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Manuel Pangilinan is the first CEO of a major Philippine corporation
to analyze high oil prices and their impact on his company. He made
the analysis during the annual stockholders’ meeting June 10 of
the Philippine Long Distance Telephone Co..
PLDT is the country’s largest enterprise in
market cap, P460 billion as of June 2008, P340 billion more or 3.8
times the value in 1998. Its profits of P36 billion in 2007 are 22
times the P1.6 billion made in 1998. Congratulations, padre.
However, the price of oil, at about $135
currently, is really worrisome. MVP calls the oil crisis “a
colossal problem.”
“Oil at around $130 per barrel translates into
a massive transfer of funds from oil buyers to oil
producers—estimated to be $1.8 trillion annually,” Pangilinan
estimates.
This, he explains, has three significant
aspects:
First, it redistributes world incomes
enormously, and places tremendous economic and social pressures on
non-oil producing countries like the Philippines.
Second, nations affected are adjusting to this
redistribution by raising the prices of their own exports to offset
the higher price of oil. In addition to core demand coming from
China and India, this defensive posture contributes to rising prices
of basic commodities such as rice, of minerals and metals, and even
of manufactured goods.
Third, this crisis poses a problem of recycling
financial assets and liabilities on a global scale. The large
amounts being accumulated by oil companies and oil-producing
countries mean surpluses to be invested, while oil importers need to
have their deficits financed. This creates huge mismatches between
sources and needs for funds. And because the mechanisms for
recycling surplus to deficit have not been established, countries
like ours face the problem of raising finance for future growth.
“What are the implications of all this on the
Philippines?” MVP asks himself.
The answer, he replies, “must be that we have
to adjust to a regime of higher prices for fuel and food because at
some point, the world will stagger into some price equilibrium for
both.”
More specifically, these implications are:
1. Growth in consumption spending will abate.
This possibility is critically important for since consumer
expenditures is the mainstay of our business.
2. The good news might lie in the continued
strength in the flows of overseas remittances, to compensate for
accelerating prices. However, the direction of remittance-led
spending is likely to shift away from asset acquisitions—such as
the purchase of real estate—and move towards maintaining our
people’s ability to spend on life’s necessities, such as food,
rent, and education.
3. Private sector investment would weaken as
foreign and domestic investors begin to reflect their bearish
sentiment.
4. Government spending on infrastructure may
slow down as funds get diverted into subsidy programs intended to
cushion the impact of inflating food and fuel prices on the poor.
This will have an indirect but negative impact on employment and
incomes. In the short-run, social protection has become a more
important imperative to economic growth.
5. Monetary policy is gradually adjusting to the
insidious threat of inflation – Interest rates have in fact been
raised.
Despite such dire implications, MVP remains
bullish about PLDT’s outlook.
The threats confronting us today may be new, he
concedes. However, “the PLDT of today is altogether different,”
he adds. “We have emerged stronger from the 1997 Asian crisis, and
are better positioned to weather this tempest.”
Thus, he assures, “we are maintaining our core
profit guidance of P37 billion for 2008, ahead of last year’s
P35.2 billion by P1.8 billion.”
“We intend to raise our committed regular
dividends by P2 billion to approximately P26 billion, equivalent to
70 percent of estimated 2008 core earnings. We will continue to
fortify the foundation of our business by strengthening our balance
sheet—maintaining the robustness of our cash flows, and continuing
to keep net debt to less than $1 billion.”
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By the way, in case you are tempted to eat at
Max Restaurant at Mall of Asia, don’t. Max MoA has the worst
service you can possibly find in a Max restaurant. The manager, a
lady, is arrogant. The waiters make it a point to irritate, rather
than please you. The restaurant thinks it is in a sellers’ market.
They make you wait for your table and the waiting time can be as
long as half an hour. They make you wait for your food and the
waiting time can be as long as one hour. More on this later
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