Gov’t may buy BSP’s dollars for debt payments

The government—which has to raise an equivalent of over P200 billion in US dollars for the remainder of this year and in 2013 to pay for maturing foreign obligations—may source part of its requirements from the Bangko Sentral ng Pilipinas, which is trying to cope with record-high foreign exchange reserves.

According to BSP Governor Amando Tetangco Jr., the central bank and the Department of Finance have been coordinating over the dollar requirements of the national government over the short term.

Tetangco said that, given the substantial amount of foreign exchange reserves that the BSP is handling, the government is seen to tap these resources to partly meet its short-term debt settlement requirements.

“We are coordinating, and the BSP expects [the government] to buy dollars from us,” Tetangco told reporters.

The BSP has suggested that the government buy dollars from the central bank as a means to raise the money needed to pay for its foreign currency-denominated debt. The recommendation came amid the country’s rising foreign exchange reserves, which surpassed the $80-billion mark to hit a new historic high in August.

The country’s foreign exchange reserves have grown over the years, thanks largely to strong inflows of remittance from overseas-based Filipinos, to foreign portfolio investments, and to foreign investments in the business process outsourcing sector.

These inflows beef up the BSP’s gross international reserves. From time to time, the central bank would buy dollars from the market to help temper potentially sharper appreciation of the peso.

Although it maintains a policy of having no bias for a strong or weak peso, the BSP said it works on tempering the currency’s volatility, which could be detrimental for businesses and the economy.

Under the BSP’s proposal, the government would borrow from the domestic capital market and then use the proceeds to buy dollars from the central bank.

BSP Deputy Governor Diwa Guinigundo earlier said buying dollars from the BSP would benefit the government, the central bank and the economy.

By buying dollars from the central bank and avoiding foreign exchange borrowing from foreign creditors, the government reduces its foreign exchange risk.