Saturday, March 25, 2006

Financial fraud?

this story was taken from

Gov't revises 2005 trade data; reports bigger deficit
Posted: 11:11 AM | Mar. 24, 2006
Erik de la Cruz

THE TRADE deficit last year stood at 6.163 billion dollars, against a preliminary estimate of 3.903 billion, the National Statistics Office said.

Total revenue from exports last year stood at 41.26 billion dollars against an initial estimate of 41.006 billion, while total payments for imports amounted to 47.418 billion dollars compared with the preliminary level of 44.910 billion.

NSO officials said the adjustments took into account "late entries" or data received after cut-off dates, as well as some data excluded from the initial computation.

As a result of the revisions, the 2005 growth rates for exports and imports were adjusted to 4.0 percent and 7.7 percent, respectively, from preliminary estimates of 3.9 percent and 2.0 percent.

Exports receipts in 2004 totaled 39.681 billion dollars, while import expenditures totaled 44.039 billion dollars.

GDP, economic data flawed, says IMF
By Chito Lozada


The International Monetary Fund (IMF) has noted flaws on the country's statistical agency's estimates of the gross domestic product (GDP) saying there exists large discrepancies between GDP estimates calculated from the expenditure and production sides, which the government uses.

The IMF, in a paper presented as a result of its latest review of the Philippine economy, said the discrepancy result in "consequent differences in estimates of GDP growth."

The IMF said despite the authorities' efforts to improve (data) quality, serious weaknesses remain in the national accounts.

The IMF stated that although data are generally published on a timely basis, "weaknesses in the statistical base continue to hamper surveillance."

The IMF said based on the 2004 Data Module of the Report on the Observance of Standards and Codes (ROSC), which guides countries on data integrity, the most serious deficiencies "relate to the national accounts and balance of payments statistics."

It added deaths and births of establishments are not adequately captured.

In turn, this gap is of growing importance given the rapid structural change in the economy in recent years,with a large number of new establishments, in particular in the electronics and information technology industries, it said.

The IMF added compilation of data in the Philippines relies on an outdated benchmark year and fixed input-output ratios.

"The estimates are derived by extrapolation of the 1988 benchmark year using fixed input-output ratios. For example, GDP statistics for the electronic sector suggest that value added remained at 10 percent of exports over the past years in spite of industry evidence that the domestic component of exports has been rising sharply," it said.

The IMF, moreover, said statistical techniques in estimating the GDP at constant prices are inadequate.

"For most activities, not all components of the production accounts are compiled, instead only value added is estimated," it said.

In addition, the IMF noted the national accounts constant price estimates for merchandise exports and imports are arrived at by multiplying 1985 values by quantity data, by weights, from the foreign trade statistics for current years.

Because of this inappropriate method, implicit deflators, which take the difference between the real value and that including inflation, for electric machinery products appear high compared with developments in world market prices.

The IMF said it has fielded several technical assistance missions since 1995, including the assignment of an advisor in 2003.

In 2005, the Bangko Sentral ng Pilipinas created a new Department of Economic Statistics, with one of its units to concentrate on compiling, analyzing and publishing the balance of payments and the international investment position.

It also noted major revisions to the 2003 to 2004 accounts in March 2005.

Statistics agencies have more than once revised trade data since 2001. In 2002, the Asian Wall Street Journal (AWSJ) reported the country window-dressed its current account data by understating imports.

The National Statistics Office later on admitted having erred in the computations of both exports and imports due to what it claims as missed data inputs from the country's free trade zones. The NSO also admitted having counted exports from the zones twice resulting in a better than actual trade and current account figures.

The problem then includes massive under-reporting of imported electronic parts, which are then assembled into semiconcductors, computer accessories and other finished goods that make up two-thirds of exports.

The AWSJ report hinted then the window-dressing was intentional since ratings agencies were then looking at the country's economic performance for a possible credit ratings upgrade.

Work to backtrack the series to 1999 to make the series comparable is expected to be completed in the first quarter of 2006, it added.

Data revisions on imports have narrowed the gap between national trade data and those of partner countries on a net basis.

Since the deregulation program in the early 1990s, international transactions have increasingly flowed through nontraditional channels that are not adequately covered by the statistical reporting system.

