Government debt slightly declines to P6.83t

The government’s outstanding debt slightly declined 0.6 percent or P42.14 billion to P6.83 trillion in May from the previous month, the Bureau of the Treasury said Friday.

Data showed that of the total debt stock, 35.25 percent or P2.4 trillion were secured externally while 64.75 percent or P4.42 trillion were borrowed domestically. 

The domestic debt of P4.42 trillion dropped P74.52 billion or 1.7 percent in May from the previous month.

“There was a P74.93-billion net redemption of government securities in May slightly tempered by the P0.41 billion effect of the weaker peso for the month. To date, domestic debt has managed to decrease by P16.92 billion or 0.4 percent since the beginning of the year,” the Treasury said.
External debt increased P32.38 billion or 1.4 percent to P2.4 trillion was P32.38 billion from the end-April 2018 level.

“The increment was due to the weaker peso that increased the peso value of FX debt by P37.66 billion. This was slightly trimmed by net repayments on external loans amounting to P4.89 billion and the impact of net depreciation on third currency-denominated debt amounting to P0.39 billion,” the Treasury said.

source:  Manila Standard

Three faces of the Asian crisis: a regulator, an investor and a global financial firefighter

KUALA LUMPUR/MANILA -- Corporate regulator Teresita J. Herbosa, Oakwood hotel heir Jacinto C. Ng, Jr., and the International Monetary Fund (IMF) perhaps have something in common: a checkered history.

The regulator, the investor, and the multilateral organization all came out of the 1997 Asian financial crisis wiser than they were going in.

Two decades since that painful event, however, they have not lost their mojo.

To Ms. Herbosa, a practicing lawyer in the 1990s and now the chairperson of the Securities and Exchange Commission (SEC) that approves public listings, the blow was personal but later reverberated throughout her career as a corporate regulator.

“I remember I bought property in 1997. A few months after, the value went down so I said, ‘naku, I overpaid…’ I was really regretting it,” Ms. Herbosa said in an interview in Manila.

“But then, I hung on to it,” she said, adding that real estate values eventually recovered.

But the lesson was not to borrow “when you buy something substantial” and, instead, “buy with disposable income.”

But borrowing big-time, Ms. Herbosa understood, would be inevitable for companies needing private capital -- ideally more from local sources to discount the risk of foreign investors taking fright under a currency crisis.

In December last year, the SEC approved rules that allow listed companies to issue shares quoted, traded, and settled in US dollars to meet their dollar needs.

Still, the SEC “is looking very much into leveraging -- why some companies have bigger debts,” she added.

That debt paranoia -- not unique to Ms. Herbosa -- says much about the lasting scar the 1997 Asian crisis has left.

From foreign debt-laden Thailand that decided to no longer peg the baht to the US dollar, the financial crisis moved like a wrecking ball through the economies of the Philippines, Malaysia and Indonesia, hurting companies heavy with dollar-denominated loans in their balance sheets that were serviced in local currencies.

There was a cash squeeze as Philippine banks cut credit lines -- especially for property tycoons -- and they have been picky since.

Twenty years later, the consequence was clear: The property tycoons made a comeback after finding a more stable groove, and now bank only with those who didn’t drop them when times were rough.

Oakwood Premier Joy Nostalg boss Jacinto C. Ng, Jr., son of Philippine billionaire and biscuit magnate Jacinto L. Ng, Sr., remembers which banks stayed faithful to his group amid the financial malaise.

“Fortunately, we did not experience such (cutting of credit lines). There was no souring of our relationship with banks,” Jacinto Jr. said in a July 15 interview, while noting that the liquidity crunch hurt his industry peers.

“We could not afford for these credit lines, for the integrity, to be broken. We were just probably fortunate to be stubbornly conservative.”

Conservative the hotel heir remains to this day, with his financing model for his socialized housing venture -- the low end of the Joy Nostalg group’s diversified property business -- designed in such a way that the company’s balance sheet would be shielded from defaults.

Jacinto Jr.’s Extraordinary Development Corp., which caters to the low-income market, has built 2,000 units at a village in Cavite priced at P450,000 each -- the benchmark for state-run mortgage lender Pag-IBIG to fully finance the loan, leaving the builder with clean books.

