News UpdatePhilippines studying sale of more peso bonds to foreigners

By Rosemarie Francisco

MANILA, April 25 - The Philippines is working on a mechanism to encourage foreign investors to buy more local currency bonds and plans to issue debt instruments such as dollar-to-peso warrants to raise capital market liquidity, the national treasurer said.

Asia's largest sovereign issuer of foreign debt was still interested in accessing the euro bond market and would pursue a euro debt issue when conditions become attractive, Roberto Tan also told a foreign exchange traders annual convention in Boracay island in central Philippines over the weekend.

"Hopefully, we will be issuing peso bonds to foreign markets," Tan said, adding the debt papers may eventually be listed on other markets such as the Singapore exchange.

Officials at the country's currency and debt exchange, Philippine Dealing and Exchange Corp , were studying taxation issues related to the debt sale. Foreign investors have said an existing 20 percent withholding tax on local debt issues has made Philippine peso debt unattractive.

"The way I look at it, the tax treatment will be based on tax treaties that we have with them ," Tan said. "This is being pursued by the PDS with the Singapore trading exchange."

Asia currently enjoys heavy foreign fund inflows with investors banking on rapid growth in the region this year.

The Philippines has benefitted from these fund flows with the stock market <.PSI> soaring to its highest since early 2008 and the peso rising to its strongest in nearly two years.

Last month, PDEX posted a record one-day trading volume of 53.75 billion pesos , its highest in its 5-year history as a debt exchange.

Tan said Manila was studying other debt instruments to encourage more placements in the local capital market.

"We are planning to undertake regular opening of the outstanding bonds to create benchmark bonds given liquidity of securities, and issue innovative debt instruments such as swaps, zeros , dollar-to-peso warrants and indexed bonds," he said.

Manila is also interested in pursuing an earlier plan to go back to the euro-currency debt market to diversify its debt profile. Its last euro debt issue was in 2002.

"We are now looking at accessing the euro market if conditions become conducive," Tan said.

Kopi talk - A more optimistic scenario

Amidst talk of failure of election, we welcome the recent analysis of former Comelec Chairperson Christian Monsod before the Makati Business Club which we thought was quite objective. He reassures us of "a good chance that the automated election system will be successful, provided that safeguards are installed, that with clear source code and PCOs we can expect at least eight copies of election returns which will be accurate as long as political parties are present at the precincts; that delay in the proclamation of the president and vice president is unlikely but possible; and that even without automated fraud, still there will be problems of logistics and acceptability." His advice is to be patient.

On possible conspiracy is to deliberately mismanage the elections by Comelec, military, police, Congress, Supreme Court and other agencies to prolong the stay of an unpopular president. But he believes that this is an unlikely scenario. Comelec, he notes, will not allow itself to become a scapegoat. It has been convening meetings with various stakeholders on how to ensure credible elections. There will be glitches primarily due to errors of judgment and incompetence, but not through conspiracy. The military is against any unconstitutional move. It would want to vindicate its honor after having been association with election anomalies in 2004 and 2007. He would leave it to experts to analyze what the Supreme Court might do but he believes like many of us that the Supreme Court will not engage in an "unprecedented judicial adventurism."

As for GMA, Monsod thinks that like a number of past presidents, she would not risk the credibility and stability of the country by engaging in such conspiracy, and that eventually, she would heed the call of the people.

He cites what can go wrong, reinforcing what election watch groups have noted such as internal rigging of the technology before election - through a corrupted source code, and after, through transmission.

This is where safeguards should be installed such as certification from the Technical Evaluation Committee (consisting of DOST, Comelec and the private sector), members of which are deemed trustworthy; a review of source code by political parties which is yet to be done; and holding two random manual audits. The good news is that TEC has certified that except for some controls which have to be adopted, it "can securely, accurately, and properly be used."

Some of the concerns include (1) logistical problems - delays in the training of teachers, and delivery of election paraphernalia, in which case, the military can assist; and (2) acceptance of credibility of results - The two changes in procedure which could pose problems are decision not to provide replacement of ballots that are rejected and decision to limit grounds for a pre-proclamation dispute in local elections.

A question that has been raised is the matter of succession. Should there be delay in the proclamation of the president, the Senate president will come in as acting president. If this not be possible, Monsod notes this alternative - that the vice president elect, should he have enough votes that would render academic the uncounted votes, could serve as acting president until a new president is proclaimed. According to Section 7 of Article VII in the Constitution, the vice president can succeed temporarily as acting president.

Despite this optimistic reassurance by Comm. Monsod, there are skeptics who believe that anything is possible as this government is capable of doing the unthinkable. In the next few weeks, we expect to see some concrete demonstration of the administration's expressed commitment to a peaceful transition of power." We share the hope of poet Alfred Tennyson who said that "more things are wrought by prayer than this world dreams of."