ADB withdraws offer for currency swap with RP

The Asian Development Bank (ADB) said it has withdrawn its offer for a currency swap deal with the government, after the parties failed to agree on what officials called "technical elements" of the transaction.

The ADB said over the weekend that the currency swap deal was approved by its board of directors but the transaction was never finalized despite lengthy discussions between the bank and Philippine officials.

According to Tom Crouch, ADB country director for the bank’s Philippine office, the offer had already lapsed so the proposed deal was no longer active and the offer was considered withdrawn.

"The board approved it but it never came to closure because there were some technical elements on which there was no agreement," Crouch said.

The currency swap, offered during the time of then Finance Secretary Juanita Amatong in 2004, was dropped from consideration by the Arroyo administration due to what it called the ADB’s intransigence on the pricing of the swap.

For over a year, the DOF and the ADB were locked in negotiations over the pricing of the $200-million swap facility, which, if priced cheaply, could have benefited both the national treasury as well as the local business sector.

The foreign exchange that the government was supposed to get from the facility was intended to help plug a foreign exchange gap seen amounting to as much as $2 billion in 2004.

However, since the country’s gross international reserves are now at record levels, the currency swap is no longer considered necessary.

At the time, however, finance officials balked at the ADB’s terms, saying they wanted to take advantage of the higher credit rating – thus cheap financing – of multilateral banks like the ADB.

The arrangement would have been the ADB’s first currency swap of its kind in the region where it intended to swap foreign convertible currencies with the Philippine government for pesos which are then lent to banks that can re-lend them to selected business sectors.

The foreign currencies involved are the dollar, euro and the yen.

International banks with a long-term credit rating of BBB or better could borrow up to $75 million equivalent each under the facility, while local the banks’ borrowing limit will be set at $10 million each.

The banks could also re-lend to businesses in sectors involved in, among other areas, infrastructure development, manufacturing, small and medium enterprises, housing and retailing.

The multilateral agency will also allow loans for restructuring infrastructure projects.

A total of 17 local and international banks have been accredited for participation in the 15-year facility.

The international banks are ANZ Banking Group Ltd., Bank of America N.A., Bank of Tokyo-Mitsubishi Ltd., Citibank N.A., Deutsche Bank, Hong Kong and Shanghai Banking Corp. (HSBC), Internationale Nederlanden Groep (ING Bank) Bk., International Commercial Bank of China (ICBC), JP Morgan Chase Bank, Mizuho Corporate Bank Ltd. and Standard Chartered Bank.

Also eligible to participate are subsidiaries of international banks, namely ABN Amro Bank, Chinatrust Commercial Bank, Maybank Philippines Inc. and United Overseas Bank Philippines (UOBP).

In addition, the Bank of the Philippine Islands (BPI) and Metropolitan Bank & Trust Co. may borrow up to $10-million equivalent each from the facility. This limit will not apply if the loan is guaranteed by one of the participating international banks.