“We did not get any equity from the buyer, which means you spend everything up front,” Mr. Ng said.

“But we go back to efficiency. Yes, all the cost went out, but the operation is so efficient that we get our money [back] faster also. It [cost] doesn’t stay long [in our balance sheet].”

The crisis taught him prudence also in his private life, eschewing golf and “even my aspirations for building a family was affected,” Jacinto Jr. said, recalling how he had to wait for another six years for a third child after his second son was born in July 1997, just when the crisis was raging.

“He was born eight days after the crisis,” the 48-year old hotel heir said, referring to his second-born and reckoning July 11, 1997 as the date when the Philippines joined other Asian currency markets that fell in step with the devaluation of the Thai baht, making it expensive for Philippine companies to service their dollar-denominated debt.

The peso, according to Bangko Sentral ng Pilipinas (BSP) data, sank by 10.36% against the dollar that fateful Friday, or by P3.05, to P29.45 per dollar after the central bank “allowed the peso to seek its own level.”

It’s a transition from a “managed float” exchange rate regime where the monetary authority has a “certain range for how much the exchange rate between the peso and the dollar” should be to an “independent float” system where the central bank is “hands off”, BSP Deputy Governor Diwa C. Guinigundo explained.

“After July 1997, we allowed the peso to seek its own level. No intervention. We only come in if there’s speculation in the market and reduce the sharp volatility,” Mr. Guinigundo said in a July 10 phone interview.

That change in foreign exchange policy was necessary as the BSP’s constant intervention to defend the peso from speculative attacks at the time had been costly -- its gross international reserves shrank by $1 billion in July 1997 alone to about $10 billion.

A flexible exchange rate system was the shock absorber for an economy faced with balance of payments problems, a pillar for an independent monetary policy, and is the kind of currency regime that the global lender of last resort -- the International Monetary Fund (IMF) -- advocates to this day.

The Philippines had to again run to the IMF in the week that followed that July 11, 1997 decision for a $600-million Extended Fund Facility to shore up its depleting currency reserves.

ALTERED CALCULUS
But central banks in the Philippines, Malaysia, Indonesia, and Singapore have since been piling up foreign exchange reserves -- BSP’s holdings alone are at record-high levels -- owing to a shift in economic fortunes that saw investors returning to the region at least in the past decade.

Asia’s freedom from the IMF debt yoke has altered the calculus for the global firefighter, whose lending to all countries by 2015 thinned to just half of the €30 billion it lent to Greece in 2010 when it helped Athens ride out a debt crisis, IMF data showed. Sri Lanka and Mongolia are among the last few Asian countries under the IMF’s supportive program.

The IMF’s role in a now fiscally healthier Asia has changed from a friend in crisis to a friend in good times, with the region receiving the second-largest share of the IMF’s $345-billion budget for technical assistance and training in fiscal year 2017 next to Africa, according to IMF data.

Asia can’t entirely cut loose from the IMF after over half a century of rescue packages as the latter still is a part of the region’s firewalls like the Chiang Mai Initiative Multilateralization.

That web of currency swap arrangement -- $240 billion in total size -- allows any member economy that needs liquidity support to withdraw up to 30% of its maximum borrowing amount (which is proportional to members’ contribution to the covenant) while the remaining portion is linked to an IMF program.

There had been proposals among Southeast Asian nations to raise to 40% that portion that’s not tied to the IMF’s lending conditions. The higher the IMF-delinked portion, the less the policy pressure is for the indebted.

“Our perspective is, it’s really up to the countries [how much] percentage is delinked. And we don’t see an issue if they choose to raise it or if they choose to keep it, because there’s still an element of a need and use of the global financial safety net built in there,” Ranil Salgado, assistant director at the IMF’s Asia and Pacific Department, told BusinessWorld in a July 23 interview in Kuala Lumpur.

“And if you see, that’s the kind of policy we have globally -- combine resources from the regional safety net with the global.”

The IMF, senior officials told visiting journalists in Kuala Lumpur, is now trying to shake off the negative connotation associated with its annual “surveillance” activities, which under its mandate merely meant checking on the economic health of its 189 member-countries, indebted or not.

“Over the decades, there have been a lot of lessons learned for the IMF. You can see the major changes that have occurred over the last couple of decades in Asia. So you can see that both sides learned a lot from what happened 20 years ago,” Mr. Salgado said.

