Currencies

[thepennyking]

RP debt, banks' bad loans worry ADB
By IRIS CECILIA C. GONZALES, Reporter
The Asian Development Bank (ADB) has raised concerns on the country's swelling debt and the banking industry's growing bad loans, saying that this has been slowing down economic growth.

Richard Ondrik, ADB senior officer, said while the Manila-based bank was comfortable with monetary policies and the benign inflation environment, it still would like to see a more manageable debt level for the country.

ADB, a multilateral development finance institution, extends grants and loans to countries in Asia and the Pacific. Established in 1966, it is dedicated to reducing poverty in the region.

Mr. Ondrik said while country is not in a debt crisis like Argentina, the Philippines' situation is still alarming.

"What we are not comfortable is the size of debt. Prudential management of debt is one side of the coin. But how much it is, is scary. It is nothing like Argentina but there are concerns on the size of the debt," Mr. Ondrik said in an interview.

Data from the central bank showed that the country's external debt could hit $59.4 billion by yearend due to the government's external funding requirement.

TAXES

As such, Mr. Ondrik stressed the need to improve the revenue stream by implementing additional tax measures.

"It is good that government recognizes its debt level, but there are also tools to address this. And that means pushing for revenue growth," said Mr. Ondrik, who is also the bank's senior programs coordination specialist.

He cited, for instance, the need for Congress to push through with the indexation of sin taxes.

The measure pushed by the Department of Finance, and which remains pending at the legislative branch, seeks to realign the taxes on cigarettes and alcohol with the current inflation environment.

Mr. Ondrik said without additional tax measures, the government may miss its target to wipe out the budget deficit by 2009, a view shared by Bangko Sentral Governor Rafael B. Buenaventura.

"The government has a target of zero-deficit by 2009 but it really depends a lot on revenue growth," Mr. Ondrik said.

Similarly, Mr. Buenaventura has repeatedly stressed the need for additional revenue measures in the face of the heavy deficit burden weighing on the country's shoulders.

The Department of Budget and Management has pegged the end-2004 budget deficit at PhP197 billion.

The Department of Finance has recognized the need to raise taxes and has even reconsidered an earlier plan to impose tax on text messages.

Mr. Ondrik said now is a good time to implement additional tax measures because the present environment can tolerate it.

"If you look at it, when things are poorly performing, it is much easier to make major leaps," he said.

BAD LOANS

Another concern of the ADB is the growing amount of bad loans in the financial system.

Mr. Ondrik said that despite the passage of the Special Purpose Vehicle Act, or the SPV law, which grants incentives to buyers of bad loans, the banking system remains soured with bad loans.

The ADB official said banks seem to have unreasonable expectations from buyers.

"No bank has been able to take advantage of the SPV. It appears that deals are failing not because of the law but because of unreasonable expectations by the bank," Mr. Ondrik said. He urged banks not to expect too much from the sale of bad loans.

The SPV law stipulates that properties that banks want to include in the portfolio for sale to asset management firms must be submitted to the central bank which will certify if these are qualified to avail of incentives such as tax perks.

http://www.bworld.com.ph/current/B&F/b&fstory1.html