PAENG CAUTIONS BETS AGAINST COMMENTS ON RP FOREIGN DEBT
MANILA, March 10, 2004 (STAR) By Des Ferriols - The Bangko Sentral ng Pilipinas (BSP) warned yesterday political candidates against issuing statements about debt restructuring that could be misconstrued as an admission of the government’s inability to pay its debts.
The BSP made this statement in the wake of renewed weakness in the peso-dollar exchange rate caused by a rare public statement by presidential candidate Fernando Poe Jr. who said his administration would negotiate for debt restructuring within 100 days into his term, if elected into office in May.
The peso had been recovering significantly during the morning trade at the Philippine Dealing System (PDS) until news of Poe’s statement delivered while campaigning at the University of the Philippines swept through the market and created fresh uncertainty among forex traders.
Poe was quoted as saying that he supported debt restructuring because the country’s debts were "already huge" although he offered no explanations on how he intended to handle the restructuring or what sort of terms he would be asking the country’s creditors.
When asked to comment, BSP Governor Rafael Buenaventura said calls for debt restructuring could be misunderstood by creditors.
"It sounds good but what do they mean, exactly?" Buenaventura said. "From my perspective, what is really more important for the incoming administration whoever wins, is that they address the budget deficit in order for our debt to be sustainable," he added.
Buenaventura pointed out that if the deficit is contained and ultimately eliminated, incremental borrowing will be reduced as well. This will ease the debt burden and ensure that the government will be able to meet all its maturing obligations.
"Debt restructuring is not a phrase you can use without explanations," Buenaventura pointed out. "It takes many forms and even now we are already doing some form of restructuring."
Buenaventura said the recent introduction of the bond exchange is a form of restructuring by exchanging near-term maturing obligations with longer-term maturities.
Buenaventura said loose comments about debt restructuring could create an impression that the next administration would seek debt repudiation due to its inability to repay its debt.
"Frankly, I don’t know what brought this on," Buenaventura said.
Buenaventura said the Thai example was a case in point. "Thailand went into debt due to the Asian crisis, then they got out of budget deficit very quickly and as confidence came back, they were able to pay their debts and now they are in surplus," he pointed out.
If the country’s budget deficit stays at 4 to 5 percent of gross domestic product (GDP), Buenaventura said the debt level would become unsustainable.
"When you think about it, its really a question of increasing revenues because our expenditures have already been reduced to the barest essentials," he said. "What is important is that creditors are comforted that RP will meet its obligations."
Reported by: Sol Jose Vanzi
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