And while some central bankers and finance ministers would look back to the crisis as a source of regret -- spurning IMF’s policy prescriptions back then like a bitter pill -- the Washington-based lender said it can still “function as a trusted policy adviser” as rising trade protectionism poses a fresh threat to the region’s external balance sheets.

On building up gold and currency holdings, for instance, the IMF said it would rather see nations put to good use currency reserves in excess of the gross international reserves “optimal level” -- measured based on traditional import cover, external debt, as well as portfolio liabilities and so may vary from economy to economy.

At nearly $81 billion, the Philippines’ reserves pile, according to the IMF, is 200% above the “optimal” reserve adequacy range.

China’s deep cut in its $3-trillion currency buffer late last year sparked worries of a cycle of currency depreciation and capital outflows.

So, can the Philippines afford to reduce its stash of forex reserves even as markets continue to be jittery about more US Federal Reserve rate hikes?

“If you’re above the range, we tend to say, well, there’s no real need to build further reserves at that stage,” Mr. Salgado said.

“That even supports further the need to allow the exchange rate to be flexible as needed. Because exchange rate flexibility gives the domestic central bank more scope to use monetary policy as needed for domestic conditions as opposed to necessarily focus on external conditions.”

It’s evergreen advice from a global firefighter that has learned from the crisis too.

source:  Businessworld

Malacañang: CHR officials may be ‘replaced’

MALACAÑANG ON Thursday sought to explain the administration’s plan to abolish two government agencies whose key functions run counter to the reputed legacy of the Marcos family who are allies of President Rodrigo R. Duterte.

Mr. Duterte early this week said the Commission on Human Rights (CHR) is “better abolished,” adding that he would not allow the body to investigate possible human rights violations by the military while Mindanao is under martial law.

Meanwhile, Budget Secretary Benjamin E. Diokno said the government was planning to scrap the Presidential Commission on Good Government (PCGG), an agency tasked to recover the ill-gotten wealth of the Marcos family and their cronies. The Marcoses are allies of Mr. Duterte.

Presidential Spokesperson Ernesto C. Abella in a press briefing yesterday said Mr. Duterte was just airing out his “frustrations” toward CHR’s “biases” when he threatened to shut down the CHR.

“Basically, the President was simply expressing his frustrations regarding the apparent biases of the commission,” Mr. Abella said, adding that CHR officials may be “replaced” at Mr. Duterte’s will.

“It (CHR) is a constitutional commission and it cannot be abolished by mere legislation. The chairperson and its members, however, serve at the pleasure of the President,” the spokesperson added.

“We do not talk about empty threats, we talk about concerns.”

Both Defense Secretary Delfin N. Lorenzana and Philippine National Police Chief Director-General Ronald M. Dela Rosa threw support behind the proposed abolition of the CHR, saying security forces can perform their duties without committing abuses.

The CHR was created by the 1987 Constitution, which described the body as an “independent office.” Among its functions is to investigate “on its own or on complaint by any party” all forms of human-rights violations.

The CHR has been on the receiving end of Mr. Duterte’s verbal attacks after it launched an investigation on the alleged extrajudicial killings under the government’s brutal war on drugs.

On the possible termination of the PCGG, Mr. Abella said this is intended to “streamline” government processes and is not politically motivated.

“The Office of the Solicitor General (OSG) actually handles the cases filed to run after the Marcos ill-gotten wealth while the PCGG actually handles the administrative function,” he explained.

“I think it’s a question of streamlining. There’s no politics there.”

Asked if the OSG can handle the recovery of billions of dollars looted from state coffers during the Marcos dictatorship, considering the large number of cases managed by the said office, Mr. Abella said: “Based on the OSG position, apparently they can.”

“Regarding the PCGG, apparently that has been a move sometime back,” he also said.

The PCGG was created three decades ago just after the People Power Revolution that ended Mr. Marcos’s two-decade rule, which was marred by corruption and human rights abuses.

Commenting on Mr. Diokno’s remarks, the PCGG said in a statement yesterday that the agency was “surprised” by recent questions on its “performance, relevance, and efficiency.”

