Cablegate: Ambassador Raises Commercial Issues with Secretary Of


DE RUEHML #4174 2760227
O 030227Z OCT 06






E.O. 12958: N/A
SUBJECT: Ambassador Raises Commercial Issues with Secretary of

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.


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