MANILA, November 15, 2003  (STAR) By Des Ferriols - The country’s balance of payments (BOP) position turned around from a $783-million deficit in the first three quarters of the year to a surplus of $159 million by October as the proceeds of foreign borrowings entered the books of the Bangko Sentral ng Pilipinas (BSP).

Data from the BSP showed that after nine months in deficit, the BOP position bounced back to a surplus of $942 million in October alone as the government cashed in on its dollar-denominated bonds that generated about $1 billion in proceeds.

Before the October borrowing spree, the BOP has been in deficit since February, temporarily reversing in July when the government also draw from its foreign borrowings to finance its budget deficit that came mostly out of debt service expenditures.

The BOP represents the country’s economic transactions with the rest of the world. The BOP has been getting its support mostly from borrowings, dollar remittances from overseas Filipino workers, foreign investments and export earnings all summed up in the BSP’s international reserves.

As of October, the BSP reported that its international reserves surged to $16.887 billion and monetary officials said it is possible for the BOP deficit to dip below $1 billion.

The BSP said the country’s gross international reserves (GIR) went up by $725 million from $16.162 billion in September, coming largely from the proceeds of the government’s foreign borrowings.

BSP Governor Rafael Buenaventura disclosed that last month’s borrowing spree has significantly improved the country’s GIR, adding it is possible for the international reserve to reach $15 billion by year-end, compared to the original projection of only $14 billion.

According to Buenaventura, foreign borrowing accounted for the bulk of the October surge in GIR although the full impact was partially offset by outflows due to debt service.

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 had to pick up its growth momentum from the government’s foreign borrowing.

According to Buenaventura, the GIR build-up could even improve the country’s BOP position which was originally projected to deteriorate into a deficit amounting to at least $1.2 billion.

"If the government borrows more before the end of the year, the full-year BOP deficit will be less and it might even go down below $1 billion," Buenaventura said.

The BSP has already approved in principle the government’s plan to raise $1 billion more before the end of the year, primarily to pre-fund its requirements for 2004.

"We’ve always supported the plan to pre-fund if the opportunity presents itself," Buenaventura said. "After all, this is a predictable thing. We already know that we have to pay our debts. The only question is whether or not we will be able to refinance them and at what cost."

Reported by: Sol Jose Vanzi

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