“Aside from the fact that it was awarded as the best...performing agency for three straight years, what other government agency can effectively raise non-tax revenues...?” it said.

Data released by the PCGG showed that it recovered P57.1 billion in 2012, P631 million in 2013, P1.57 billion in 2014, P14.01 billion in 2015 and P481.95 million in 2016.

This compares to the annual budget of the agency -- P93 million in 2012, P102 million in 2013, P106 million in 2014, P101 million in 2015, and P104 million in 2016.

“Why is there a question on its budget and relevance when PCGG’s cost to recovery ratio is exemplary as shown by these numbers? Of all agencies? Figures do not lie,” the PCGG said.

Last May, House Speaker Pantaleon D. Alvarez filed House Bill (HB) 5233 which seeks to “strengthen” the OSG by streamlining government legal services under one agency, thereby effectively abolishing the OGCC as well as the PCGG.

Last year, the Office of the Ombudsman conducted an inquiry on the alleged links of Mr. Duterte to a death squad during his long mayoralty in Davao City based on a 2012 CHR resolution recommending a probe on the killing. Mr. Duterte was later cleared of the allegations.

source:  Business world

Metrobank, 2nd biggest bank

BSP looking into Metrobank ‘internal fraud’

THE Bangko Sentral ng Pilipinas (BSP) is currently looking into internal lapses that led to a reported P900-million fraud case faced by Metropolitan Bank & Trust Co. (Metrobank), alongside criminal raps lodged against the bank official said to have crafted the scheme.

A newspaper report alleged that a vice president of the listed lender has engineered an internal fraud that has costed the bank at least P900 million by using loan proceeds to fake bank accounts which eventually ended up in her own account.

“We are looking into it already,” BSP Governor Nestor A. Espenilla, Jr. told reporters on Friday, noting that the regulator has already deployed a team to investigate the bank.

“We first have to establish facts. Our banks have their natural internal controls precisely to prevent these things from happening, so we will have to look into the adequacy of those controls if in fact a significant crime happened within the bank.”

In the report, Metrobank Assistant Vice President and Corporate Service Management head Maria Victoria S. Lopez is said to have crafted fake loan disbursements using the bank’s long-time client Universal Robina Corp. (URC) in tranches of P30 million.

National Bureau of Investigation (NBI) Director Dante A. Gierran said the Metrobank official has been in custody over charges of qualified theft, falsification, and violation of the General Banking Law.

The bank lodged a complaint before the NBI on July 13 after discovering “irregularities” in letters and checks filed by Ms. Lopez on the client’s behalf, which were later discovered to be fake.

Ms. Lopez, who has been working at the bank for 30 years and earning around P250,000 a month, was nabbed by authorities during an entrapment operation last Monday. She had ordered the debit of P2.25 million from the loan account, but the bank was able to confirm that the client was unaware of the supposed loan, which led to her arrest.

In a press briefing on Friday, NBI spokesman Ferdinand Lavin said the agency is conducting a follow through investigation on the alleged fraud.

“The biggest loss on this is the integrity of the banking system and the internal control system of the bank,” he said.

The NBI presented Ms. Lopez, who wore an orange shirt and covered her face with a scarf, during the briefing but did not make any statement.

METROBANK SHARES FALL
Shares in Metrobank dropped by 5.03% to P86.90 on Friday, coming from P91.50 apiece the previous day.

In a disclosure, Metrobank assured that the bank will continue with its day-to-day operations.

“The Bank is reinforcing its commitment to the highest standards of integrity and upholds the protection of its customers as its main priority. No customer has been affected in this incident,” the George S.K. Ty-owned lender told the local bourse.

“In the context of the Bank’s P1.9 trillion financial resources, rest assured that we continue to operate business as usual for the bank and our customers.”

Metrobank is the Philippines’ second-biggest bank in asset terms and controls P1.9 trillion worth of resources. It raked in P18.1 billion in net income last year, and P5.6 billion during the first three months of 2017.

In a separate statement, URC said it will keep its business deals with Metrobank despite the case, after bank president Fabian S. Dee assured that the conglomerate’s accounts would not be affected.

The Gokongwei-led firm said URC would not incur any losses while active bank accounts will be kept intact.

