Finance Secretary Carlos Dominguez III welcomes a proposal by the Asian Infrastructure Investment Bank (AIIB) to use local currency financing to help fund the Duterte administration’s infrastructure program, noting that this will reduce foreign currency risks.
“If you take the view that dollar will strengthen against all other currency it makes sense to borrow other currencies except the yen,” he told reporters in an interview.
The Finance Secretary said he learned from Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr. that most currencies are now depreciating as the greenback strengthens.
The exception to this is the Japanese yen, he said. “Yen is a currency that people feels safe,” he explained.
Dominguez, along with some Cabinet officials, were in China recently as part of the two government’s regular talks after renewing their ties. He disclosed that AIIB is also considering partnering more with other multilateral institutions to finance some of the Philippines’ priority infrastructure projects.
In a statement Thursday, DOF said Dominguez met with top AIIB officials, led by its president Jin Liqun, who said that they are focusing on “the actual work” in implementing infrastructure projects to make sure these are done on time and without any hidden or added costs.
“We are quite sensitive to interest rates. Although they may seem small amounts, we do not want to reverse the trend of lowering our spreads. So it is very encouraging that you are considering variable spreads (over the LIBOR facility). I was hoping for an update on it. We are happy about the local currency bonds as well,” Dominguez told the AIIB leadership during the meeting.
London Inter Bank Offered Rate (LIBOR) is the benchmark reference rate used for debt instruments.
The statement said Jin assured the Philippine officials that the China-backed AIIB is “highly responsive” to the requirements of its borrowers that is why it is willing to study ways on how to extend loans to be used for infrastructure projects. “We explore other possibilities and we are looking at the possibility of variable interest rate, we are looking at the possibility of local currency financing,” he was quoted as saying.
The Duterte administration plans to invest at least PHP8 trillion until 2022 for its massive infrastructure program, the bulk of which will be financed through official development assistance loans.
Dominguez said some projects will also be financed by the national budget, which is expected to get a big boost from the proposed comprehensive tax reform program, among others.
To date, AIIB is co-financing with the World Bank the USD500-million Metro Manila Flood Management Project.
Other projects that have been submitted for possible AIIB funding include the Pasacao-Balatan Tourism Coastal Highway and the Camarines Sur Expressway.