RP debt papers lose luster in int'l market

Continuing fears about the Estrada government's ability to manage its fiscal deficit is scaring away foreign investors as evidenced by the wide spreads being quoted on Philippine sovereign bonds compared to those on Thai sovereign bonds.

According to foreign bond analysts, the spreads of Philippine sovereign bonds continue to remain close to 300 basis points over the comparable US Treasuries. On the other hand, the spreads on Thai bonds have narrowed significantly to just 160 basis points over the comparable US Treasuries.

Foreign bond analysts pointed out that Philippine sovereign bonds are now "lagging behind" the sovereign issues of its neighbors when in the year just past, Philippine bonds were the "darling" of the international financial community.

The continuing wide spreads on Philippine sovereign bonds is a cause for concern to the new Philippine economic team especially as the Estrada government prepares anew to float several bonds to finance its projected budget deficit this year of P62.5 billion.

Unfortunately, according to a foreign fund manager interviewed recently by Dow Jones, "the Philippines has taken a turn for the worse" and thus, foreign investors "want to see how its fiscal deficit is handled before plunking down more money especially on the sovereign."

Finance Secretary Jose T. Pardo and Bangko Sentral ng Pilipinas (BSP) Gov. Rafael B. Buenaventura will try to assure foreign investors next month when they go on a roadshow.

Acting BSP Gov. Amando Tetangco Jr. said the concerns of investors are temporary and that the government is addressing its fiscal problem.

The concerns arise from unclear pronouncements that while the P62.5 billion is the official deficit target for this year, the figure may be subject to some change if government is able to raise its revenue collection.

An increase in revenues, however, will be coupled by the restoration of some expenditures as approved by Congress when it recently passed the General Appropriations Act for this year.

During the budget hearings in Congress, there was mention that the deficit could be adjusted upward to P67 billion or even higher based on the revenue figures. Thus, investors are worried that a repeat of the 1999 deficit target would occur wherein the deficit kept on being adjusted upward. -