Phl eyes cross currency swap with ADB

MANILA, Philippines - The Aquino administration is eyeing a cross currency swap with the Asian Development Bank (ADB) as part of efforts to provide private investors long-term funding for the government’s infrastructure projects under the Public-Private Partnership (PPP) program, government officials said yesterday.

The source said that by doing this, the government is also “redenominating some of its liabilities into the local currency.” This would serve as cushion from foreign exchange risks.

“We submitted to the ADB a request for a cross currency swap,” a source told The STAR.

In its simplest form, a cross currency swap is an exchange of two currencies at a predetermined rate at a predetermined time in the future. It is a tool for hedging foreign exchange risk.

Under the plan, ADB will swap convertible currency for pesos with the Philippines.

ADB will then relend the money to private sector investors in need of long-term peso funding for their participation in the government’s infrastructure program.

“This will benefit both parties,” another source said, saying that it would be in line with the ADB’s goals to provide funding for development projects. It would also fill funding gaps in the country.

“As government, we cannot lend to the private sector but through ADB, we can provide long-term financing,” the official said.

The ADB and the Philippines have yet to agree on the amount to be swapped but in 2004, the Manila-based lender approved a $200-million currency swap with the Philippines. The 2004 cross-currency swap provided 15-year loans to banks for relending to a variety of businesses dependent on the peso.

The PPP, considered as the Aquino administration’s centerpiece economic program, aims to tap private sector participation in 80 large-scale infrastructure projects worth P740 billion that will be undertaken from 2011 and beyond.

Under the PPP scheme, the government would be tapping the help of the private sector to fund the different projects.

The first five PPP projects are the operating and maintenance contract of the MRT-3 and LRT-1; the P1.6-billion Daang Hari-South Luzon Expressway (SLEX) Link Road project; the P10.59-billion Ninoy Aquino International Airport (NAIA) Expressway Phase II project; and the ambitious P21-billion North Luzon Expressway-SLEX Connector project.