WB welcomes RP’s debt-for-equity relief proposal for Asean

The World Bank has welcomed a Philippine government proposal for a debt-for-equity relief program in the Association of Southeast Asian Nations (ASEAN), although it warned of unwarranted expectations that such scheme is the solution to the poor fiscal positions of most ASEAN countries.

World Bank country director for the Philippines Joachim von Amsberg said the proposed debt-for-equity plan "contains elements that are useful" and that it moves in line with the aims of the Millenium Development Goals (MDG).

"We are happy to see the Philippine commitment to the MDG with the proposed debt-for-equity plan for large-scale debt relief," von Amsberg said in a press briefing.

The World Bank, together with its private sector investment arm International Finance Corp. (IFC), has made a three-year commitment to lead up to $2 billion, or roughly an average of $650 million annually.

Last year, the IFC reported transactions reaching $102 million while the World Bank lent out about $130 million.

World Bank funding mostly involves the socially-sensitive areas of education and health but it has also been channeled to infrastructure and capacity building for local government units (LGUs).

The IFC, on the other hand, makes direct investments in infrastructure, the financial sector, and in the small and medium enterprises (SME) sector.

Von Amsberg, however, stressed that nations like the Philippines should not place a lot of expectations on "external action."

The World Bank and IFC stressed that the key to solving fiscal and debt problems is structural, anchored on fiscal reforms as well as institutional strengthening.

They added that broad-based tax forms, improved tax collection, structural changes that encourages a healthy business environment, and contained public expenditures are better approaches to seeking external solutions.

House Speaker Jose de Venecia had earlier proposed converting billions of dollars in debt payment receipts of creditors into equity in development projects of debtor-countries.

If adopted, De Venecia said the Philippines would free up more than $2 billion in annual debt payments which could be invested in MDG-related projects.