mix-mix

Borrowing mix changes urged by central bank/BWorld/1.19.09

THE BANGKO SENTRAL ng Pilipinas (BSP) is proposing changes to the government’s borrowing mix, saying the country should build a buffer against the global economic downturn by taking advantage of lower interest rates abroad.

BSP Deputy Governor Diwa C. Guinigundo told reporters last Friday that a mix in favor of higher external borrowings would be useful as this could help beef up the country’s defenses against a global recession.

The government plans to borrow P509.9 billion from domestic and foreign creditors this year, which translates to a mix of 76%-24% in favor of local borrowings.

Asked if this should be revised, Mr. Guinigundo said "Yes ... we don’t have a number but I think a higher mix in favor of higher external borrowings will be useful so we can put up reserves or contingencies or buffers against possible difficulties in the external sector."

He stressed that the government should take advantage of lower interest rates in the United States and Europe.

"Lending rates have been brought down as well. We need to take advantage of that," Mr. Guinigundo said.

The BSP has cut its gross international reserves (GIR) forecast for this year to $37-37.5 billion from an earlier estimate of $39-40 billion as the financial crisis continues to take its toll on foreign exchange inflows.

Officials have said a GIR of $37-37.5 billion would cover 5.7 months worth of imports of goods and payments of services, a comfortable level since the international benchmark is three months.

A central bank official has said investors are likely to delay setting up in the country, which would stall foreign exchange inflows this year. Export earnings and remittances from overseas Filipinos are also expected to decelerate.

Mr. Guinigundo, however, expects remittances to continue supporting consumption.

"Remittances will remain respectable and will continue to support consumption expenditure which account for more than 70% of GDP," he said. "Inflation will be much more modest in 2009, that will also encourage more consumption." — Bernardette S. Sto. Domingo