IFC cautions RP vs excessive borrowing, election spending

The International Finance Corp. (IFC), the World Bank’s investment arm in the private sector, has cautioned the Philippines against excessive borrowings and campaign spending in the run up to the national elections next year.

"We are disturbed over the high incidence of government borrowings in the domestic market which is crowding out private sector borrowings," IFC country manager for the Philippines Vipul Bhagat said. "That is a situation that should be rectified."

Although the main avenue for overcoming the deficit remains through fiscal prudence and high revenue collection, the IFC had not expressed support for new tax reforms but stressed on efficient tax measures.

Increased economic activity is another measure that could increase revenue collections but government should not reduce the source of capital or credit by tapping on the same source, Bhagat added.

He stressed the agency is more concerned over the economic fundaments of the Philippines rather than the political situation, although it signified concern over the impact of excessive spending for the 2004 national elections.

"We are not deterred by political scenarios," said Bhagat, adding though its concern on election spending which may put direct pressure on the inflation rate next year.

IFC has invested $67 million in various projects with the private sector in the past fiscal year. It continues to plan ahead as it has set aside a minimum investment target of $125 million in private sector efforts in the Philippines this fiscal year.

The IFC country chief made it clear that the IFC looks at the medium- to long-term investment opportunities in the Philippines rather than a myopic and fragile outlook.

The IFC, he said, remained bullish towards making debt or equity advances for the formation of special purpose vehicle (SPV) companies that would buy the bad assets of the country’s banking system despite the earlier drawback in the case of the Bank of the Philippine Islands (BPI).

The consortium that took the negotiating table with BPI for the acquisition of bad assets ended in a disappointment. However, the IFC said that it was still willing to talk with other consortiums interested in starting another round of discussions with BPI.

"The IFC remains interested in working with other groups or consortiums in the BPI case, as we are also interested in being involved in the formation of SPAVs in the acquisition of NPAs of the banking system," the IFC country manager said.