Comments on PDTC Cost Calculation quoted in Feb. 25, 2005 Edition of Philippine Star

An article in the Business page of the Philippine Star quotes a PDTC official as stating "... that the cost would only be one 16th of one percent per annum as based on the estimated P1.6 trillion worth of securities that has been issued by the government, 50 percent of which are being traded, resulting in a cost of only P37.5 million per month." Moreover, he challenged our own calculations of the incremental cost.

In the first place, using his own figure, the correct calculation is

{[(1.6 T x 50%) x 1%] /16} / 12 = 41.6 M per month

The BTr is more than happy to discuss and debate the calculation. At this early stage, however, I am afraid the PDTC official is merely talking about transaction costs to the investor. You can refer to the IHAP position paper that I have previously posted where IHAP itself worried about the additional costs.

Being the National Treasurer, the perspective that I am using has to be broader. Government has to worry about any overall rise in the level of the Government Treasury yield curve as well as any steepening of the curve. With our country facing the challenge of containing the fiscal deficit, government and private sector has to be very careful in the implementation of any initiative with unproven benefits.

For the sake of argument, even using the PDTC official's own calculation, the exercise will cost the government an incremental Php 500 million per year that will translate into increased borrowing costs for the government as investors will seek to recover that.