DOF Junks Miyazawa Infusion for PAL

The Journal

Friday, December 25, 1998

By VIRGILIO VALLECERA JR.

Business

DESPITE initial reluctance to leave the fate of financially-stricken Philippine Airlines to its creditors, the government may have to let go of the airline after all, according to Finance Secretary Edgardo B. Espiritu.

Espiritu said the proposed $150 million loan for PAL was "not included" in the list of priority projects to be funded under the so-called Miyazawa fund.

"There will be no government bailout," Espiritu stressed.

Espiritu earlier told reporters government intended to tap the new money requirement from

Japan through its Export-Import Bank.

The loan itself would be secured by any of the government financial institutions in line with the two-step scheme that would have the government financial institutions subsequently relending the money to PAL.

Without the loan, Espiritu said PAL majority owner Lucio Tan may have to put in the money himself although this, too, might have "doubtful effect" as the major creditors have rejected any rehabilitation plan without the entry of new strategic investors.

“This does not solve the condition of the creditors who wanted new management for PAL," Espiritu told reporters.

The creditors insisted on an strategic partner because this was deemed necessary towards ensuring that PAL's rehabilitation program will take root, Espiritu explained.

"If we have to close down PAL, then we will close it down,” Espiritu said in frustration.

He reiterated that any new government infusion into PAL was "totally out of the question" as this would run counter to privatization and deregulation policies of the government.

Under the plan drawn by Espiritu himself, government will tap the Miyazawa initiative through Jeximbank using either the Development Bank of the Philippines or the National Development Corp. as the conduct for the loan.

Although Japan itself has not actually rejected the two-step scheme for PAL, Jeximbank imposed "a lot of conditions" to the loan which forced Espiritu to think twice about tapping the loan at all, he told reporters earlier.

When some 57.6 billion worth of projects were submitted to Japan for funding under the Miyazawa initiative, Espiritu decided to exclude the proposed PAL loan from the list, he said.

The $150-million proposed loan from Jeximbank represented the amount PAL will need to ensure that its rehabilitation program submitted to the Securities and Exchange Commission earlier will work over the long term, Espiritu said.