Monday, June 18, 2007 $1B hedging facility to assist exporters
TOP officials of the Development Bank of the Philippines (DBP) are set to formally present to exporters on June 28 the bank's reported US$1 billion facility to help the dollar earners survive the continued appreciation of the peso against the US dollar.
The offer will be made during the mid-year national conference of the 4,000 strong Philippine Exporters Confederation (Philexport) Inc., it was announced by Philexport president Sergio R. Ortiz-Luis Jr.
The exporters made an impassioned appeal to government during a press conference the other week to save them from closing shop due to exchange rate losses.
They said they have lost an average of P1.5 billion a month on goods contracted in the first quarter of this year when the exchange rate was over P50 to the dollar that has gone down to P45 plus to the dollar when they made their deliveries this month.
That translated to losses of P5 per dollar of sales.
It takes three to six months for an export deal is made from the time a letter of credit or a purchase order is made by a buyer to the time the ordered goods are paid, it was explained.
"DBP's hedging facility," Ortiz-Luis said, "is like insurance.
Upon the receipt of a purchase order or letter of credit, the exporter can go to DBP and take in insurance that the peso value of the contracted export product will be the same when the delivery is made."
The DBP buys dollar equivalent to the value to the covered goods and charges the exporter a small interest rate for the peso that it uses in the dollar purchases.
The bank then uses the dollar in its investment portfolio to keep it earning.
"When the goods are paid and the peso equivalent of the exported good has gone down, the DBP will pay the exchange rate difference to the covered goods.
This assures the exporter that he will not incur exchange rate losses in his deals," the export leader explained.
"With the hedging facility in place, the exporters no longer have to fear they may suffer future losses if the peso keeps on strengthening against the dollar," he added.
"The DBP need not use the whole $1 billion it allocates for the hedging facility.
Transactions between the small and medium exporters and their buyers do not reach that much every three to six months," Ortiz-Luis said. "The only remaining hitch to the hedging fund," he further explained, "is that the DBP will not be a green light from the Bangko Sentral ng Pilipinas to engage in more sophisticated financing facility called internationally as derivatives." (Philexport News and Features/Sunnex)
