Investors see RP defaulting

By VG Cabuag, Business Mirror

Posted at Feb 04 2009 01:44 AM | Updated as of Feb 04 2009 09:44 AM

Foreign investors are starting to feel that the debtors from the Philippines, including the national government, are more likely to default on its loans as a result of the worsening economic situation, according to an official from the Asian Development Bank (ADB).

ADB senior economist Dr. Cyn-Young Park said the widening credit default spreads lead many investors to think that the Philippine government may default on its debt, or not pay these when it becomes due.

“This is the investors’ assessment of the creditworthiness of the Philippine government,” Park said in a seminar organized by the Yuchengco Center and the De la Salle University.

“Generally, the market is more cautious in giving credit… that’s why sourcing funds overseas may be too costly at this [time],” she added.

A company’s credit-default swap spread is the cost per annum for protection against a default by the company. Park, however, said that with the global economic crisis, the Philippines fares well compared with newly industrialized economies in Asia, such as Hong Kong, Singapore, South Korea and Taiwan.

She said most of these have been heavily affected since they have a “substantial financial market,” mainly being linked with the United States market.

It will be in the hands of the national governments in the region to spur the economy—such as what the Arroyo administration is doing—by providing stimulus packages to perk up market and consumer demand, she said.

“ADB works with the regional government to take proactive actions so that we could ride out this storm and maintain the regional growth momentum,” she said.

As of October last year, the total outstanding debt of the national government stands at P4.184 trillion; some 43 percent of this, or P1.804 trillion, was owed to foreign creditors, and another P2.380 trillion, or 57 percent, was owed to domestic lenders.
The national government borrowed from foreign creditors the net equivalent of just P1 billion in October, but the overall level of the government’s foreign debt increased by 4.2 percent, or by P74 billion, because of the currency adjustments.

The government sold foreign currency-denominated IOUs aggregating P1.033 trillion during the period, some of which was meant to cover for the budget deficit.

The bulk of these foreign-currency issuances were denominated in US dollars equal to P935.8 billion, another in Japanese yen worth P24.7 billion plus P72.6 billion more in euro bonds.

Contingent debt that becomes direct national government obligations in case of default was 4.7 percent, or P24 billion higher to P537 billion, from the year-ago level of only P513 billion.