RP battles to save its peso and economy

RP battles to save its peso and economy

MANILA (Reuters): The Philippines said yesterday it planned to slash government spending and seek money from abroad as its currency fell to a new low and stocks tumbled.

"I think we have some preliminary figures which show about 25 percent cutback in both capital outlay and (other expenses)," Finance Secretary Roberto de Ocampo told reporters.

"We have to be selective in terms of which infrastructure projects we will prioritize," he said.

His comments came after the peso fell to just over 46 to the dollar, pushed down by the continuing currency crisis sweeping through Asia. It recovered slightly later.

In the past 12 months the peso has lost more than 41 percent of its value against the dollar, a plunge which businessmen and analysts say has effectively dashed Philippine hopes of soon turning into Asia's newest economic tiger.

The fall, sparked by problems facing the rest of the region's booming economies, has also wreaked havoc in the stock market, where yesterday the main share index tumbled 4.02 percent to 1,747.34.

That is 35 percent down from July levels when the currency crisis erupted.

Despite a dismal outlook painted by many economists, the government insists that the damage is not so severe and that the Philippines will be among the first in Southeast Asia to recover.

"The crisis in Southeast Asia...has not affected the Philippines as much because our fundamentals are sound," President Fidel Ramos said in his weekly press conference.

The crisis has threatened to tarnish the final months of his presidency, which for its first five years had brought rare prosperity to what was once among the region's poorest countries.

Ramos ends his one permitted term of office in June.

The candidate leading the polls at the moment to replace him is former local film star and current vice-president Joseph Estrada, who is widely distrusted by businessmen who fear his lack of economic background could prove disastrous.

The government is in the midst of talks to borrow from foreign banks and international financial institutions to tide it over.

It announced it was negotiating for up to $600 million from the World Bank and the Asian Development Bank. Last month, it said it hoped to get $2 billion from the International Monetary Fund once it finally quits IMF supervision, expected early this year.

The central bank said it was also looking at raising loans from foreign commercial banks.

Analysts said the government may well need as much as $8 billion more to keep its currency and the economy from falling further.

"The central bank and the government are going at it rather slowly, that is compounding the difficulties. We were not moving.

It reinforces the perception that we are still in the denial stage, denying that things have turned worse," said Joey Cuyegkeng, research director at ING Barings.

He said the peso would remain volatile as long as the rest of the region was in turmoil, but a large infusion of money would certainly support the domestic economy.

Leading industrialists, wounded by the falling peso and high interest rates, urged the government to boost the currency, proposing it issue high-yield bills to those selling foreign exchange.

Chief economist at the Bankers Association of the Philippines, Johnny Ravalo, said he was in a minority predicting the economy would easily be able to survive, but conceded that confidence would have to be restored by businessmen rather than officials.

"The government is one of the less credible institutions in any crisis, not only here... The comforting words will have to come from industry," he said.

So far, industry has been unwilling to offer those words, warning that the country may have little choice but to cut production in the face of falling demand, which in turn will mean bankruptcies and higher unemployment.