Capital Market Development Council

Capital Market Development Council

Member Institutions DOF FINEX PSE BSP BAP IHAP SEC PLIA Pre-Need OIC PIRA PDS

Need to Improve RP s s Low Domestic Savings Rate Philippines 2005 Domestic Savings/GDP = 29% Indonesia 2004 Domestic Savings Rate/GDP = 25.3% Thailand 2004 Domestic Savings/GDP = 33.4% Malaysia 2004 Domestic Savings/GDP = 43.8% Gross Domestic Savings/GDP, in % ASEAN Domestic Savings Rate, 2004 50 40 30 20 10 0 Philippines Malaysia Indonesia Thailand Source: ADB

Market Capitalization DOMESTIC MARKET CAPITALIZATION 2002 2003 2004 2005 Nov. 2006 (in billion US$) Indonesia Jakarta Stock Exchange JSX 30 55 73 81 129 Malaysia Philippines Bursa Malaysia Philippine Stock Exchange BM 123 161 182 181 227 PSE 18 23 29 40 62 Thailand Stock Exchange of Thailand SET 45 119 115 124 152 Market Capitalization 250 In Billion US$ 200 150 100 50 JSX BM PSE SET 0 2002 2003 2004 2005 Nov. 2006

Policy Advocacies Governance Investor Protection & Education Institution Building Market Discipline Conducive Macroeconomic Environment Sound Regulatory Framework

Balance of Incentives Taxation creates a friction cost but provides a social net PUBLIC FINANCIAL MARKET

Timing of Capital Market Reforms On the road to fiscal consolidation tax effort ratio approaching pre-crisis level. More leeway to address long-term structural issues. Regulators have adopted venue to harmonize regulations via FSF will encourage parity treatment of bank/non- bank products.

Timing of Capital Market Reforms OFW remittances at record high; is a sustainable source of surplus capital. Market looking for products aside from traditional bank deposits in the face of low interest rate scenario. Pave the way to reduce reliance on banking sector given vulnerability to contagion & systemic concerns.

Our Working Agenda MARKET: Attaining competitive parity DIVERSITY: Expanding financial choices available to the consumer EFFICIENCY: Improving the delivery of financial products and services STAKEHOLDER S CONSULTATIONS: Agreements to pursue reform paths

Initiatives: Tax Reforms for Capital Market Development Competitive Parity Tax Reform Over-all objective: recommend tax-neutral financial market Scope of Financial Sector Taxation Reform (USAID) - review all major tax-related issues in the bank and non- bank sectors - identify products, transactions or undertakings where tax arbitrage may exist - recommend possible changes that could improve tax neutrality - fiscal policy implications and reform paths

Initiatives Pension system reform PERA as practice set to equalize tax treatment & regulation of like products (neutrality). Partly addresses pension concerns (SSS, GSIS, RSBS). Not guaranteed by government.

Initiatives Set up Credit Bureau. Unfinished business: Corporate Recovery & Insolvency Act, Pre-Need Code, RICA, etc. Investor education & financial literacy campaign.

Establish policies Build legal and regulatory framework Build other financial sector infrastructure Develop institutions Develop financial instruments and markets Macro stability Political environment Legal and judicial environment AMLA CRIA Transparency and disclosure Credit Information System Act Institutions Companies Central bank Bank Insurance Pension funds Fund management Markets Capital Securities trading firms Investment fund management firms Contracting enforcement Property rights Lending/collateral LARA Financial instruments Market conduct Wholesale and retail investment services Accounting and auditing Regulations Failure-resolution laws Insolvency Deposit insurance Restructuring agencies Banking and other financial supervision BSP Charter FSF Accounting and acturial professions Payment systems Property rights registries Share registries Research and rating agencies Companies/enterprises Central bank BSP CHARTER Banks Micro and cooperative Specialized Commercial SPAV Contractual Savings Insurance Pensions Pre-Need Insurance Code RICA Capital markets/exchange Securities trading and fund management Exchanges Equities Fixed-income Government Municipal Private sector companies Commodities SRC Fixed-income instruments Equities Currencies Commodities Derivatives Other financial/instruments term (leasing) Securitization housing loans agricultural credit supplier's credit guarantees Tax Reform PERA

Why Capital Market Reforms Complement a Stable Fiscal Position Channels funds to investments & provides diversified & higher returns for domestic savings. - OFWs who are not taxable, can then invest in capital market instruments used to raise capital for local companies. Provides access to local currency funding for private sector projects; thus, may not require gov t.. guarantees.

Why Capital Market Reforms Complement a Stable Fiscal Position Ability of the market to price risks will be enhanced; less reliance on bank loans. Attracts different types of investors.

Why Capital Market Reforms Complement a Stable Fiscal Position Capital market reforms forces better financial reporting in both the financial and real sectors of the economy. (Higher tax revenues)

Work in Progress. Fixed Income Exchange Philippine Stock Exchange Financial Sector Tax Reform New Accounting Standards Corporate Governance Transparency and Disclosure Practices Investor Education and Protection

CMDC Remains Committed To be a pro-active public-private sector partnership that is the very core of CMDC To pursue its vision of market development premised on the Filipino consumer To be an active participant in the legislative process as an integral aspect of market development