Philippines to Cut Foreign Borrowing in 2009, Tap Local Funds

By Francisco Alcuaz Jr.

Aug. 8 (Bloomberg) -- The Philippine government plans to reduce overseas borrowing next year as it relies more on domestic funds to finance its budget deficit.

The government will raise 117 billion pesos ($2.6 billion) in foreign-denominated debt compared with 126.6 billion pesos this year, according to a Department of Finance document obtained by Bloomberg News. Local borrowing will increase 2.5 percent to 319.5 billion pesos.

Philippine money supply rose to a record 3.13 trillion pesos in December after remittances from overseas workers increased and the government reduced its deficit, lowering demand for funds. The U.S. subprime crisis that caused global credit markets to seize up a year ago has made it harder for Asian companies and governments to raise funds overseas.

``It's awfully liquid, that's why a lot of companies are issuing bonds,'' said Jojo Gonzales, an economist at Philippine Equity Partners Inc. in Manila. ``Both corporates and the government are taking advantage of domestic liquidity.''

The government sold $500 million of foreign bonds in January. In May, Finance Secretary Gary Teves said the Philippines may raise $750 million more of such debt this year, as President Gloria Arroyo abandoned her plan to balance the budget in 2008.

Arroyo, who is boosting spending this year on rice subsidies and payouts to the poor to help Filipinos cope with soaring food and energy prices, plans to narrow the budget deficit to 40 billion pesos in 2009 from as much as 75 billion pesos this year before balancing the budget in 2010.

As much as 67.5 billion pesos of next year's foreign borrowing will be in bonds, and the rest will be in loans, according to the Department of Finance document. The document is dated July 18, before the government sold 70 billion pesos of bonds aimed at retail investors.

Bond sales in dollars, euros and yen by Asian borrowers outside Japan plunged 60 percent in the first six months of the year as accelerating inflation and slowing economic growth doused credit demand.

To contact the reporter on this story: Francisco Alcuaz Jr. in Manila at falcuaz@bloomberg.net