FOR IMMEDIATE RELEASE Press Release For Immediate Release Encouraging

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Press Release

                                     For Immediate Release

                              Encouraging Progress in 2004 as
                          Government Focuses on Economic Reform
              Philippine Economic Team Sees 2005 as a Year of Transformation
                          Led by More Fiscal and Financial Reforms

(Manila, Wednesday, December 22, 2004) – In commenting on the macroeconomic and reform
achievement of the Government of the Philippines in 2004, the Philippine Economic Team noted
that not only is this the fourth straight year of steady economic growth marked by a continued
recovery in exports, investments and services, but the Government has also introduced important
reform measures against a background of improving revenue collection. All these form part of a
major step in a concerted program to reduce the Government’s consolidated public sector deficit
to three percent of gross domestic product (GDP) and the consolidated public sector debt to 90% of
GDP by 2010.

Among the achievements cited were strong growth as measured by significant increases in GDP,
exports and foreign investment; a steadily decreasing ratio of non-performing loans (NPL) in the
banking sector; and, continued revenue collection and expenditure improvements to meet the
2004 fiscal deficit target.

The economy’s performance this year is marked by an across-the-board growth as both exports and
investments joined the consumer sector in boosting the economy, which in turn, preserved the
growth momentum in the services sector.

Growth was apparent even as the Government faced tough challenges coming from higher inflation
as crude oil prices soared in the world market, election-related issues, and more importantly, the
Government’s resolved to institute painful reforms measures directed toward addressing the
Philippine economy’s historical and structural flaws.

The economic team noted that while more big measures await delivery, the inertia to institute
unpopular and painful measures has been overcome and the bandwagon of meaningful reform has,
in fact, started moving, showing the Arroyo Administration’s unwavering commitment to the

   ?? Achieving fiscal consolidation in the medium term by increasing revenues and reducing
      consolidated debt;

   ?? Restructuring the power sector with the immediate privatization of National Power Corp.
      (Napocor), while at the same time implementing short-term painful measures to
      restructure power rates, which over the medium term, are directed at reducing electricity
      costs for the country.

   ?? Deepen the capital markets by providing more teeth to regulators and giving the right
      vehicles in which primary and secondary financial markets can thrive;

   ?? Increase exports and investments with more provision for infrastructure, and a standard
      set of investment incentives.

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Among the significant reforms that have recently taken place to achieve these objectives are as

   ?? The 89-centavo rate increase for Napocor, which will generate for it approximately Php
      32 billion in revenues for full year 2005. This will considerably reduce the losses of the
      power company while it moves on to sell its assets to private investors.

   ?? The sale of Napocor’s 500-MW Masinloc Power Plant worth US$561 million dollars or
      approximately Php 31 billion, which will go directly into paying down Napocor’s debts and
      help reduce interest expenses for the Government. This paves the way for further
      privatization and greater investments in new energy projects.

   ?? The enactment of the bill increasing the liquor and cigarettes taxes, which will raise an
      additional Php 15 billion in fiscal revenues.

   ?? The Supreme Court’s decision on the Mining Act allowing 100% foreign investments in the
      mining sector

Making all these possible was a coming together of minds and intent by all branches of
Government to improve the country’s credit standing in the international community and prevent
moves to downgrade the Philippines’ sovereign rating by international credit rating agencies.

Looking ahead into 2005, the key is to further improve on the Government’s revenues to GDP to
help stabilize the economy through additional legislative measures, pass a budget that will
provide new investment to create jobs. The Arroyo Administration is also committed to take
executive action to break the culture of corruption that holds back our pace of development.

NEDA is optimistic that the Philippine economy will grow at a modest pace in the fourth quarter
of this year, even after accounting for the impact of several typhoons on our agricultural sector.
Full-year 2004 growth will still be above 6 percent, owing largely to the strong growth of the
economy in the first 3 quarters, which registered an average growth of 6.5%.

Next year, the NEDA expects growth to slow down to 5.3% as the agriculture sector faces the ill
effects of forecasted El Nino and the crops damaged by the recent typhoons. The economy will
also be affected by the lingering high oil prices and slower global output.

That, however, may be considered a baseline scenario. Upside may be seen, that is, if the strong
growth in real investments continues, and exports further accelerates.

