Gloria Macapagal-Arroyo

President of the Republic of the Philippines 2001 - 2010


A. Established a comprehensive capital market blueprint

The Arroyo Administration, cognizant of the importance of a sound and stable financial system to the macroeconomy, established a comprehensive medium-term blueprint called the Capital Market Development Plan (2005-2010). The Plan, which was a result of extensive consultation among stakeholders from both public and private stakeholders, outlines strategic objectives that will provide for a robust and competitive Philippine capital markets. Some of these major objectives include the following:

1. Fostering a sound macroeconomic policy environment conducive to growth through (a) the pursuit of a balanced fiscal position; (b) the implementation of policies that will lower interest rates in a bid to produce a more favorable climate for entrepreneurs and encourage greater private investments; and (c) increasing the national savings rate and facilitating financial intermediation. /p>

The fiscal consolidation plan was deferred with the onset of the global financial crisis, as the national government allowed deficit spending to fund a stimulus program (the Economic Recovery Program) to boost the economy and protect it against recession. Even in the midst of deficit spending in 2009, the interest rates remained stable since the Bangko Sentral ng Pilipinas supported a low interest rate regime through the adoption of an accommodative monetary policy. This was designed to inject greater liquidity into the financial system, allow greater business borrowings and investments, and sustain economic growth.

Meanwhile, to encourage higher saving rate, Republic Act 9505 or the Personal Equity and Retirement Account (PERA) was enacted into law by the President on August 22, 2008. The law also institutionalizes a voluntary provident savings plan that will complement the mandatory retirement systems and provide an alternative tax-preferred financial instrument to encourage people to save for old age.

The passage of Republic Act 9520 last 16 December 2008, or the New Philippine Cooperative Code, was also seen to contribute to greater savings mobilization because the law includes provisions that will strengthen the operations of credit cooperatives which mobilize savings from their members. It also allows existing credit cooperatives to transform into a financial service cooperative should they opt to offer banking services to their members. Likewise, the law provides for stronger prudential regulation and supervision by the Cooperative Development Authority over credit cooperatives, cooperatives that provide savings and credit to their members and financial service cooperatives which are critical financial intermediaries.

2. Undertaking regional market initiatives through the conduct of studies to address constraints in developing a competitive bond market. The Capital Market Development Council, of which the DOF is a member, continued to push for reforms in taxation and regulation of the capital market. Some priority proposals, such as the PERA, CISA, Amendments to the PDIC Charter, Amendments to the Cooperative Code, and Pre-Need Code have been enacted into law. Likewise, the permanent exemption of secondary trading of stocks from the DST has been approved. This initiative was a priority component of the Financial Sector Tax Reform (FSTR) which called for tax parity.

On Regional Markets Initiative, the Philippines is actively participating in the Asian Bond Markets Initiative, such as the establishment of the Credit Guarantee and Investment Mechanism (CGIM) with an initial capital of $500 million from ASEAN+3 member countries. The objective of this facility is to facilitate the issuance of local currency-denominated corporate bonds for ASEAN+3 member countries. The CGIM facility will be a trust fund housed at the ADB, and CGIM will receive the AAA credit rating by virtue of its cash endowment.

The Philippines also co-chairs, with Korea, Taskforce 4 of the ABMI on "Improving Related Infrastructure for the Bond Markets". The main objectives of the Taskforce for 2009 are to (1) develop the infrastructure for regional securities settlement; and (4) develop professionals in financial services. On the first objective, the TF will undertake to study the key issues in cross border bond transactions and settlement, including the feasibility of establishing a Regional Settlement Intermediary in the ASEAN + 3 region.

B. Pushed for the enactment of critical capital market-related bills

1. Personal Equity and Retirement Account (PERA)

The PERA was enacted into law by the President as Republic Act 9505 on August 22, 2008. The law institutionalizes a voluntary provident savings plan that will complement the mandatory retirement systems and provide an alternative tax-preferred financial instrument to encourage people to save for old age

2. Philippine Deposit Insurance Corporation (PDIC)

The PDIC bill was signed into law by the President on April 29, 2009 as RA 9576. The law allows the increase in the maximum deposit insurance coverage from P250,000 to P500,000 in light of the world-wide financial crisis, and a tax treatment where all tax obligations of PDIC for a period of 5 years reckoned from the date of effectivity of the law shall be chargeable to the Tax Expenditure Fund in the annual General Appropriations Act. On the 6th year and thereafter, the Corporation shall be exempt from income tax, final withholding tax, VAT on assessments collected from member banks, and local taxes.

3. Pre-Need Code

The enrolled copy of the bill was signed into law by the President on December 3, 2009 as RA 9829. The law strengthens the regulatory framework to enable the pre-need industry to serve its purpose and to protect the investors and plan holders alike. The law now vests in the Insurance Commission the authority to supervise and regulate the operations of the pre-need industry.

4. Credit Information System Act (CISA)

The CISA was enacted into law as Republic Act 9510 on October 31, 2008. The law establishes a comprehensive credit information sharing system that will help financial institutions manage their risks, promote transparency, and enhance the credit evaluation process. CISA will help address the lack of comprehensive and credible credit-related information. The law creates a Credit Information Corporation whose primary mandate is to receive and consolidate basic credit data and to act as a central registry of credit information which will provide access to reliable standardized information on credit history and financial condition of borrowers.

