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Viewing cable 06MANILA4174, Ambassador Raises Commercial Issues with Secretary of

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Reference ID Created Released Classification Origin
06MANILA4174 2006-10-03 02:27 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Manila
VZCZCXYZ0005
OO RUEHWEB

DE RUEHML #4174 2760227
ZNR UUUUU ZZH
O 030227Z OCT 06
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3226
INFO RUEHML/USPACOM REP PHILIPPINES MANILA RP IMMEDIATE
UNCLAS MANILA 004174 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
FOR ECA, EAP 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EAID PGOV KMCA RP
SUBJECT:  Ambassador Raises Commercial Issues with Secretary of 
Finance 
 
1.  (U) Summary:  In a meeting with GRP Secretary of Finance Gary 
Teves, Ambassador raised protection of private lending for small and 
medium enterprises, USAID exemption from taxes, progress on the MCA 
Threshold Program, and investment and trade disputes.  Teves made no 
commitments, but indicated that he was working or would work for 
acceptable solutions to all these problems.  End Summary. 
 
2.  (U) Ambassador requested a meeting with Secretary of Finance 
Gary Teves to deal with several issues currently facing his 
Department.  As Typhoon Milenyo crashed through Manila, Ambassador 
met with Teves, his Undersecretary Bobbie Tan and Special Assistant 
Lea De Leon on September 28. 
 
--------------------------------------- 
Trying to Save Private Lending for SMEs 
--------------------------------------- 
 
3.  (U) Ambassador opened the meeting by raising the issue of 
government lending to small and medium enterprise (SME).  In August 
2006, President Arroyo signed Executive Order 558 repealing another 
order from 1999 which had limited the public sector's role in direct 
and subsidized lending activities.  EO 558 was signed without the 
clearance of Teves and other key members of the GRP economic team 
and has been heavily criticized by international institutions and 
financial institutions who believe the change will lead to 
subsidized and politically directed bad lending by the GRP and the 
destruction of the growing private market for SME lending. 
 
4.  (SBU) Press reported on September 27 that President Arroyo had 
assigned the task of writing implementing regulations and perhaps a 
clarifying executive order to Teves, who had been only slightly 
veiled in his public criticism of the EO 558 over the past weeks. 
Ambassador congratulated Teves on having taken on this important 
issue.  She offered USAID technical assistance to the DOF in the 
development of these guidelines.  The DOF need only let USAID know, 
and technical assistance would be forthcoming. 
 
------------------------------------------ 
Tax Holidays at Clark and Tang Tax Dispute 
------------------------------------------ 
 
5.  (U) In response to a question by the Ambassador, Teves said that 
resolution of the issue of tax holidays for U.S. investors located 
at what had been Clark Air force Base though approved by the 
Philippine House of Representatives, may be difficult to get out of 
the Senate. (These benefits were overturned by the Supreme Court in 
July, 2005.)  He suggested the Embassy work with individual senators 
and do so before the congressional recess at the end of October. 
Ambassador also raised the tariff reclassification of Tang drink mix 
as sugar by GRP Customs (leading to much higher tariffs), asking him 
what could be done to resolve this dispute.  Teves promised to 
continue to see what could be done on this. 
 
---------- 
MCA Moving 
---------- 
 
6.  (U) Teves said the GRP is making progress on its MCA Threshold 
program.  The first meeting of the Program Steering Committee, 
including representatives from the Bureau of Internal Revenue, 
Customs, the Ombudsman and USAID will take place in early October. 
Ambassador mentioned that the USG will have a manager for the 
Philippines Threshold Program in place in October. 
 
------------------- 
USAID Tax Exemption 
------------------- 
 
7.  (U) Ambassador raised the importance of exempting USAID 
assistance from GRP taxes.  She noted that progress is being made in 
lower-level discussions on this important issue and pointed out that 
USAID must report tax assessments to the U.S. Congress and might 
have to reduce assistance levels in response.  Teves evinced 
understanding of the problem and asked his Undersecretary to 
continue seeking a solution. 
 
-------------------------------------- 
Comment:  Teves Understated as Usual 
-------------------------------------- 
 
8.  (SBU) Teves was his understated self even as we watched the 
typhoon swirling across Manila Bay through the window behind him. 
Although he made no commitments in this meeting, that is usual for 
him.  Still, he understands what needs to be done and generally 
seems to be working to get it done. 
 
KENNEY