Philippines lands $1B Lehman pledge

Foreign investors lost confidence in the Philippines due to politcal and economic instability

By Amabelle Layug
CNN Hong Kong

MANILA, Philippines (CNN) -- Lehman Brothers has pledged to invest up to $1 billion in the Philippines recovery fund.

The move by the American investment bank will give the ailing Philippine economy a dramatic boost this year, according to Philippine House Speaker Jose de Venecia.

The $1 billion Philippine Recovery Fund will buy problem debts from banks, to stimulate various parts of the economy, particularly housing.

But critics say Lehman's input may be more of a publicity stunt designed to win favor for politicians and future business for the investment bank.

Lehman partners pledge support to president

Lehman pledged to invest up to $1 billion, together with its private sector joint venture partners in the fund, in a December 13 letter to Philippine President Gloria Macapagal Arroyo.

The investment bank said it would front an unspecified amount of money for "economically viable opportunities."

The fund would be used to securitize home mortgages, the Malampaya natural gas in Palawan, and to finance housing projects and economic development.

The financial process of "securitization" involves buying assets, bundling them and selling them on, to spread risk.

The fund will be all "equity, targeted for development, not debt," the government states.

It will be used to buy problem loans and real estate, as well as foreclosed real-estate residential mortgages, from commercial banks in the Philippines.

The government pegs the total value of the problem debts at 270 billion pesos ($5.2 billion).

'Certain' to touch off optimistic developments

De Venecia, the speaker of the Philippine House, lauded the move on Wednesday. He said it would have a dramatic impact on the Arroyo administration's economic-recovery programs.

The politician said it would provide liquidity to the Philippine government, raise long-term capital, lower interest rates, expand home ownership, generate jobs, and create a strong, sustainable domestic capital market.

"This move by Lehman Brothers is certain to touch off a series of optimistic developments during the first quarter of the year," he said, per a statement from his office.

Aside from providing liquidity, de Venecia said the investment would create a "liquid secondary market for loans, mortgages, and real estate" which in turn will create a "sustainable housing financing system."

Buying problem loans from banks gives the banks cash for new loans. The buyer, often a company set up by an investment bank, tries to collect on the discounted bad debts.

Critics say money won't go far

But critics downplayed the investment as nothing more than a publicity stunt for both the government and the bank.

"The government is only using this to promote good news," a political analyst who did not want to be identified told CNN.

"How far can $1 billion go to solve the housing backlog and fix the financial sector in the country? This is one of the government's empty promises to win public support for the next election," he said.

As for Lehman, he said that the move is just another strategy to secure other business from the Philippines government.

"It seems odd that Lehman would suddenly decide to invest in the country, especially at a time when other investment banks have pulled out because of political and economic instability and law and order problems," the analyst noted.

The Philippines was beset by problems over personal security last year. Rampant kidnappings, even of executives brazenly abducted in downtown Manila, have driven many overseas brokerages and banks to pull their operations.

In mid-December, a survey by the Economist Intelligence Unit survey showed that kidnapping, corruption, armed rebel groups and a volatile exchange rate make the Philippines one of the worst places in Southeast Asia to do business.