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BSP Governor Clarifies Advice to NG on Foreign Borrowing

06.27.2003

BSP Governor Rafael B. Buenaventura clarified today that the advice for the Government to finance its maturing external obligations with foreign borrowings was issued in relation to ensuring a comfortable level of gross international reserves (GIR). Specifically, Governor Buenaventura explained that the potential drains in the BSP’s reserves could be avoided if the NG and NPC would fund their debt servicing from foreign loans rather than from withdrawal of their deposits with BSP or foreign exchange purchases from the BSP which would result in lower GIR.

“It should be pointed out that the overall BOP position is determined by the change in the level of the BSP’s net international reserves (NIR). Therefore, unless the NG and the NPC avail of borrowing opportunities at this time when international borrowing costs are low and the NG’s good fiscal performance could translate to lower spread, the BOP position for 2003 will probably turn into a deficit,” Buenaventura stressed.

The Governor also pointed out that new foreign borrowings by the NG and the NPC will not necessarily entail an increase in total external debt since the amount to be borrowed will be limited only to the amount of maturing obligations. The tenor of the new borrowings should take into consideration the public sector’s external debt profile in order that future bunching of maturities could be avoided. “We have no intention of encouraging the National Government to go on a borrowing spree,” Governor Buenaventura clarified.

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