GOVERNMENT BORROWINGS WORRY BANGKO SENTRAL

Manila, July 25, 2003 By Des Ferriols (Star) The Bangko Sentral ng Pilipinas (BSP) expressed concern yesterday about the borrowing plan of the National Government, especially with the widening trade deficit and the need for the government to repay at least part of its foreign debt.

The BSP said that both finance and monetary officials are keeping a close tab on the country’s trade performance which has recently raised concerns due to the widening in the trade deficit.

BSP Governor Rafael B. Buenaventura said this comes at a time when the need to repay some of the country’s foreign borrowing is becoming more urgent in order to keep the debt portfolio within manageable levels.

"There has to be a net repayment of our foreign borrowing," Buenaventura said. "If foreign direct investments and exports come strong, it will support net repayment," he added.

According to Buenaventura, this would depend largely on the country’s balance of trade since there would have to be enough foreign currency to repay our foreign loans.

"I agree that if inflows are strong, then we can substitute foreign borrowing with domestic borrowing," Buenaventura pointed out. "But the BTr has to factor in the trade imbalance."

There are reports that the government is considering an 80-20 borrowing program for 2004, with the bulk of its borrowing requirement coming from the domestic market.

According to National Treasurer Sergio Edeza, however, this plan is still being revised.

"The mix might go up to 70-30 or even 60-40," Edeza said. "We’ll see."

On the other hand, both Buenaventura and Edeza assured that the government is not planning any incremental borrowing other than what was required to bridge the budget gap, adding that the reduction of the deficit would have to come from increases in revenue collections and tight controls on government expenditures.

Finance Secretary Jose Isidro Camacho has been warning that the country would be facing a debt crisis if drastic steps are not taken to reduce the debt, reduce the national deficit and ultimately cut down on future borrowing.

According to Camacho, although the country’s borrowing capacity was still good and confidence level was also relatively good, the government’s debt stock was increasing and a sudden drop in confidence could plunge the country into a debt crisis.

Camacho said the National Government debt was now equivalent to 60 percent of the gross domestic product (GDP) and the ratio of the public sector debt, which includes the borrowing of government owned and controlled corporations and government financial institutions, was even higher.

Camacho explained that even if the government is successful at reducing its deficit, some of its debts had begun maturing in the mid 1990s and would have to be refinanced continuously.

"This means that our gross borrowing would continue to go up because this reflects the amount we have to borrow to fund the deficit and the amount we have to borrow to refinance existing loans," he explained.

Camacho said the government could succeed in eliminating its deficit and still have a high borrowing level because its maturing loans would have to be refinanced through more borrowings.


Reported by: Sol Jose Vanzi

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