For its part, the Bankers Association of the Philippines said it is “confident” that Metrobank will be able to resolve the issue: “This appears to be an isolated incident and we are confident the facts will arise from the ongoing investigations being carried out by both Metrobank and the Bangko Sentral ng Pilipinas.”

source:  Businessworld

Debt service payments rise over 207% in May

PAYMENTS to service government debt rose 207.51% year on year in May, driven by an increase in principal settlements on domestic obligations, the Treasury bureau said.

The national government in May made payments of P78.38 billion, against P25.49 billion a year earlier.

Month on month, the debt service bill rose against the P26.29 billion worth of payments made in April.

The surge was driven by principal payments worth P57.42 billion, well over the P6.83 billion recorded in the same month in 2016.

Principal repaid to domestic lenders grew to P50.9 billion, compared to P190 million a year earlier.

Principal repaid to external creditors meanwhile totaled P6.52 billion, little changed from the P6.64 billion in the same period of 2016.

Interest payments totaled P20.96 billion in May, up 12.33% from a year earlier.

Of the total, P18.75 billion went to domestic lenders -- of which P16.46 billion went to interest payments on fixed-rate Treasury bonds, P1.88 billion for retail Treasury bonds, and P378 million for Treasury bills.

Foreign interest payments meanwhile totaled P2.22 billion.

Domestic payments for both principal and interest took up 88.85%, or P69.65 billion, of the debt service bill that month while foreign lenders were paid P8.74 billion.

The total debt service bill for the five months to May was P353.32 billion, down 27.09% from a year earlier.

The government borrows from both local and external sources to finance its intended budget deficit of 3% of gross domestic product, or about P482.1 billion. -- E.J.C. Tubayan

source:  Businessworld

SSS collects over P5 billion in overdue credit payments

STATE-RUN Social Security System (SSS) said it accumulated over P5 billion in overdue credit payments through its one-year payment scheme and is seeking to gain around P9 billion in the next five years.

SSS also reported that over 850,000 of its members have availed themselves of its Loan Restructuring Program (LRP), in which the firm collected a total of P13.83 billion for the one-year period the program was offered.

“We are very much overwhelmed with the huge volume of applicants especially during the last few days before the deadline. We hope that they are more persistent in paying their monthly obligations so they could avail of the condonation of penalties as soon as they have paid in full their outstanding loan. We are expecting P8.6 billion in collection until the end of the five-year installment term,” SSS President and Chief Executive Officer Emmanuel F. Dooc was quoted saying in a statement e-mailed to reporters on Friday.

The bulk of the LRP applications were employee-members, with contributions amounting to P3.23 billion while voluntary members comprised 27%, with initial payment of P1.38 billion.

Meanwhile, 39,000 self-employed SSS members yielded an equivalent collection of P194.37 million and over 46,000 overseas Filipino workers had a total remittance of P412.76 million.

The payment scheme was rolled out last April 28. This aimed at giving delinquent member-borrowers an opportunity to regaining their standing before the SSS and enjoy SSS benefits in the future, like renewing their loans six months after they have fully paid their overdue principal and interest under the LRP.

Borrowers could settle their unpaid SSS loans via flexible payment terms of up to five years, with interest rates of as low as 3% annually.

Meanwhile, those who have availed themselves of the program could also pay in full their overdue loans within 30 days with no additional interest or through installment basis of up to five years with an interest rate of 3% yearly.

“We would like to remind our LRP availees that loan penalties will be completely waived after full payment of total loan principal and interest under the restructured loan. So they are advised to pay their financial obligations on time to prevent an additional penalty of 0.5% per month,” Mr. Dooc said.

The LRP covers short-term SSS loan programs including the Salary Loan, Salary Loan Early Renewal Program (SLERP), Emergency Loan, Calamity Loan, Voc-Tech Loan, Y2K Loan, Investments Incentive Loan, Study Now Pay Later Plan, and the previously offered Educational Loan, which is different from the ongoing Educational Assistance (Educ-Assist) Loan Program.

Excluded from the program are Stock Investment, Privatization Fund, and Educ-Assist loans.

By end-April, the state-run pension fund’s total revenue collection reached P52.18 billion, a 9.6% uptick from the P47.59 billion recorded in the comparable period a year ago.

source:  Businessworld

Indian think tank to Manila: Beware of Beijing-funded projects

NEW DELHI — The Philippines could end up in hock to China if it is not careful about entering into investment and infrastructure deals with Beijing, according to an Indian think tank.