5. Real Estate Service Authority (RESA)

The RESA bill was signed into law as Republic Act 9646 on June 29, 2009. The RESA regulates the practice of the real estate profession in the Philippines. It professionalizes the real estate service practice, composed of the real estate consultants, appraisers, and brokers in private practice, including the appraisers in national government agencies and government corporations, and LGU assessors, and includes the accreditation and registration of real estate sales persons. The professionalization of the real estate service practice will stimulate the land market, enhance government income--especially local government revenues from real property which are their most important resource--help decrease LGU dependence upon the IRA, and overall strengthen public confidence in our system of governance.

6. Exemption of Secondary Trading of Stocks from the Documentary Stamp Tax (DST)

The bill was signed into law by the President as Republic Act 9648 on June 30, 2009. The law abolishes the documentary stamp tax (DST) on the secondary trading of shares of stocks traded through the local stock exchange. The implementation of the law is expected to result in an increase in the volume of transactions in the stock exchange that would translate into a corresponding increase in the collection of value added tax and stock transaction tax.

7. Real Estate Investment Trust (REIT)

The REIT bill lapsed into law as Republic Act 9856 on December 17, 2009. The REIT provides the legal and regulatory framework for the development of real estate investments in the country in order to contribute to the growth and development of a stronger capital market. The measure provides an avenue for investors to participate directly in the ownership and financing of real estate projects at affordable rates of investment.

8. Special Purpose Asset Vehicle (SPAV)

The Special Purpose Asset Vehicle (SPAV) bill was enacted into law as Republic Act No. 9182 in January 2003. The SPAV law addressed the problem of non-performing assets (NPAs) of the banking industry. The sale or transfer of NPAs to asset management companies (AMCs) or special purpose vehicles (SPVs) provided additional liquidity to the banks. This process boosted lending in the sector thereby stimulating more financial activities. RA 9182 also provided the regulatory framework for fiscal incentives to be granted to special purpose vehicle (SPVs) that would buy the NPAs of banks at a discount.

9. Securitization Law

The Securitization bill was signed into law by the President as Republic Act No. 9267 in March 2004. It promotes the development of the capital market and the creation of a favorable market environment for a range of asset-backed securities. RA 9267 sets up the legal and regulatory framework for securitization, specifically for the sale of assets, such as loans, receivables, mortgages and other debt instruments, as new securities to raise capital.

10. Reduction of Premium Tax from 5 percent to 2 percent under Republic Act 1001

The law, which was enacted to make life insurance policies affordable, provides for a new documentary stamp tax scheme for insurance policies. The graduated stamp tax rates are as follows: no charge for policies lower than P100,000; P10 for policies worth more than P100,000 to P300,000; P25 for those worth more than P300,000 to P500,000; P50 for policies worth more than P500,000 to P750,000; and P100 for those worth more than P750,000 to P1 million. The law likewise provides that the new tax rates would be imposed for the next five years, after which life insurance companies would be totally spared from paying premium taxes and documentary stamp taxes.

C. Prudently managed national government (NG) debt

Despite the global financial crisis which continues to affect revenue generation efforts of the national government, the debt ratios managed to improve. From a high of 78.2 percent in 2004, debt to GDP ratio has declined to 56.8 percent in 2009. As a result, interest expense, as a percentage of expenditures, went down to 21.5 percent against 29.2 percent in 2004.

D. Promoted inclusive finance and growth of microfinance sector

A large number of the population remain poor, and they urgently need assistance in terms of livelihood and social protection. Thus, President Arroyo, in one of her SONAs, declared microfinance as the cornerstone in reducing poverty in the country. Through microfinance, the poor are given the opportunity to lift themselves out of poverty by encouraging them to engage in livelihood and enterprise activities.

The Arroyo Administration, through the DOF-National Credit Council, promoted market-oriented principles in fuelling the growth of the microfinance sector, attracting greater participation of private financial institutions in the delivery of microfinance services. Latest figures show that after ten (10) years, the number of MFIs have reached over 1400. Including branches, this has swelled to over 2,000. From a few hundreds of thousands in 1997, the number of microfinance clients has increased to 6.0 million as of end-October 2009.

The continuing success of microfinance is attributed to the National Strategy for Microfinance to which the Administration and other stakeholders continue to adhere. The Strategy espoused market principles in lending to the basic sector, with government financial institutions as wholesalers of funds and private financial institutions – rural banks, credit cooperatives and other cooperatives engaged in savings and credit, and microfinance NGOs -- as retailers.

With the growing success of microcredit, other microfinance services such as microinsurance are gaining ground. The government, through the DOF-NCC, saw microinsurance as a complement to microcredit. As the number of clients are growing and their incomes improving, the government recognized the need to provide the poor with risk protection in terms of insurance. Thus, it launched the National Strategy for Microinsurance and the Regulatory Framework for Microinsurance on January 29, 2010. The launching paved the way for the development of the microinsurance sector through the establishment of an enabling policy environment as well as development of microinsurance products and services that would benefit the poor.