MANILA, December 23, 2005
 (STAR) By Des Ferriols - The country’s foreign debt went down by one percent to $55.5 billion as of September from $56 billion as of June this year, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

The BSP said the depreciation of the Japanese yen against the dollar caused the decline, combined with the effect of local investors acquiring foreign-held Philippine debt papers.

The BSP also said the country’s external debt ratio or total outstanding external debt as a percentage of gross national product (GNP), was estimated at 55.5 percent as of the third quarter, an improvement from last year’s ratio of 60.3 percent.

"In effect, this reflects the fact that we are now in a better position to pay maturing foreign obligations on a continuing basis," BSP Governor Amando M. Tetangco said.

The country’s debt service ratio, on the other hand, was estimated at 14.1 percent as of the end of the quarter, reflecting an improvement from the 14.7 percent level recorded over the same period last year.

This ratio represents the total principal and interest payments as a percentage of total exports of goods and receipts from services and income.

According to Tetangco, the ratio was well below the 20 percent international benchmark, indicating that the country had sufficient foreign exchange earnings to meet current maturities of foreign obligations.

Tetangco said the decline in debt stock during the third quarter resulted largely from the negative foreign exchange revaluation adjustment as the dollar strengthened against the Japanese yen.

This means that the country’s yen-denominated obligations were worth less in dollar terms than they used to be last year.

According to BSP Deputy Governor Diwa Guinigundo, the depreciation of the yen against the dollar brought down the country’s yen-denominated obligations by as much as $398 million.

On the other hand, Guinigundo said there was also a significant change of hands in terms of the country’s foreign-denominated debt papers. During the period, he said about $497 million worth of foreign-held RP debt papers were bought by residents or local investors.

"When that happens, the equivalent debt stock is taken out from the external debt stock and the domestic debt stock then increases by the equivalent amount," Guinigundo said. "It only means that instead of owing foreign creditors, we now owe domestic creditors to the extent that was transferred to residents," he added.

The BSP also reported that the maturity profile of the debt stock remained favorable, with medium to long-term accounts representing 89 percent of the total.

These loans, according to Guinigundo, had a weighted average maturity of 17.4 years. Public sector borrowings had a longer average term of almost 20 years, compared to 10.5 years for the private sector.

External liabilities of the public sector represented 67.9 percent of total, with the balance represented by the private sector.

A moderate yet steady decline of public sector share to total external debt has been observed during the past four quarters, from 69.1 percent in December to 68.6 percent in March and 68.2 percent in June, the BSP said.

According to Guinigundo, official creditors consisting of multilateral and bilateral institutions accounted for 40.4 percent of total, followed by foreign holders of bonds and notes at 32.1 percent.

Market continues to gain on hopes of lower inflation The Philippine Star 12/23/2005

The Philippine stock index gained for a third day. Ayala Corp. and Ayala Land Inc. rose after the central bank said inflation this month could slow to less than seven percent, raising speculation it may keep interest rates steady.

The Philippine Stock Exchange Composite Index added 3.53, or 0.2 percent, to 2078.58 at the noon close in Manila, extending a 2.5 percent advance in the past two days. The index, which has risen 14 percent this year, fell as much as 0.1 percent earlier.

A strong peso will help ease inflation this month after racing to a three-month high in November, Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Gunigundo said.

Ayala Corp., owner of the nation’s largest lender by market value, its biggest property developer and second-largest phone company, rose P5, or 1.6 percent, to 310. Ayala Land, its largest property developer, rose 10 centavos, or one percent, to P9.90.

Limiting the gains in the index, First Philippine Holdings Corp. declined after its unit, Manila Electric Co., the nation’s largest electricity retailer, said a government takeover of Manila Electric over unpaid power purchases would hurt the utility and hamper sales of state assets.

"The issue over Manila Electric is affecting sentiment," said P.J. Garcia, chief investment officer at ING Investment Management Philippines Inc. The market wants to see it resolved soon, he said.

First Philippine Holdings, which controls Manila Electric with Spain’s Union Fenosa SA, fell 50 centavos, or one percent, to P48.

Manila Electric’s Class B shares, which have no ownership restrictions, were unchanged at P22, rebounding for a decline of as much as 1.1 percent. It’s A shares, which are restricted for Filipinos, were also unchanged at P15, after sliding as much as 6.7 percent earlier.

Manila Electric Director Christian Monsod said yesterday after the market closed that the government has no basis to takeover the utility under a contract they entered into in 2003, settling a dispute over a 10-year supply contract. The government said earlier this week that it may takeover the utility as payment for P42 billion of power purchases.

Elsewhere, San Miguel Corp. Class A shares, equity in the nation’s largest food and drinks company, fell 50 centavos, or 0.8 percent, to P64. Its Class B shares fell P1, or 1.1 percent, to P86.50.

San Miguel Chairman Eduardo Cojuangco’s counsel said yesterday that a dispute on ownership of funds collected from coconut farmers should go to trial.

The government and Cojuangco have been battling over the coconut levy funds since 1986. The government asserts that the levy Cojuangco and his associates collected from coconut farmers in the 1970s and 1980s, when the country was being ruled by then-dictator Ferdinand Marcos, are state funds. – Bloomberg

Chief News Editor: Sol Jose Vanzi

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