HONG KONG, November 8, 2003  (STAR) By Des Ferriols – Despite an expected slowdown in exports, the Bangko Sentral ng Pilipinas (BSP) has ruled out the possibility that the Philippines would resort to borrowing from the International Monetary Fund (IMF) to support its balance of payments.

Despite optimistic projections made early in the year, export growth is expected to slow down dramatically to two percent for the whole of 2004 as the sector has failed to recover lost ground following the disruption caused by the Middle East crisis and the SARS epidemic.

Economic planners have been expecting a recovery in the demand for Philippine exports, especially in semi-conductors and electronics. But this did not materialize even long after these events.

BSP Governor Rafael Buenaventura told reporters here that it is unlikely for the export sector to generate the growth rate necessary to raise the whole-year average export growth to the original target of three percent.

"We’d be happy if we get a two-percent growth," Buenaventura said. "The dramatic surge we were expecting after the US-Iraq war and the SARS epidemic just isn’t there."

According to Buenaventura, this would put some stress on the country’s gross international reserves this year but he said this is not enough to warrant the consideration of going back to the IMF for BOP support.

The Philippines is scheduled to be completely out of the IMF’s post-program monitoring (PPM) this month but Buenaventura said the actual schedule turned out to be not earlier than January next year.

Buenaventura said it is unlikely that the Philippines will want to go back under IMF’s wings but he admitted that it is an option that will remain despite the absence of any inclination to actually use it.

"There really is no need," Buenaventura said. "Our debt is increasing but as we pare down our deficit levels, we will need to borrow less."

Buenaventura said the government is borrowing only to refinance its existing loans as they fall due. "There has not been any incremental borrowing and we are working so we won’t have to do precisely that."

The government has been resisting the urge to get out of IMF completely by making its final payments, concluding the IMF’s post-program monitoring (PPM) and finally becoming a net contributor to the IMF instead of being a net borrower.

"We’ll just do it as per schedule. There really isn’t any hurry to wrap up the PPM before it is due because that wouldn’t do much anyway," he said. "The only real difference if we get out of the PPM is that IMF visits will be reduced to one from the current two."

The BSP chief pointed out that even with the lackluster performance of the export sector, IMF support of the BOP is unnecessary. "There are other factors that affect the BOP and these other factors lead us to believe that our BOP deficit this year might even go down to below $1 billion," he said.

Buenaventura however acknowledged that the improvement in the country’s BOP is due mostly to the government’s heavy foreign borrowing in the final quarter of 2003.

Buenaventura said the unexpected strong performance of the Arroyo administration’s dollar-denominated global bonds allowed the GIR to increase in October and possibly to increase even more by yearend.

"If the government decides to borrow more, then we will see further improvements in the GIR and this is still good even if the inflows are not coming from actual economic activity per se," Buenaventura said.

Ideally, the country’s GIR should be well supported by foreign exchange inflows from economic activities such as merchandise and non-merchandise exports as well as actual investments.

However, since investments have failed to materialize in the magnitude that government originally hoped, the GIR has had to pick up its growth momentum from the government’s foreign borrowing.

Reported by: Sol Jose Vanzi

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