The major gap relates to foreign currency deposit units (FCDUs), which account for about 70 percent to 75 percent of foreign exchange settlements.

Because of strict secrecy rules, banks are not mandated to report information, it noted.

Unless modifications are made to secrecy rules associated with FCDU accounts to facilitate the collection of data for statistical purposes, compilation of the balance of payments will continue to face challenges in securing adequate source data, the IMF said.

Weaknesses remain, however, including in the treatment of nonoperational banks, valuation of securities and treatment of accrued interest, the IMF said.

While the Philippines meets the requirements of fiscal transparency in many important respects, the recent fiscal and data ROSCs found areas that require strengthening, the IMF added.

An important problem is that the budget is presented on an obligations basis, while the deficit is reported on a cash basis, complicating comparisons of budgets and outcomes.

In addition, for levels of the public sector beyond the budgetary central government, consolidated fiscal outturns for items other than the fiscal balance are generally not available, the IMF said.

For comments about this
The Daily Tribune (c) 2006

Ex-Neda chief suggests padded growth figures
By Chito Lozada


Why do analysts almost always underestimate the country's economic growth figures, the latest of which was the 5.1 percent gross domestic product (GDP) growth last year that was forecast at most a 4.7 percent growth?

Former National Economic Development Authority (Neda) director general and Socio Economic Policy Secretary Felipe Miranda said the surprising growth figure last year may be nothing more than the result of massaged data that was the result of a less conservative formula in estimating growth.

"Nearly every one of them (analysts) expected that record-high oil prices and the political crisis will result in a significant reduction in GDP growth in 2005, particularly in the fourth quarter but the National Statistics Coordination Board (NSCB) came up with a growth rate of 6.1 percent in the fourth quarter and 5.1 percent for 2005," Medalla said.

He noted that using the gross domestic expenditures approach, growth rates for last year would be much lower, or a mere 3 percent growth in the fourth quarter and 3.4 percent for the entire of last year.

Analysts and forecasters were right about the 2005 economic performance if the gross domestic expenditures were used as basis for growth, Medalla said.

Gross domestic expenditures are comprised of personal consumption, expenditures of both the private sector and the government and net exports, which are exports less imports.

The government used the production approach in estimating growth.

He said the statistical gap between expenditures and production growth rates has widened "and is abnormally high" during the last five years, or after Mrs. Arroyo took office in 2001.

"Either the economy is very resilient or GDP growth was significantly over-estimated," Medalla said.

Medalla, a School of Economics professor at the University of the Philippines, presented a paper entitled "Surprising Economic Growth or Puzzling Statistics? Implications on Financial Markets" to back up his assertions.

The International Monetary Fund (IMF), in its recent assessment of the economy made a similar comment on the economic data.

The IMF noted large discrepancies between GDP estimates calculated from the expenditure � as espoused by Miranda � and the production side, on which the government bases the official GDP estimates.

This resulted, consequently, in "differences in estimates of GDP growth," according to the IMF.

The IMF attributed the discrepancies to the failure to adequately capture "deaths and births of business establishments, outdated benchmark year and fixed input-output ratios, and inadequate statistical techniques in estimating GDP at constant prices."

"The (GDP) estimates are derived by extrapolation of the 1988 benchmark year using fixed input-output ratios. For example, GDP statistics for the electronic sector suggest that value added remained at 10 percent of exports over the past years in spite of industry evidence that the domestic component of exports has been rising sharply," it said.

"For most activities, not all components of the production accounts are compiled, instead only value added is estimated," the IMF said.

The IMF said the national accounts constant price estimates for merchandise exports and imports are arrived at by multiplying 1985 values by quantity data, by weights, from the foreign trade statistics for current years.

Medalla said growth estimates based on production and expenditures
virtually even out over the long run, or over 20 years, but not
necessarily in the medium term such as in five years.

Medalla noted the main weaknesses in estimation of growth are found in agriculture and manufacturing.

Medalla said possible indicators that the economy has not grown as fast as reported was the slow growth in the demand for electricity and low expansion of domestic credit.

