Jose Isidro Camacho, secretary of finance of the Philippines, is a former investment banker – he was Deutsche Bank’s country head in the Philippines from 1999-2001. He talks to Euromoney’s Chris Cockerill about what the Philippine government must do to regain the market’s trust.
The Philippines missed its budget deficit target by a wide margin last year. You have set a new target for this year but many are sceptical you can hit even this. The challenge for us is to address the issue and work towards delivering. But we need to be a little analytical about last year. The performance last year was diverse. In the first seven months there was a 4.6% decline in revenues collected by the Bureau of Internal Revenues compared with the previous year. In the last five months there was a 9.9% improvement on the previous year. These are big swings. The point we are making is that the second half of the year was so much better and we have to maintain that level of performance. And we are on a better track compared with last year.
So the monthly deficit will be more in line with the target that you have set? Yes. We are concerned about the credibility issue and the views of the market but all we can do is change their views with better performances. Our target and our performance this year have been consistent.
But the Bureau of Internal Revenues has already missed its targets for January. Although BIR’s collections was below target, we expect January’s deficit figure to come in under the monthly average of our 2003 deficit target, mostly due to higher collections from other revenue sources. The other important point to note is that the BIR and the BOC is continuing to work very hard to increase collections. The gains made in November and December of last year demonstrate that our measures to increase collections are beginning to bear fruit. And between February 1 and 18, the BIR had already collected 60% of the 27 billion pesos targeted revenue figure for the month of February. We are working hard to ensure that this positive trend continues.
Last year the deficit was P202 billion and your target this year is P212 billion. Most private-sector analysts forecast a deficit of P220 billion. Does that disappoint you? It’s not disappointing given the performance of last year. I think that we were successful in 2001 and beat expectations. We perhaps became a little complacent and it backfired.
Is the budget going to be balanced by 2006 or 2008? Philippines treasurer Sergio Edeza suggests it will be by 2008. It’s not an official change. I think that Mr Edeza is sharing a personal view. The official objective remains the same.
How long can you maintain your current borrowing programme? First of all, the borrowing programme for this year would have been set last year. And the activity that we do depends on the market conditions as we go along through the year. Given the volatility being experienced we have decided to be conservative with the external debt because it is much more susceptible to the volatility, so we have pre-funded at the beginning of the year. Including the last euro issue, we have accumulated $1.5 billion. It allows us to be a little more relaxed for the rest of the year.
Were you disappointed by the euro issue in February? Demand was less than you hoped for. We would have aimed for a slightly higher amount but given the circumstances we are happy with the overall result. And it helped reduce our risk for financing this year. It also allows us to be a little choosier when dealing with the domestic borrowing. We have rejected a couple of auctions because the local banks are attempting to take advantage of current uncertainties.
Does it concern you that domestic banks seem to be stepping back? No, because it is healthier. It gives them more dry powder. With the international situation we may have to go to the dollar market domestically. If the market deteriorates and becomes expensive, having domestic banks with dry powder gives us something to fall back on.
What level do you see the peso dropping to and at what level does it become painful to service your external debt? If I had a number I wouldn’t say because it would become a self-fulfilling prophecy. The central bank will hold it where it should be. There’s a reason for what’s going on: uncertainty. But it’s short term.
