance and lack of political will” mean enforcers target only “small fry,” he said.
Least Efficient
The Philippines is the fourth-least-efficient tax collector in the world, according to Fitch Ratings. In 2007 and 2008, it booked revenue amounting to 14 percent of gross domestic product a year, two-thirds of the 21 percent the government estimates it should have received, Finance Undersecretary Gil Beltran said.
The only countries with lower revenue-to-GDP ratios are Guatemala, Bermuda and Costa Rica, according to Fitch. It rates Philippine debt BB, two levels below investment grade.
In the past 20 years, the Philippine economy expanded an average 3.9 percent annually, lagging behind Thailand’s 5.4 percent, Malaysia’s 6.5 percent and Singapore’s 6.7 percent. Growth slumped to a decade low of 0.4 percent in the first quarter as exports collapsed, crimping company profits and taxes, which were reduced to 30 percent from 35 percent by a 2005 law that took effect this year.
Revenue Drain
Arroyo, whose presidency ends in 2010, has exacerbated the revenue drain with programs to help Filipinos cope with inflation that soared to a 16-year high of 12.4 percent in August 2008. Last year, she exempted half a million minimum-wage workers from income tax and raised exemptions for salaried employees.
To help ease the crunch, Finance Secretary Gary Teves is asking lawmakers to simplify the cigarette- and liquor-levy structure and reduce tax incentives to boost collections by at least 35 billion pesos annually.
The government trimmed its 2009 spending target last month to 1.489 trillion pesos from 1.495 trillion after revenue declined 5.4 percent in January through May. It has widened the 2009 budget-deficit estimate three times this year to 250 billion pesos, the most since Bloomberg data began in 1985.
“There’s an urgency to bring about change, but how much change can really be achieved” during an economic slump, asked Vishnu Varathan, an economist at Forecast Singapore Pte. “It’s not the right time.”
Caught in Dragnet
Alice Matsuo was caught in the dragnet. Her Alice in Wonderland Boracay Resort failed to pay an estimated 5 million pesos of taxes after she fell ill with cervical cancer in 2006. Authorities closed it June 8.
Matsuo, 55, said there wasn’t anyone to do the paperwork when she got sick. “We weren’t able to pay for two years, but others haven’t been paying for years. They just keep bribing.”
The government has charged 108 tax and customs officers with corruption as part of a program started in 2003 to weed out dishonest officials, Department of Finance data show.
Taxes account for two-thirds of government revenue, putting pressure on people like Araceli Francisco, Internal Revenue regional director for the central island provinces of Samar and Leyte. She must collect 3.44 billion pesos this year from her region, 21 percent more than 2008.
“What we need is support in terms of manpower, logistics and training,” Francisco said. “Collection is becoming harder.”
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