The BSP warned it "might not accommodate" the foreign exchange requirements of the National Government and the National Power Corp. (Napocor) if the pressure would adversely affect its gross international reserves (GIR).
Internal documents from the BSP show that the National Government has some $1.6 to $2 billion that is not covered by the borrowing program.
The documents show that in addition to the 2004 gross deficit of $3.7 billion, the National Government also has maturing obligations of $3.9 billion consisting of $2.2 billion in principal amounts and $1.7 billion in interests.
Under its $7.6-billion borrowing program, the government it plans to raise about $5.3 billion through domestic borrowing and $2.3 billion through foreign borrowing.
This leaves a foreign exchange funding gap of $1.6 billion if the government would decide to use funds from project loans and a gap of as much as $2 billion without project loans.
According to a BSP source, if the NG would decide to stick to its 70-30 borrowing mix, the gap in foreign exchange requirements would widen to as much as $2 billion.
"That’s why the BSP is recommending that the NG review its borrowing mix," the source said.
In the minutes of a recent high-level inter-agency meeting that discussed the government’s fiscal program, BSP Governor Rafael Buenaventura said there was a need to maximize domestic borrowings but only as long as there was enough forex inflows that the NG could use to fund its forex requirements.
"However, should there be limited forex inflows from exports and investments in 2004, there will be a need for the NG to revisit its financing mix," Buenaventura said.
"Such approach would exert further pressure on both the exchange rate and domestic interest rates," Buenaventura said. If the BSP’s ability to maintain its GIR is threatened, he added that there would be significant adverse impact on market sentiment which would further result in weaker peso and higher interest rates.
On the other hand, the documents quoted National Treasurer Sergio Edeza as saying that the NG’s proposed financing mix was flexible anyway and the ceiling for its foreign borrowing could be increased to more than 30 percent "if there are better opportunities for raising funds in the external market."