MANILA, October 16, 2004 (STAR) By Des Ferriols - The country’s balance of payments (BOP) deficit eased to $178 million in the first nine months of the year, from $222 million in eight months, due to heavy government borrowing, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

The BSP said the September BOP alone surfaced to a surplus position of $44 million from the $127-million deficit posted in August, even as debt servicing continued to use up more of the country’s international reserves.

On a year-to-date basis, the BOP position slightly improved as the National Government (NG) deposited the proceeds of its controversial $1-billion bond float in September.

The BOP summarizes, for a specific time period, the economic transactions of an economy with the rest of the world - trade, investments and other form of capital transfers.

This year, the country’s BOP has been fluctuating wildly from the $595-million deficit in January to a $475-million surplus in January to May, before plummeting back into a deficit of $95 million in January to July and $222 million in January to August.

The BSP explained that the decline was caused by debt servicing and imports in September, offset only slightly by remittances from overseas Filipino workers (OFWs) and government’s foreign borrowing.

"We got the deficit due mainly to debt repayments in the capital accounts," said BSP Governor Rafael Buenaventura.

Buenaventura said it is unlikely that the government would engage in more foreign borrowing for the rest of the year but added that the GIR (gross international reserves) is expected to get a boost from the annual peak in remittances from OFWs.

As the NG dipped into its reserves to pay for its maturing obligations, the country’s foreign reserves dipped from $16.001 billion in August to $15.908 billion at the end of September.

The GIR dipped below the $16-billion mark due mainly to withdrawals made by the NG for its debt servicing requirements.

BSP Deputy Governor and officer-in-charge Armando Suratos said the decline was only partly mitigated by a deposit made by the NG amounting to P1.037 billion, representing the proceeds from the reopening of its global bond issue.

Without the deposit, the GIR would have taken a more dramatic plunge as the NG scrambled to meet its maturing obligations at the end of the third quarter where maturities bunched up significantly.

According to the BSP, the end-September GIR level was adequate to cover about 4.3 months’ worth of imports of goods and payments of services and income.

The amount was also equivalent to 2.4 times the country’s short-term debt based on original maturity and 1.4 times based on residual maturity.

Short-term debt based on residual maturity refers to outstanding short-term external debt on original maturity plus principal payments on medium- and long-term loans of the public and private sectors falling due within the next 12 months.

The BSP has been able to keep the GIR level hovering close to $16 billion mainly from foreign borrowings by the NG but its projection for 2004 pegged the GIR to dip to as low as $14 billion by the end of the year.

The NG had laid out a plan to source only 20 percent of its funding requirements from the foreign market but it has been forced to go to the market beyond 20 percent because of the National Power Corp. (Napocor) which has been unable to raise funds on its own.

The dollar proceeds from government’s foreign borrowing as well as OFW remittances are expected to buoy the GIR in the succeeding months but the BSP is still projecting the GIR to go below $16 billion by the end of the year.

The BSP’s net international reserves (BSP-NIR) as of end-Sept. 2004, inclusive of revaluation of reserve assets and reserve-related liabilities, edged up by 0.4 percent to $14.017 billion from the end-August level of $13.792 billion.

However, the BSP said it expected the overall BOP to be better than expected as exports expand in the wake of the global expansion of consumer markets.

Reported by: Sol Jose Vanzi

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