Philippines to Speed Overseas Borrowing to Boost Peso

By Clarissa Batino

July 4 (Bloomberg) -- The Philippines plans to speed up overseas borrowings this year to strengthen the peso and cool price gains, Finance Secretary Gary Teves said, as inflation jumped to a 14-year high.

``There is concern about the rapid depreciation of the peso,'' Teves said in a telephone interview today. Overseas loans could strengthen the currency ``because we're adding more foreign exchange.''

The peso has lost 10 percent against the dollar this year, according to Bankers Association of the Philippines data. That helped push inflation to 11.4 percent last month by making it more expensive to import rice and oil, adding pressure on the central bank to increase interest rates further.


The government may bring forward the release of $900 million in loans from the World Bank and Asian Development Bank to this quarter and raise as much as $750 million from commercial sources, adding to the $500 million it borrowed in January, Teves said. The central bank agrees that this would help stem the peso's depreciation, he said.

``Overseas borrowing will increase the supply of dollars and that will help temper the depreciation, but it won't reverse the trend,'' said Ricky Cebrero, a treasurer at East West Banking Corp. in Manila. ``Easing some pressure on the peso will help control inflation.''

Strategy Change

The Philippines' borrowing strategy has reversed since late last year when it decided to increase its reliance on local debt to slow gains in the peso that affected exports and earnings of overseas workers, which together make up about half of the $118 billion economy. The currency gained almost 19 percent in 2007.

Inflation last month jumped to the fastest pace since May 1994 as food prices surged and weekly fuel-price increases ``triggered large price build-ups across wide commodities and services groups,'' Bangko Sentral ng Pilipinas Governor Amando Tetangco said today.

Policy makers, who next meet on July 17, raised the overnight borrowing rate by a quarter-point to 5.25 percent on June 5, the first increase since October 2005. The bank has scope to increase borrowing costs further without endangering growth, Deputy Governor Diwa Guinigundo said June 27.

The peso was little changed at 45.525 per dollar as of 12:54 p.m. in Manila, according to Tullett Prebon Plc.

Asset Sales

``To address supply-side inflation, we have started measures to boost rice and food supply along with subsidies on fuel and power,'' Teves said today. As a result, the government may incur a budget deficit of as much as 75 billion pesos.

Selling the government's stakes in Petron Corp., the nation's largest refiner, and PNOC Exploration Corp., an oil and gas explorer, may also help reverse the peso's decline if they're bought by overseas investors, Teves said yesterday.

The government may delay selling its Food Terminal Inc. land in Manila because ``the market for real estate has softened,'' he said, without elaborating.

To contact the reporters on this story: Clarissa Batino in Manila at cbatino@bloomberg.net; Francisco Alcuaz Jr. in Manila at falcuaz@bloomberg.net