The currency in the Philippines is the Philippine peso (or piso), divided into 100 centavos (or centimo). Currently (August 2006), the U.S. dollar is worth about 51.5 pesos.  Currently there are coins of 1, 5, 10, and 25 centavos and  bank notes of 5, 10, 20, 50, 100, 200, 500 and 1000 pesos. The 5 peso note is no longer printed, but still legal tender.  Once arriving in the Philippines currency exchange booths are located at the airports.
 

PHILIPPINE MONEY MATTERS

Late last month, as markets around Asia were still struggling to recover from a sell-off by global investors, the Philippines pulled off something seemingly amazing for a country known as the region's sick man. It persuaded international investors to lend it $750 million.

This is a country that has about $76 billion of debts and whose government has lost so much money in the past decade that its bonds are consistently rated as junk. Yet this year, Manila will hit investors up for roughly $4 billion in new loans, almost half of it in foreign currencies, making the Philippines the biggest offshore borrower in Asia bigger than Japan.

Just about anyone can borrow money if they promise to pay sky- high interest rates, but that is what makes July's bond sale more incredible: Manila's bonds paid investors less than three percentage points more than the rate paid by the U.S. government the world's most creditworthy borrower.

Earlier in the year, it was fashionable among economists to blame this so-called yield compression on a deluge of funds scouring the world's markets, desperate for returns. But now, as global interest rates creep upward and this wave of capital subsides, economists see an entirely new emerging market, well, emerging. Once considered basket cases, the Philippines and other emerging economies have become more skillful at managing huge debts, analysts say. With financing easy and commodity prices high, they have been bolstering their balance sheets, smoothing out repayments and repaying debts from past crises. Though still heavily over indebted, they have become so much more reliable that some economists now question the need for organizations like the International Monetary Fund, which has always been there to bail them out.

Lately, they have been bailing themselves out just fine. Russia, flush with oil revenue, this week paid back the $23.7 billion it owed the Paris Club of creditor nations. Peru and Poland are thinking of doing the same. Brazil and Panama this year retired the last of the so-called Brady bonds the U.S.-backed securities issued to help rescue them in the 1980s. The Philippines paid off half of its Brady bonds in June.

"As countries like the Philippines gain credibility, their need of the IMF diminishes," said Rebecca Patterson, a global currency strategist for J.P. Morgan in New York. A lot of this newfound credibility also stems from an increased talent for smooth-talking investors, analysts say. Some borrower nations, including the Philippines, have even established dedicated investor relations offices. "They're very open and transparent and good at highlighting the positive," said Agost Benard, an associate director at Standard & Poor's in Singapore. With a nagging communist rebellion and a Muslim insurgency linked to Al Qaeda, the Philippines has a lot of highlighting to do. After taking power in 2001 amid street protests against the corruption of her predecessor, President Gloria Macapagal Arroyo last summer faced down an impeachment campaign amid allegations that she had attempted to rig elections in 2004. Her entire economic team resigned. Then in February, Arroyo declared emergency rule because of an alleged coup plot.

But the biggest worry for investors is a government debt so massive that the Philippines cannot invest in its dilapidated infrastructure. The government budget deficit was equal to 2.7 percent of Philippine gross domestic product last year; overall government debts equaled 72 percent of GDP. Servicing the debt consumes almost 40 percent of government income.

And Manila's income is paltry. The government takes in only about 14 percent of the national GDP in revenue because of one of Asia's lowest tax-collection rates. Analysts estimate that only about 35 percent of taxes owed are paid. "It's not that tax rates are too low," said James McCormack at Fitch Ratings in Hong Kong. "It's tax collection. There are problems with corruption on both sides." Despite this, the Philippines is able to borrow again and again. Analysts say investors have grown used to Manila's political theatrics, confident that, whatever happens, the Philippines will manage to pay on time.

They did not come to this conclusion without some convincing. Shortly after sweeping to power in 2001, Arroyo appointed Jose Camacho, a Harvard-trained investment banker with 20 years' experience, as her finance secretary.  Camacho knew what investors needed to see and hear. "You'd like to have the feeling that the economic team is cohesive, that they're pulling the rope in the same direction," said Camacho, who has since rejoined the banking industry and is vice chairman of investment banking at Credit Suisse in Singapore.

Camacho said one idea he had was to establish an investor relations office, something that the IMF and the Institute of International Finance had been pushing for developing countries to do since the Mexican peso crisis of 1995. Mexico, Brazil, Chile, South Korea and Turkey have since set up their own investor relations offices. The Philippines quickly gained a reputation as an aggressive lobbyist. Along with regular briefings, the office maintains a Web site with financial data and courts investors with a steady  stream of information via e-mail messages. "All of this information on the economy they get it constantly," said Renato Pizarro, executive director of the office. In a survey of 30 developing countries, the institute ranked the Philippine investor relations office second only to Brazil's in terms of performance and transparency.

Camacho and his team also started the previously unheard-of practice of flying to the world's financial capitals to meet with investors even when they weren't trying to sell them bonds. Camacho resigned in 2003 but has been succeeded by a string of former financial professionals who have continued to improve on what he introduced. With funding secure, the government started selling more bonds when the market was turning in the country's favor, usually after good news. "They always time their issues well," Benard of Standard & Poor's said.

An example of just how well came last September. A week after the Philippine Supreme Court upheld an expanded value-added tax expected to add about 75 billion pesos, or $1.5 billion, a year to government coffers, Manila sold $1 billion in bonds. Investors bought them despite the fact that they paid interest rates half a percentage point lower than the government's previous issue in May.

That expanded value-added tax was good news, however, part of a raft of measures designed to lift government revenue, including higher taxes on alcohol and cigarettes and a higher corporate tax.

Along with its ability to manage debt, the Philippines appears closer to controlling its deficit. After introducing more stringent checks for tax evasion and incentives for tax collectors, the government's tax revenue rose last year for the first time since 1997. The government is promising to raise revenue to 16 percent of gross domestic product this year and is on track to cut its deficit to 2.1 percent of GDP. It aims to cut its overall debt to 68 percent of the GDP this year and balance the budget by 2008.

Not everyone is sold, however. In February, even after Fitch and Standard & Poor's raised their outlook on the Philippines' debt rating to stable, Moody's Investors Service maintained its negative outlook. "We felt that the Philippines has made some progress," said Thomas Byrne, an analyst at Moody's in New York. "But the debt is still so big and the debt servicing is so big that the risk of shocks will remain." Despite these concerns, Manila's efforts to win over investors still appear to be paying off.  In addition to falling spreads and interest rates, Philippine bonds remained fairly steady, compared with their emerging-market peers, in the market rout in May.

"I feel there is a greater degree of optimism," said Pizarro at the investor relations office. "At the end of the day it will all translate into lower finance costs."

Source: International Herald Tribune - Aug 29, 2006