BSP CHIEF CITES URGENT NEED TO CONTAIN DEFICIT
MANILA, March 18, 2004 (STAR) The next government must act immediately to narrow the budget deficit, Bangko Sentral ng Pilipinas (BSP) Governor Rafael B. Buenaventura said yesterday, warning that government debt could otherwise become "unsustainable" within three years.
The winner of the May 10 presidential elections must pass legislation quickly to raise revenues, Buenaventura said, through measures such as reducing corruption at revenue agencies, higher alcohol taxes and a new tax on mobile phone messaging.
The next government should also privatize the power industry within a year to get that sector’s massive debts and costs off the public books, he said.
"We’ve got to start showing now that we can get (the budget deficit) to zero by 2009 and if we don’t meet our target this year...then clearly they’re going to say, ‘These jokers aren’t going to make it to 2009,’" Buenaventura said.
Interest payments on debt, including more than $60 billion of international borrowings, swallowed almost a third of government spending in January, contributing to a budget deficit that diverts funds from vital development projects.
The government plans to cut the budget deficit to 4.2 percent of gross domestic product (GDP) this year from 4.6 percent last year, with the aim of balancing its books by 2009.
The Philippines, Asia’s largest sovereign debt issuer outside Japan, has run deficits for 10 of the last 14 years, worrying analysts who say the country could eventually find itself in a debt crisis.
In an interview at his offices, Buenaventura also said he could probably avoid raising interest rates for as long as six months. He expected the peso to recover to 53 to 54 to the dollar after the election, from current levels near a record low of 56.35.
The internationally respected governor is seen by diplomats as a steadying hand on the Southeast Asian economy, which is struggling to grow strongly enough to alleviate poverty and create jobs for its swelling population.
Power Sector Burden
The next government must "really address the budget deficit, because that is the one that is going to give us an unsustainable debt profile three years down the road," he said.
All the presidential candidates agreed on this, he added.
The winner would need to act quickly to pass legislation such as privatizing the Bureau of Internal Revenue or offering incentives to cut corruption there that resulted in heavy leakage of tax collections and widespread evasion.
Opinion polls show a close fight for the presidency between film actor Fernando Poe Jr and incumbent Gloria Macapagal Arroyo, who rose from vice president after "People Power" protests ousted leader Joseph Estrada in 2001.
Privatizing the debt-laden power industry would "reduce drastically the debt profile of the government," Buenaventura said.
If the government took such steps, it would create the market conditions to extend the average maturity of the government’s debt, he said.
"That would be the time for the country to perhaps borrow 25-year bonds to replace debts that are maturing in the next five to 10 years," the governor said. "We should continue to stretch the profile as long as we can."
The country’s debt has an average maturity of 19 years.
Asked if the bank could keep its benchmark overnight borrowing rate at 6.75 percent unchanged for as long as six months, Buenaventura said "probably," highlighting risks such as rising oil prices. The rate has been on hold since July.
Reported by: Sol Jose Vanzi
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