Archive for August 2011

Interest payment on foreign debt securities, Philippines

August 22, 2011

As shown in the table below on Foreign Debt Service of the Philippine Government, foreign debt securities comprise the bulk of the country’s external debt service burden. These are debts with high interest rates and other charges, from 4 to 10.6 percent p.a. or several times larger than the London Inter Bank Offered Rate (LIBOR) of around 1 percent. Here is the interest payment alone for some of those foreign debt securities.

source: DBM, BESF 2012, Table B.22 http://www.dbm.gov.ph/BESF2012/B/B22.pdf

* Notes:

  1. These foreign debts were meant purely for budgetary support, ie, to finance the budget deficit.
  2. Only loans with more than $50 M in interest payment in 2010 (1st block) and in 2012 (2nd block) are included here.
  3. The Loan Account name indicates (a) amount loan, (b) interest rate and other charges, and (c) year of loan maturity.

These numbers do not look good. Long term loans with high interest rates.

 

 

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Tourism challenge

August 19, 2011

In 2010, the Philippines attracted some 3.5 million tourists. The same way, Singapore attracted 11.6M tourists,  Thailand got 15.8M, Malaysia 24.6M. Vietnam got 5M tourists, larger than the Philippines.

There are many factors why the above-mentioned countries have attracted more tourists than the Philippines. Their huge international airports alone are already tourist destinations already. Then they are contiguous to each one. One can take a bus or car from Singapore to Kuala Lumpur and back, or from Hanoi to PnomPenh to Bangkok. The Philippines is an archipelago and its nearest neighbors ares Hong Kong and Taiwan, about 1:40 hour by plane from Manila. Going to other islands would also need a connecting flight.

There is a big challenge from the various sectors — national government, provincial and city/municipal governments, the private sector — to attract more visitors, foreigners and Filipinos abroad alike, to visit the country. Tourism is a huge potential for the country as we have almost everything in nature except perhaps snow — mountains, waterfalls, white sand beach, golf courses, small and beautiful islands, friendly people, etc.

US and Europe approaching recession?

August 18, 2011

Investment bank Morgan Stanley said that the US and Europe are close to a recession, which contributed to another round of stock market declines today. A recession does not necessarily mean zero growth or negative change in output. It simply means a general slowdown in economic activity — GDP growth, investment, job creation, household spending, and other macroeconomic variables. Unemployment rises as a consequence.

The continuing financial turmoil in the banking sector plus heavy public debt burden in many big European economies  add more uncertainty and volatility to the global economy. These are definitely bad news. We hope that a different breed of entrepreneurs will use these uncertainties to create wealth somewhere.

Foreign debt service of the Philippine government

August 17, 2011

We showed last week the domestic debt service, today we will show the foreign debt service, both for regular liabilities only. The assumed liabilities are not that big these years.  We did not include details of the big items under the foreign debt securities here, which are the biggest loans and have high interest rates, about 8 percent p.a. on average. We also did not show the breakdown between principal and interest payment. Check the DBM website, link given below, to see the original table, which is 9 pages long.

The good news is that foreign debt service next year will only be one-half of the level this year, and almost one-third of the level last year. It should be due to maturing debts that have been paid, and possibly due to stabilizing interest rates.

Debt service for other government and multilateral loans like JICA, ADB and WB are either flat or slightly increasing.

Gold approaching $2,000 an ounce

August 16, 2011

Just two weeks ago, we wrote here, “Gold edging towards $1,700 an ounce”. Last week, it has topped the $1,800 mark. While platinum and silver also showed rising trend in prices recently, they did not exhibit the fast rise in prices of gold. The continued uncertainty in the debt and financial market worldwide seems to be moving in step, in direct proportion, to the trend in gold prices.

Since among the biggest economies of Europe like France, Italy and Spain, are wobbling between economic stagnation and depression, ie, between a near-zero growth to negative change in output, by virtue of their high public debt like what is happening in the US, the financial uncertainty seems to be rising instead of mitigating. Gold and a few other commodities and currencies are the new destination for many investors who want to see some stability, or at least lower losses, for their investments. A $2,000 an ounce price for gold is not far from today.

NLEx-SLEx link as next PPP project

August 15, 2011

Linking the two busiest expressways of the country, the North Luzon Expressway (NLEx) and the South Luzon Expressway (SLEx) is a big, ambitious and highly necessary project. Because between these two is the sprawling Metro Manila and all the heavy traffic associated with the metropolis. By-passing the big city via an elevated skyway therefore, will greatly reduce traffic below, at least temporarily, while facilitating the seamless movement of people, goods and services between the northern and southern provinces of Metro Manila.

While the original proponent, Metro Pacific Tollways Corp. (MPTC), has the advantage of producing the technical and financial specifications first, other construction firms will be allowed to compete with it and match or offer even a better deal for the government and the public. Whoever will win among the competing construction and tollway companies is a secondary concern for the public. Their primary concern is that such road link should be started soon and hence, can be used soon.

Domestic debt service of the Philippine government

August 13, 2011

Debt service obligation of the government is composed of its regular liabilities, meaning debts accumulated in the process of its regular operations, and assumed liabilities, or those debts by government corporations, government financial institutions and other agencies, which can no longer be serviced by these government enterprises, and were assumed by the national government through the Department of Finance (DOF).

Assumed liabilities are not big these years, they used to be big sometime in the late 80s to 90s. What are big are the regular liabilities, and here are the numbers. We did not show the breakdown among Principal, Interest and Redemption from the sinking fund. Check the link given to see the original table from BESF 2012.

Almost one-half trillion pesos a year on average from 2010 to 2012, these domestic debt are indeed huge. We will show foreign debt service next.