Ecobel issue won't affect RP credit rating, says Pardo

Finance Secretary Jose Pardo dismissed suggestions yesterday that the government's refusal to honor an alleged guarantee on a bond issued by the Government Service Insurance System (GSIS) in 1998 will affect new government bonds issued overseas.

"I am sure the market will not take it as the Philippine government not living up to its commitment," Pardo said.

Reports over the weekend said AON Financial Products Inc. warned that by Sunday the government would have defaulted on a guarantee of a loan worth about $10 million, which was backed by a bond issued by the GSIS, a state pension fund.

Sources said the report has caused some anxiety in the international bond market which resulted in the selloff of some Philippine debt papers.

GSIS issued the surety bond in March 1998. The bond was used by Ecobel Land, a private local developer, as collateral for a $9.3 million loan obtained from Bear Stearns Co. in February 1999. It was counter-guaranteed by AON Financial.

Ecobel, which had planned to use the money for a 26-storey condominium project, failed to pay when the loan matured on March 7, 2000.

The news report came just days before the country's roadshow--scheduled later Monday in Europe--for a seven to 10-year euro-denominated bond to raise the equivalent of $900 million, mainly for budget support. Pricing will take place after April 14.

AON Financial lawyer Davis Carr wrote Pardo on April 3 complaining that GSIS had denied claims by Bear Stearns over the loan. He said if the government fails to comply with the demand for payment, it will be "considered a refusal to honor" its guarantee obligation on the GSIS bond.

Pardo said he already spoke with GSIS officials, who claimed the surety bond "had no legal basis for enforcement."

"They say there is no country obligation, there is no guarantee because there is no liability registered," Pardo told reporters. He added the government only guarantees GSIS obligations if they pertain to members' benefits.

Still, Pardo said he ordered a senior finance official to look into AON Financial's complaint.

GSIS said it was liable only to the state-run Philippine Veterans Bank, which was the "obligee" of the surety bond and "through which" the loan will be guaranteed to Ecobel. Since the bank did not take part in the loan agreement between Ecobel and Bear Stearns there wasn't any justification for issuing the bond, it said. -- With AP