Government to review 2008 foreign borrowing mix

The National Government (NG) will adjust its foreign borrowing for 2008 and possibly buy part of its dollar requirements from the  Bangko Sentral ng Pilipinas (BSP)  instead of borrowing overseas.

BSP Governor Amando M. Tetangco Jr. told reporters yesterday that Finance Secretary Margarito B. Teves has agreed to review the NG’s borrowing mix for next year, currently pegged at 64-36 in favor of domestic borrowing.

According to Tetangco, the NG has agreed to adjust this even more in favor of domestic borrowing although he declined to say whether the BSP was proposing a specific borrowing mix.

Increasing the government’s domestic borrowing in 2008 would have the effect of increasing the supply of government securities which has been dwindling as its actual borrowing requirements declined in the last two years.

Banks have been groaning against the sudden and dramatic decline in government securities which had been their major source of income especially after the 1997 Asian financial crisis.

On the other hand, raising money from the domestic market in order to service even its maturing foreign obligation would also allow the NG to create a demand for dollars and temper the rapid appreciation of the peso against the dollar.

“The NG will borrow from the domestic market as much as they could and if they need foreign exchange for their maturing foreign obligations, they can buy that from the BSP,” Tetangco said.

Tetangco said this would remove the foreign exchange risk from the NG’s usual foreign borrowing and since the country’s foreign exchange reserves have been soaring to new all-time highs, the BSP could very well afford to unload some of its accumulated dollars.

According to Tetangco, it would be up to the Department of Finance (DOF) to make its calculations to determine the extent to which it could adjust its borrowing mix and still make prudent sense in terms of cost-effectiveness.

Tetangco said it would also be up to the DOF to determine whether the adjustment would cover both commercial borrowing and official development assistance (ODA) from both multilateral and bilateral ODA sources.

“This will be consistent both with our efforts to develop the capital market since it would make more government securities available,” Tetangco said. “Aside from that, it will have the effect of creating a demand for foreign exchange.”

According to Tetangco, the NG’s foreign commercial borrowing requirement for 2008 was set by the DOF at $1 billion.