ADB offers to guarantee RP’s foreign borrowings

The Asian Development Bank (ADB), one of the country’s biggest multilateral creditors, is offering to provide guarantees for the foreign borrowings of the National Government (NG) for next year.

An official of the Department of Finance (DOF) said the ADB has expressed its interest in guaranteeing the country’s issuance of commercial papers, bonds and other debt instruments in the international debt market.

Credit enhancement such as loan guarantees is expected to boost the government’s chances of acquiring its financing requirements. These will enable government to complete its financing requirements for next year while minimizing interests costs.

Earlier, the Arroyo administration asked the World Bank in Washington D.C. to extend a guarantee on its planned foreign borrowings for 2002.

While more than half of its projected $1.3 billion external funding requirements for next year is already covered, government wants to diversify into other funding sources to make borrowing cheaper for government.

Specifically, government wants to negotiate for yen and Singapore dollar-based financing sources.

At the same time, it will also double the use of official development assistance (ODA) credits and focus on credit enhancements through loan guarantees from the Japan Bank for International Cooperation (JBIC), Nippon Export and Investment Insurance (NEXI) and the World Bank.

Camacho said any residual borrowing requirement will be met via domestic sources.

Finance officials said the government wants to complete its borrowings as early as possible as it anticipates spreads on emerging markets’ sovereign borrowings to widen with the uncertainty brought about by the ongoing military hostilities by the US and its allies against the Taliban forces Afghanistan.

The International Monetary Fund (IMF) downgraded its forecast for global growth to 2.6 percent as two of the world’s biggest economies, Japan and the US, are not expected to post their much-anticipated recoveries. Most emerging markets are largely dependent on these two countries for their own growth as US and Japan consume their products,

A guarantee component that will be extended by either the WB, JBIC or NEXI makes it attractive for lenders to extent borrowings. For instance, NEXI guarantees 90 percent of loans while JBIC can guarantee up to 95 percent.

The government’s new foreign loans are part of its P111.8 billion total borrowings for NEXI year. Of the planned borrowings, P138.6 billion will be from abroad while P128.8 billion will be from the domestic market — for a 52:48 ratio in favor of foreign funds. This should keep domestic interest rates from rising.

So far, government said it will push through with plans to issue 30 to 50 billion yen worth of Shibusai bonds. It named Fuji Bank and Nomura Securities as joint lead managers and Daiwa Securities SMBC as co-lead manager for the initial issuance of 30 billion bonds.

The bonds will be guaranteed by the NEXI, which should be favorable to the Philippins government had been considering for this year, but which it was forced to put off because of unfavorable market conditions that were aggravated by the Afghan conflict.