This year, foreign investments quadrupled to Php 135.8 billion and local investments grew by
more than 50 percent to Php 29.6 billion for the first ten months of 2004. Energy projects
captured 70% of the approvals with six new projects worth Php 115 billion.

Worth noting for 2005 is the positive impact that direct investments may enjoy on account of the
recent Supreme Court ruling to allow full foreign ownership and operation of mining companies.
To date, the Government expects the entry of at least four large-scale mining projects involving
the production of gold, silver, copper, and nickel.

Total exports between January and October posted a year-on-year increase of 8.9 percent while
exports from special economic zones alone grew 13.8% to US$25.6 billion. This constitutes
approximately 79% of total Philippine exports for the same period. The electronics sector
continues to be the export driver for the Philippines and is expected to achieve its 10% full-year
growth target, supported by the food and automotive sectors, with the latter registering double-
digit growth.

NEDA expects the exports sector to grow at a modest pace of 8.2% next year driven by agro-based
and mineral products, electronics, and exports of non-factor services.

NEDA notes that growth in 2005 will be supported by the expansion of the services and industry
sectors. Services will continue to get a boost from wireless communications, call/contact centers
and private outsourcing in the areas of education, medical/healthcare and business enterprises.”

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In 2004, inflation trended higher due to supply-side pressures, particularly global oil prices.
Between January and November 2004, inflation was recorded at 5.3% compared to the annual
target of 4-5%. Looking ahead to 2005, the BSP notes that supply-side pressures -- oil, transport
and utility costs-- will continue to drive the short-term rise in inflation but rates are likely to ease
in the latter part of the year due to base effect of prices and as cost-push pressures taper off.
The inflation target for 2005 remains at 4% to 5%.

The BSP further notes that employment and credit activity should remain moderate next year. As
a result, supply-side risks can be addressed more appropriately through non-monetary government
measures, including policies that address supply bottlenecks and encouraging restraint on the part
of manufacturers and retailers in raising prices.

This requires strengthened coordination with the Department of Trade and Industry and
Agriculture, which the BSP would commit to do in 2005. At the same time, the BSP would seek to
maintain the flexibility of its monetary policy so that growth targets are supported.

The ratio of non-performing loans for the banking system continued to decline, reaching 13.9% in
September 2004.

The BSP notes the need to promote a stronger and more stable financial system. With the tax
reform measures slated for passage in early 2005, the BSP has already started to lobby Congress
for the passage of legislative measures that will strengthen its supervisory and enforcement
authority, facilitate recovery of financially-distressed enterprises and assets, and create a
comprehensive and reliable credit information system for accurate assessments of

On the fiscal front, the deficit in January to November this year, reached Php 160.2 billion. This is
just 81% of the full-year target and gives the National Government a Php 38 billion leeway for
December, which means these is a good chance that the deficit for full-year 2004 may be better
than expected.

Revenues for the period grew 11.9% to Php 637.5 billion while expenditures increased by just 7.5%
to Php 797.7 billion, notwithstanding election-related expenses incurred earlier in the year.

The DOF stressed the need for further reform measures to be passed in early 2005 as credit rating
agencies continue to focus on the country’s need to improve on its revenues to GDP ratio,
currently one of the lowest in Asia. A higher ratio will provide increased flexibility for the
Government budget to help enhance government services, particularly in the areas of education,
health and security, and still provide increased funding for infrastructure development.

Slated for passage by early 2005 include a proposal imposing rewards and punishments on revenue
collection agencies, a tax amnesty bill that requires the filing of a Statement of Asset and
Liabilities for the future tracking of taxpayers, a measure rationalizing fiscal incentives for
investments and a proposal to raise the VAT to 12 percent from 10 percent.

In terms of financing requirements, the Government’s debt management program continues to
prioritize a balanced mix of domestic and external funding, Official Development Assistance
(“ODA”) funded loans and longer maturities for government securities. Currently, debt maturities
are well spread out over an average of 17 years with short-term debt only accounting for 10.3% of
the total external debt portion of the debt portfolio.

For more information:

Ms. Cora Guidote
Executive Director
Investor Relations Office
Tel: (632) 523 7792

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