Philippines readies $300-M catastrophe bonds

MANILA, Philippines - The Philippines is in the final stages of discussions on an investment product that would allow the government to eliminate obligations when a natural disaster hits the country, Finance Secretary Cesar Purisima said.

The so-called catastrophe bond may have its maiden issue this year, amounting to “between $100 million and $300 million,” Purisima told The STAR in a roundtable discussion yesterday.

“The idea is that if a certain type of catastrophe hits, the bond will be extinguish of the debt, and thus, will open up the financial capability of the government,” he explained.

In turn, this would allow the government to allocate more funds as response to the calamity.

The government is now working with the World Bank on the mechanisms of the bond, one of which is the rate of return an investor may get from availing of the security.

Since the investment product could be riskier than regular bonds issued by the government, Purisima said it would have higher rates. Prevailing concessional loan rates of the multilateral lender would also be considered.

At present, the World Bank charges around one percent for its concessional loans, while a 25-year benchmark bond issued by the government yields around four percent.

“If we can pay a little more than that (25-year bond rate), then I guess it would be fine,” Purisima said.

Being along the Pacific Ring of Fire, the Philippines frequently experiences natural calamities such as earthquakes and typhoons.

For this year’s meetings of the Asia-Pacific Economic Cooperation, which Manila is hosting, Purisima said disaster risk mitigation is one of the pillars of the Cebu Action Plan.

The roadmap is being developed as part of the country’s hosting of the APEC meetings this year.

“We need to ensure we have the capability to respond to these catastrophes once they hit,” Purisima said.

Purisima currently chairs the Climate Vulnerable Forum, which includes 19 other countries at risk of climate change.

The so-called V20 Group aims to agree on measures “to deal with the financial consequences of natural disasters,” he said.

The group will meet in Lima, Peru later this year.