RP junks proposed currency swap

Finance officials have dropped the proposed currency swap arrangement with the Asian Development Bank (ADB) due to disagreements over the terms of the transaction.

Government sources told reporters that negotiations with ADB for the currency swap have been practically terminated as the parties could not reconcile their positions on the terms of the agreement.

The ADB and the Philippine government have been locked in negotiations over the pricing of the $200-million swap facility which, if priced cheaply, could benefit both the national treasury as well as the local business sector.

The dollars generated by the transaction would likewise boost the country’s international reserves as the government faces another foreign exchange gap next year.

Sources said however, that the Arroyo administration does not want to take the loan unless the ADB agrees to pass on its discount so that the government would not have to pay the commercial loan with commercial interest rates.

The proposed swap was supposed to be the first of its kind and the ADB had planned to use it as a model for other countries.

But finance officials wanted the ADB to lower its rate, effectively passing on the benefits of its AAA credit rating to the Philippines. In effect, the Philippines would avail of ADB’s cheap financing.

Finance Secretary Juanita Amatong earlier said that if the ADB would insist on its offered rate, the government could easily get the same deal from the market.

The Monetary Board had approved in principle the swap facility, but the National Government can pull out of the arrangement if the pricing turns out disadvantageous to the country.

On the other hand, the Bangko Sentral ng Pilipinas (BSP) had pushed for the swap deal, saying that this would help develop a secondary market for long-term debt instruments.

A government source, however, said that neither the government nor the ADB are willing to budge on their positions.

"For all intents and purposes, this deal is dead in the water unless the government decides to reconsider or the ADB agrees to give us a discounted rate," the official said.