Borrow more from local market, says PHL monetary official

A former cabinet official on Tuesday called on government to optimize its borrowing activities to impact on costs to counter what is called a "negative carry." In an interview, newly appointed Monetary Board member Felipe Medalla said Finance Secretary Cesar Purisima's inclination to borrow more from dollar bond markets should be directed towards the local bond market instead. While understandable in certain cases, Medalla said this practice has resulted in a so-called negative carry, a situation where the cost of borrowing is higher than its supposed benefits. "Our national government is borrowing at seven percent, and our Bangko Sentral ng Pilipinas is investing its reserves in US Treasuries that are earning less than seven percent," he said. Medalla, also a former Socioeconomic Planning secretary, said the best financial strategy should strive towards a balance between foreign credit and local financing options. "The shift has to be well coordinated," Medalla said, "but we should [already] be thinking of the shift, the exact time and exact strategy to do it." He added that there should be a "win-win solution" where the government borrowing is more consistent with factors such as the exchange rate, the gross domestic product and price stability. Medalla admitted, however, that he understands the point of view of the government, despite the fact that it is practically "swimming in dollars." "The cheaper the borrowing the better," he said, adding that the country needs to transition to a new situation driven by billions of dollars in overseas Filipino worker remittances and business process outsourcing industry revenues. Such revenue flows, he stressed, made the current string of budget surplus possible. "The simplest recommendation is for the national government to borrow more in local currency and buy the dollars of the BSP," he reiterated. Medalla, however, said this will cause government's borrowing activities to be more costly down the line, as it crowds out the private sector from the market. "That is why some balance between peso and dollar borrowings has to be achieved," he said. —JMT/VS, GMA News