MANILA, November 17, 2004 (STAR) By Des Ferriols - The country’s balance of payments (BOP) position recorded a deficit of $184 million in the first 10 months of the year due to foreign exchange outflows to cover public sector debt servicing and payments for imports, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

For October alone, the country incurred a deficit of $6 million, a sharp turnaround from the $44-million surplus position recorded in September this year as payments for imports rose sharply due to the continued increase in the prices of oil and oil products.

"The drawdown from the international reserves was particularly strong in the wake of the surge in the prices of oil and oil products," the BSP said.

The country’s thinning international reserves has been the primary cause of concern among the top three international credit rating agencies which have already warned that the Philippines was one of very few countries that face possible downgrade in the next few months.

Moody’s Investment Services, Standard & Poors and Fitch Ratings have all expressed concern over the country’s dwindling reserves in the face of growing debt obligations and less-than-impressive export earnings.

Moody’s, in particular, was concerned that much of the country’s reserves was being filled up with government borrowing instead of generated reserves from export and investment earnings.

Although there was reliable inflow from overseas Filipino workers (OFW), it would not be enough to meet the requirements, especially since the government had assumed the debts of the National Power Corp. (Napocor).

In September, the BOP position improved somewhat, as the National Government deposited the proceeds of its controversial $1 billion bond float. This month, however, there was no such borrowing to cushion the widhrawals.

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 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 October, offset only slightly by remittances from overseas Filipino workers and government’s foreign borrowing.

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

Buenaventura said it was unlikely that the government would engage in more foreign borrowing for the rest of the year but he said the GIR was expected to get a boost from the annual peak in remittances from overseas Filipino workers.

The BSP said the reserves as of October was good enough to cover 4.3 months worth of imports and payments of services and income; equivalent to 2.6 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.

Reported by: Sol Jose Vanzi

All rights reserved