Hardeep Puri, chair of India’s Research and Information System for Developing (RIS) Countries, warned that the Philippines should be wary of China-funded projects to avoid falling into the same debt trap that has bedeviled other countries that have received massive Chinese loans and investments such as Laos and Sri Lanka.

Puri, a former permanent representative of India to the United Nations, said the Philippines should ensure the China-funded projects would be economically viable and would not impinge on the country’s sovereignty.

‘You have to pay it back’
“It has to be viable projects. You have to pay it back. If it will lead to debt and equity then drop it,” Puri told the Inquirer during a visit of Southeast Asian journalists to India on July 4.
“If debt becomes equity, then you’re selling your country. You (the Philippines) might end up selling more than your islands,” he said.

Expanding its economic clout, China has poured massive amounts in loans and investments into a number of Asean countries such as Thailand, Myanmar, Laos and Cambodia.

“Be careful about these schemes, which bring lots of easy money,” Puri said.

$24B for PH
President Rodrigo Duterte visited China in October last year to mend relations soured by a suit brought by the Philippines to the Permanent Court of Arbitration in The Hague challenging China’s claim to almost all of the South China Sea.

He returned with $24 billion in investment and loan pledges from China. Most of the investments would be in infrastructure projects such as railroads and ports.

Puri expressed hope the projects would be economically viable, noting that “in this game there is no such thing as philanthropy or altruism.”

“The consequences are clear — that if you raise the economic stake such that you owe a bank a huge amount of money, the bank will come after you,” he said.

Puri cited the cases of Sri Lanka, which was forced to convert its debts to China into equity to avoid defaulting on payments, and Laos, where China is building a $6-billion high-speed railway the economic viability of which is under question.

China funded an international airport and deep-sea port in Hambantota, Sri Lanka, which have become white elephants and left the country heavily indebted to China.

Costing almost $2 billion, the airport and seaport are losing heavily. The airport receives just one flight a day and the seaport only six ships week.

“If you are an economy which is small and your capacity for revenue generation and capacity for debt repayment is limited, you come to a point where the ability to pay the debt or the amount of debt exceeds the revenue or whatever earnings you have. In that situation, what will happen? It’s not one where you will say, ‘I’ll stop paying,’” Puri said.

Debt-to-equity swap
To avoid defaulting, Sri Lanka agreed to a debt-to-equity swap with China. It agreed to give China Merchants Port Holdings an 80-percent stake in the Hambantota port for 99 years, including 6,000 hectares of land around the port.

In exchange, China wrote off most of Sri Lanka’s debts. But the deal enabled China to gain access to a strategically located outpost in the Indian Ocean region, though not without protests from the locals who slammed what they called China’s “colonization” of Sri Lanka.

The national leadership had no choice. Sri Lanka, 65 percent of whose gross domestic product (GDP) goes to debt servicing, owed China $8 billion in high-interest loans.

“If you have a small economy and 70 percent goes to debts, you cannot run that country efficiently,” Puri said.

“If you (the Philippines) are going down that road, I don’t know whether the Philippines can get away with it since you are a democracy. But I tell you in India we can’t get away with it,” he said.

Puri noted that the disputed islands occupied by China in the West Philippine Sea are heavily fortified.

“Those islands have got force. It’s a $12-trillion economy and in addition to that, China has the capacity to use force,” he said.

In Laos, China began construction of the $6 billion high-speed railway from Kunming in China’s Yunnan province to Vientiane, the Laotian capital, in December last year.

Puri said it would take 11 more years for the railroad to  become economically viable.

85 percent of port
In nearby Myanmar, China built a 770-kilometer oil and gas pipeline from the Kyaukpyu port to Yunnan at a cost of $1.5 billion. Now, China is demanding 85-percent ownership of the port.
“It’s the same story for everybody. You go to Kenya, it’s the same thing,” he said.

To avoid the pitfalls that have left some countries mired in debt to China, Puri said China’s One Belt, One Road initiative, under which the projects come, should be overhauled to consider sovereignty and economic viability.

source:  Philippine Daily Inquirer