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Philippines $2bn fund to shield economy

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October 23, 2008

Philippines $2bn fund to shield economy
The Philippines' president endorsed a plan to create a 100 billion peso ($2.1 billion) fund to help insulate the economy from a recession in the United States, reported Reuters.

President Gloria Macapagal Arroyo said on Wednesday that the fund will be used to bankroll education and infrastructure projects. It was proposed by the Philippine Chamber of Commerce and Industry and is to be financed by the government and private banks.

Arroyo said state-owned financial institutions including Development Bank of the Philippines (DBP) and pension fund Social Security (SSS) have committed to contribute to the fund.

"We hope the private banking sector will join in this," she told a business forum. "That way, we can put our money in human capital formation which will provide direct income and services to the poor."

Details of the fund are sketchy but Finance Secretary Margarito Teves said half of the amount will come from state-owned financial institutions.

Teves said the initial commitment from DBP and SSS "implicitly means they have funds that they can use outside of their own commitments or existing priorities".

He said details will be discussed later this month.

The fund is the latest effort of the Southeast Asian nation to protect its economy from the global financial turmoil. On Tuesday, the government announced plans to increase bank deposit insurance fourfold to 1 million pesos.

Subject to Congress' approval, that would require the government to raise its contribution to the deposit insurance fund to up to 45 billion pesos from just 3 billion, said Jose Nograles, president of Philippine Deposit Insurance Corp (PDIC).

"The 45 billion pesos will give us a quick response mechanism in case we need to shore up our deposit insurance reserves," Nograles said on Wednesday.

He said the PDIC was also seeking government approval to increase the 1-million peso deposit insurance "in case the condition deteriorates and threatens the monetary and financal stability of the country".

The Philippine central bank has said it is ready to help banks suffering from liquidity problems although banks have been shielded from the global credit crisis, with no institution directly linked to subprime mortgages.

Arroyo also announced a series of measures to cushion the impact of a U.S. recession, including those aimed at minimising the impact on the remittances from Filipinos working abroad, a key engine of growth.

"So far there has been no displacement of expatriates related to the financial crisis," she said.

Arroyo said the economy has "shock absorbers" including strong banks that will help it weather economic turmoil.

The government is also confident that its full-year budget deficit could be smaller than the targeted 75 billion pesos or 0.5 percent of gross domestic product, she said.

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