For comments about this
The Daily Tribune (c) 2006

BOP surplus seen to drop to $1.6B this year
By Des Ferriols
The Philippine Star 03/24/2006

The Bangko Sentral ng Pilipinas (BSP) expects the country's balance of payments (BOP) surplus to drop to $1.6 billion this year from $2.4 billion in 2005.

The BSP said yesterday that it had opted to take a conservative position when it ran the preliminary figures of dollar inflows from export earnings and overseas Filipino workers (OFWs) this year.

"Although the National Government (NG) made a huge deposit into the international reserves, these funds would not stay there but they will be spent to pay maturing obligations, " BSP Deputy Governor Diwa Guinigundo said.

The NG generated $2.1 billion in January from global and euro bond floats, pushing the country's gross international reserves (GIR) to a record high of $2.029 billion in February.

However, Guinigundo explained that although the NG deposit pushed the BOP surplus to an all-time high, the funds would not stay in the reserves and actual inflows net of government borrowings could actually go down in 2006.

"There are factors we had to consider and we decided it would be better to make a conservative preliminary estimate rather than be tied to an unrealistically high number," Guinigundo said.

According to Guinigundo, the BSP was making room for a possible softening in the global demand for electronics which could lead to a weaker export performance for 2006.

Morevoer, Guinigundo said the BSP was not being overly optimistic about the possible inflows from OFWs which surged by 10 percent last year.

"Remittances were really strong in 2005 and we expect that to continue in 2006 although perhaps not by the same magnitude," Guinigundo said. "We don't know what could happen this year, immigration laws could tighten up further and curtail labor deployment."

According to the BSP's Department of Economic Statistics (DES), the deployment of workers had already declined in the first two months of the year and this could portend slower OFW remittances this year.

DES director Iluminada Sicat said the BSP did not want to over-estimate foreign exchange inflows, especially since there was no clear indication as yet of total foreign direct investment or portfolio investments.

Based on initial projections, Sicat said the BSP is expecting total export earnings to grow by only eight percent to $43.6 billion this year from $40.3 billion in 2005.

Imports, on the other hand, are expected to reach $52.6 billion, up from $48.3 billion. Guinigundo said this indicated that there would be capacity and materials for expansion in production if the demand actually materializes.

The projected GIR for this year is still $20 to $21 billion.

Copyright (c) 2005 . All rights reserved.

March 24, 2006
Business (as of 1:33 AM)
Bangko Sentral cuts RP's dollar surplus forecast
By MARICEL E. BURGONIO, The Manila Times Reporter

The Bangko Sentral ng Pilipinas (BSP) cut this year's forecast for the country's dollar surplus from last year's level, citing huge repayment of government's maturing debt and lower remittances by overseas Filipino workers (OFWs).

In a briefing on Thursday Iluminada Sicat, director of the central bank's economic statistics department, said the BSP expects the country to end the year with a balance-of-payments (BOP) surplus of $1.6 billion, higher than an earlier estimate of $900 million but down from $2.4 billion in 2005.

The BOP summarizes a country's economic transactions with the rest of the world, including its net proceeds from trade and investment flows. A surplus in the BOP means the country earned more foreign exchange than it gave up, thus boosting its dollar reserves and instilling confidence in the country's ability to weather global economic downturns.

"We made [a] conservative forecast due to different risks in the global economy [for] exports, the potential growth of the deployment of OFWs, as well as strict implementation of the Antimoney Laundering Act," Sicat said.

She said the national government decided to frontload its borrowings, which will be used to repay maturing loans.

The national government early this year raised $2.2 billion through the sale of global bonds or IOUs. This forms part of its $4-billion foreign borrowing program this year.

Late last year the government frontloaded by borrowing some $1 billion.

Besides commercial sources, the government also plans to borrow another $900 million from foreign donors.

The BSP expects some $650 million in loans to mature this year.

Its policymaking Monetary Board has decided to source some $500 million from the country's dollar or international reserves.

For this year, the BSP expects the country's reserves to reach $20 to $21 billion $18.5 billion last year. At end-February, this reached a record $20.6 billion.

OFW remittances, meanwhile, are seen to rise by 10 percent this year from $10.7 billion in 2005. Exports are expected to expand by 8 percent this year from $40.3 billion last year.

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