Iflation Again Rises With election spending at its height, consumer prices rose in April at a rate faster than previously bringing the base inflation rate for the month to an annualized 4.1 percent from 3.8 percent in March (base year 1994). The inflation figure was higher than that forecast by the central bank and the National Economic Development Authority, which had forecast 3.9 percent and a range of 3.5?4.0 percent, respectively. A rise in the cost of food items and other basic commodities including oil and gas were the main reasons for the increase. The NSO survey showed that products under the classification of "food, beverage and tobacco" increased by as much as 4.7 percent last month.

Exports Rise by More than 7 Percent

The country's manufacturing sector may finally be showing sustained signs of new life on news that merchandise exports in March posted 7.1 percent growth over the previous year to a total of US$3.35 billion. The March figure comes on top of 7.5 percent growth recorded in February. Electronics products accounted for 67 percent of total exports and were up by 9.8 percent over the level in March 2003. Apparel and clothing accessories accounted for 5.4 percent but dropped from the 6.3 percent recorded a year ago. Japan took 22.2 percent of total exports followed by the United States with 16.8 percent and the Netherlands at 11.7 percent.

Port Security and the ISPS Code

The Department of Transport and Communications has been designated as the agency responsible for implementation of the new International Ship and Port Security Facility Code (ISPS Code) regulating all vessels over 500 gross weight tons and which will take effect on July 1.

Executive Order 311 was signed by President Arroyo on April 26. The measure is regarded as particularly important to shippers in view of heightened security concerns, especially at United States ports. There are fears that container traffic from Asia and the Middle East could be used to smuggle terrorist weapons and even bombs into the United States.

The Code was adopted by a Conference of Contracting Governments to the International Convention for the Safety of Life at Sea, 1974, convened in London in December 2002. The Code aims, among other things, to establish an international framework for co-operation between Contracting Governments, Government agencies, local administrations and the shipping and port industries to detect security threats and take preventive measures against security incidents affecting ships or port facilities used in international trade and to establish relevant roles and responsibilities at the national and international level. These objectives are to be achieved by the designation of appropriate personnel on each ship, in each port facility and in each ship owning company to make assessments and to put into effect the security plans that will be approved for each ship and port facility.

The Code is divided into two parts. Part A presents mandatory requirements while Part B contains recommendations regarding the provisions of chapter XI-2 of the Convention and Part A of the Code. These include detailed security requirements for governments, port authorities and shipping companies. It also contains guidelines on how to meet such requirements. Ports that fail to comply with the IPS Code will face sanctions and goods shipped from such ports may be refused entry at their destination. Major hubs including Hong Kong and Singapore are already compliant as is the Manila Container Terminal. Some smaller ports however are facing difficulties in bringing their local standards into conformity with international practice.

Inflow of Portfolio Investment Funds on the Rise

Net foreign portfolio funds in April increased by 14.85 percent year on year to $58 million, its highest for the year so far. The $7.5 million increase signifies foreign investors continuing confidence in the country despite political and economic uncertainties ahead of the May 10 polls, according to central bank officials. Data from the Bangko Sentral ng Pilipinas also showed inflows for April totaled $35.2 million, up by 39.68 percent from $25.2 million in the same month last year. But outflows increased by 421 percent to $29.7 million from only $5.7 million a year earlier, dragging the net foreign portfolio equity investment to a new low during the month.

Officials said the outflow, just a few weeks ahead of the national elections, could have resulted from fleeting uncertainties that prompted foreign investors to temporarily pull out their investments. Central bank data on portfolio investments come from the country's five largest securities custodian banks - Citibank N.A., Standard Chartered Bank, Deutsche Bank, HSBC, and ING Bank - which together account for more than 95% of total fund flows. A custodian bank is a commercial bank or offshore banking unit appointed by a foreign investor to register his investments and to hold shares for and on his behalf, and represent him in investment deals in the country.

Financial Markets

The gross international reserves (GIR) of the Philippines rose to US$16.2 billion as of end April due in part to inflows from fresh public sector borrowings. These included proceeds from the zero-coupon Treasury bond issue and the medium and long-term borrowings of the central bank. At this level, reserves are sufficient to cover 4½ months of import payments and are equivalent to 2.8 times the short-term debt of the Philippines based on date of original maturity. The Bangko Sentral ng Pilipinas has maintained its rates for the 10th straight month. At its monthly policy meeting this past week the bank decided to maintain its overnight borrowing rate at 6.75 percent and 9 percent for overnight lending. Policy rates were last adjusted in July 2003 at which time they were reduced by 25 basis points.

Key Rates

Key Rates
	This Week	Last Week	Change
US$1.00	55.547	56.034	0.87%
NEER	11.84	11.92	0.67%
91-day T-bills	7.16%	7.16%	0.00%
Rediscount Rate	6.16%	6.16%	0.00%
Repo Rate	9.00%	9.00%	0.00%
Rev. Repo Rate	6.75%	6.75%	0.00%
Gold Buy/troy oz.	393.2	384.25	2.33%
Source: BSP 10 May 2004