CENTRAL BANK CHIEF RATTLED BY ALLEGATIONS OF DISHARMONY

Global Finance, Nov 2004 by Platt, Gordon

PHILIPPINES

Rafael Buenaventura, governor of the central bank of the Philippines, is one of the few repeat A-grade winners in Global Finance magazine's annual Central Banker Report Cards. But this year, in our October issue, he got a B...and we heard from him. He was ungappy at our suggestion that he is not in complete harmony with President Gloria Macapagal-Arroyo on how to tackle the country's fiscal crisis-an impression that we share with many observers.

"Actually, the president and I agree on key economic issues, particularly on the urgent need to implement a comprehensive economic-reform program that will address the country's fiscal deficit and sovereign debt load," Buenaventura says. "Both of us are strong advocates for increasing government revenues to progressively reduce the budget deficit as well as government borrowings," he says.

Until the budget is balanced, however, the central bank chief says the Philippines will need to continue to tap the international markets to ensure it has sufficient foreign exchange to pay for its maturing external obligations.

"If the reserve level declines and exchange-rate pressures build up, it will be the government itself which will face the resulting higher cost of debt repayment," Buenaventura says.

The Philippine peso has fallen to record lows, but analysts say it could rebound if the country continues to pursue reforms ( see story, page 49).

Buenaventura argues that developing a domestic capital market is one of the government's key medium-term goals. When that day comes, he says, the public and private corporate sector will be able to borrow at home, and the Philippines will be less vulnerable to foreign currency risk.

Meanwhile, the country is facing austerity measures and higher taxes to help pay for a $56 billion debt load that was created in large part by former strongman Ferdinand Marcos.

-Cordon Platt