The President authorized Finance Secretary Alberto Romulo to issue "small denominated" Philippine bonds in three, four, and five-year maturities.
Mrs. Arroyo announced the bond flotation in her speech at "The President’s Night" before the Manila Overseas Press Club held last Thursday night at the Dusit Hotel Nikko in Makati City.
The President disclosed that her administration would also hasten the sale of state-owned assets such as luxury vehicles in order to augment government’s budgetary requirements.
Aside from the presidential yacht, she said, also up for sale is the nine hole golf course in the President’s Mansion House in Baguio City, the proceeds of which will go to the national treasury.
In her speech, Mrs. Arroyo admitted the government had to undertake this borrowing in order to address the problem of the "mammoth budget deficit" projected to reach as much as P225 billion this year that her administration inherited from her predecessor.
"This is unsustainable. Our economic team has taken action to bring the deficit down to P145 billion while maintaining a level of spending necessary for substantial growth and poverty alleviation," the President said.
This was why, she said, she signed full powers for the Department of Finance for the issuance of three, four and five year small denominated Philippine bonds of up to an aggregate P150 billion "as part of the government’s strategy to further develop the domestic capital market and to raise funds to finance budgetary requirements."
In the open forum that followed, Mrs. Arroyo explained the P150 billion flotation is just the "ceiling" or target amount that the government intends to raise from domestic sources. "That’s the ceiling. That is the authority. But that (P150 billion) is not necessarily the amount," the President pointed out.
The bond flotation came after the President and her Cabinet approved a total budget of P763.5 billion next year which she will submit to the next Congress.
As presented by the Department of Budget and Management (DBM) during their weekly Cabinet Meeting at Malacañang last Tuesday, the total budget proposal for next year would still result in a projected deficit of P120 billion due to estimated revenue shortfalls by the Bureau of Internal Revenue (BIR) and the Customs Bureau.
Finance Secretary Alberto Romulo said in this week’s two-day roadshow conducted at the Asian Investors’ Conference in Hong Kong that the administration may resort to foreign borrowing in the second semester if necessary to plug its budgetary shortfall.
At the same time, the government could resort to a Brady exchange and securitization of future incomes of government-owned and controlled corporations and economic zones such as the Subic Freeport Zone and the Clark Development Corp.
Romulo said these measures may be resorted to if government’s tax collection efforts and other revenue-enhancing measures do not improve.
He expressed optimism, however, that government will succeed in its tax collection and the bond float will not push through.
"We may undertake a bond flotation just in case we need it, but I don’t think we need it borrow now or for the rest of the year," Romulo said, at the same time stressing "we are not closing any doors yet."
The finance chief said government has not yet decided on the extent of the borrowing, but the previous administration had already planned borrowings of about $400 million for the year.
At the same time, government is still studying the borrowing mix to be implemented. Romulo appears inclined to borrow more from local banks, a move that analysts said, will put pressure on domestic interest rates and crowd out the private sector as demand for loans increase. However, banks prefer to lend to the government which they consider to be risk-free.
Romulo said it is a good time to borrow, especially since Asia-Pacific investors continue to be bullish about the ecomic prospects of the country.
‘Investors were impressed with the rapid pace of economic and political reforms bieng implemented by the Arroyo administration and that they were convinced the Philippines will join the list of Asia’s fastest-growing economies this year due to improved business confidence," Romulo said.
Investment houses, including Credit Suisse First Boston, Morgan Stanley Dean Witter and Lehman Brothers, according to Romulo, also consider the Philippines a good credit risk among emerging markets due to its strong fundamentals and strong commitment to reforms.
Romulo told investors the country is capable of achieving its GDP growth target of 3.8 percent to 4.2 percent despite the slowdown of the US economy and the jitters in emerging markets.
He added government is also bent on pursuing fiscal consolidation to have a balanced budget between 2004 and 2006.
At the same time more reforms are forthcoming among them: the passage in Congress of the power reform bill, amendments to the Bangko Sentral Act, modernization of government’s procurement system and a post-audit system.
The International Monetary Fund (IMF), however, does not share the optimism of the Arroyo administration.
It projected a GDP growth of 3.3 percent, and urged the government to ensure it does not exceed its projected budget deficit.
IMF representatives are in Manila negotiating with the government for a post-program monitoring system.
A post-program monitoring is necessary, especially after goverment exceeded the quota of $1 billion in loans from the IMF, as its outstanding loans already topped $1.77 billion.