MANILA, January 17, 2005 (STAR) By Des Ferriols  -  The Arroyo administration is planning fewer foreign borrowings in 2005 but in larger chunks to raise at least $4 billion to refinance its maturing obligations.

Finance officials said over the weekend that the government is likely to enter the foreign credit market in two major tranches in the first and second half of the year.

Finance Undersecretary Eric O. Recto told reporters that the government is considering the possibility of borrowing in either dollars or euro, depending on what borrowing opportunities would be present.

Recto declined to reveal any detail but he said the government has been receiving various proposals but none is being actively considered.

"Offhand, I can say a yen deal is not feasible but dollar and euro deals are feasible," Recto said. "There is a mix of suggestions but I can’t reveal details. There are dozens of different variants under consideration."

Recto said, however, that the government wanted to go into the market as infrequently as it could. "We want to do less frequent borrowing in bigger chunks," he said.

He said the government is carefully timing its borrowing plans depending on the credit ratings action as well as the February meeting of the US Federal Open Market Committee (FOMC) on US interest rates.

Bangko Sentral Governor Rafael Buenaventura, on the other hand, said timing government’s borrowing forays would be critical although the market is already pricing Philippine papers based on a two-notch downgrade.

Buenaventura said the market would actually be content even with a one-notch downgrade as long as it is accompanied by a stable outlook. "So if we get a one-notch downgrade with a stable outlook, that’s actually an upgrade," he said.

Buenaventura said avoiding the two-notch downgrade would be better for the government’s borrowing program for the year, especially since the Arroyo administration has at least $4 billion worth of maturing obligations.

"The good thing is that we have nothing major maturing in the first half of the year," Buenaventura said. "We can wait this out until things settle down."

On the other hand, Socioeconomic Planning Secretary Romulo Neri said this is not the time to be downgraded by any of the credit rating agencies, making it even more critical for Congress to pass the tax measures presented by the Arroyo administration.

According to Neri, Congress should be able to pass this new tax package in its turn or the consequences would be very expensive for the National Government.

"There are several other critical things we have to do beginning with the privatization of Napocor’s assets and the adjustment of its power rates," Neri said. "But there is no substitute for the tax package."

"If it is not passed, quite frankly we will be downgraded and we can not afford it," he added.

The Arroyo administration has already conceded to officially adjust its borrowing program for 2005 to account for the borrowing requirements of Napocor but Neri said this adjustment might not be enough if the downgrade is not averted.

The Development Budget Coordinating Committee (DBCC) has admitted that there would have to be an adjustment in the 2005 borrowing mix from the original setting of 22- percent foreign borrowing and 78-percent domestic borrowing.

The new 50-50 mix is even higher than the 45-65 mix that the Bangko Sentral estimated is necessary to meet all the maturing foreign currency-denominated obligations in 2005, including the debts of Napocor.

The DBCC’s decision came in the wake of warnings from credit rating agencies who expressed increasing concern over the country’s dwindling international reserves.

Reported by: Sol Jose Vanzi

All rights reserved