RP  MAY  NOT  QUALIFY  FOR  $1-B  ASIAN BANK FUND

MANILA, July 26 , 2004 (STAR) By Des Ferriols  -  The Philippines is not likely to qualify as an investment-grade market for the $1-billion Asian Bank Fund (ABF), possibly the only emerging market in the Southeast Asian region that is too undeveloped.

According to the Bangko Sentral ng Pilipinas (BSP), the Philippine capital market should undergo a major transformation if it is to assume the economic role of a capital source for local businesses.

BSP Governor Rafael Buenaventura told reporters over the weekend that the second ABF would be invested in countries with working capital markets and this qualification alone would remove the Philippines from contention.

Buenaventura explained that the ABF was intended to invest in countries with investment instruments denominated in the local currency, unlike the first ABF which was invested in dollar-denominated instruments in Asean countries.

"Obviously, the ABF2 would not want to invest only in local currency-denominated government securities," Buenaventura said. "The fund would also be invested in a basket of corporate equities."

The idea, according to Buenaventura, was to provide the liquidity for emerging markets as long as that market had the infrastructure for growth.

"Investment-grade emerging markets are those that already have the infrastructure and international-grade policies in place," Buenaventura explained. "These are markets that only need liquidity in order to take off."

With the International Monetary Fund (IMF) pushing for reforms in the financial and capital markets, the BSP has been urging for reforms that would create more institutional investors in the financial market.

The BSP said that banks provide as much as 98 percent of the economy’s financing requirements but this has to be reduced to a healthier level for a more diversified source of financing.

In more mature markets, Buenaventura said banks normally provide for only 60 percent of the total financing requirements and the rest is provided by the capital markets.

"We would like to see the capital market take more share of the financing requirements, banks should only really provide around 60 percent," Buenaventura said.


Reported by: Sol Jose Vanzi

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