Manila 'came close to debt moratorium'

Manila 'came close to debt moratorium'

MANILA (Dow Jones): Philippine Central Bank Governor Rafael Buenaventura said on Wednesday the country came close to declaring a debt moratorium after foreign banks cut credit lines last December while the leadership crisis was raging.

Buenaventura, speaking to the Foreign Correspondents' Association, said disaster was only averted by the ouster of former president Joseph Estrada on Jan. 20.

"Our access to credit had already been cut off in December internationally by banks who were no longer willing to increase their exposure in the Philippines because of fears that we would have a violent transition," Buenaventura said.

The corruption allegations made by a provincial governor against Estrada last October plunged the Philippines into its worst financial crisis in decades and had a devastating impact on Manila's financial markets.

"What do you do when your access to credit disappears? We had maturing obligations in December," said Buenaventura.

Buenaventura said the bank was fortunate to have a buffer of foreign reserves to meet - at least, for a time - its debt payments unlike the situation during the debt crisis of 1983.

"In 1983 we had no reserves, we lasted one week and declared a (debt payment) moratorium," said Buenaventura. "Eventually, that could have happened to us too."

At the height of leadership crisis, the dollar surged to a record 55.75 pesos on Jan. 17 - three days before Estrada was stripped of his powers after mass street protests backed by senior officials in the military and the police.

"If things hadn't worked out and the peso had a freefall to 90 pesos (to the dollar) they'd probably be burning my effigy," said Buenaventura, adding that the bank resisted calls to massively raise interest rates to stabilize the peso as this could have badly damaged the economy.