RP likely to enter new pact with IMF

RP likely to enter new pact with IMF

WASHINGTON (Dow Jones): The Philippines likely will enter a new agreement with the International Monetary Fund after an existing two-year precautionary borrowing agreement expires in March, said Philippine Central Bank Governor Rafael Buenaventura Friday.

While the government hasn't made a final decision, Buenaventura said the "seal of approval" from international financial markets that comes from being under an IMF program is a weighty consideration.

An IMF team this week completed a quarterly mission to the Philippines to review economic developments set as conditions for the administration to tap the existing US$1.34 billion loan.

In an interview with Dow Jones Newswires on the sidelines of an IMF meeting, the central banker said the country will retain the "rigid disciplines" imposed by the multilateral agency no matter what the outcome.

The Philippines has recovered swiftly from the depths of the Asian economic slowdown of 1998, enabling the government and the IMF in a draft agreement issued Wednesday to agree on more ambitious growth targets in 1999 and 2000.

Gross domestic product is expected to grow 3 percent-3.5 percent in 1999 - up from an original target of 1 percent to 3 percent - swinging from a 0.5 percent contraction in 1998.

Despite the recovering economy, the peso continues to fall in sympathy with the Thai baht, touching a 10-month low of 40.89 peso late Friday from 40.60 peso late Thursday.

The Philippines is enjoying a stronger economic recovery than Thailand and has a far healthier banking system with a lower proportion of non-performing loans.

Although not pleased with the peso fall, Buenaventura said it is an "aberration," and he says intervention under these circumstances isn't warranted.

"When (the peso) is being dragged down by the baht and the rupiah, now is not the time to try and decouple them....it's better to let the market seek its own level as it will eventually correct," he said.

The central banker said there appears to be some short-term resistance in the peso around 41 peso, and with capital inflows expected to increase in the second half of the year through remittances by Filipinos working offshore and foreign investment, there is little reason to step in.

Buenaventura said the bank doesn't target any particular peso level, so market conditions rather than the rate will determine any intervention.

"But if there was some speculative movement, or some panic, we would step in to provide liquidity and smooth markets," he said.

On the recent surge in the yen against most currencies that has concerned the Japanese government, but few others including the Bank of Japan, Buenaventura said Philippine companies have mostly benefited.

"Exports are more attractive for the Japanese...there haven't really been any drawbacks because few local companies have yen- denominated debt, which highlights the differences with Thai companies, which are quite heavily exposed," he said.

With the brighter economic outlook, the IMF and Manila reached a draft plan to widen a budget deficit target for 1999 to 85.3 billion peso from 68.4 billion peso originally.

Buenaventura said the administration is planning a $500 million bond issue later this year to help finance the 1999 and 2000 budget deficits.

The five- or 10-year bond likely will be in one tranche, and could be an asset-backed issue, although again the details are yet to be finalized, he said.