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Lower interest rates. A lower budget deficit. The private sector as the engine of growth. That's the virtuous circle which the new Philippine secretary of finance hopes to achieve. Known as Mr Accountability, two-term senator and former budget secretary Alberto Romulo is an enemy of pork barrel politics and all forms of cronyism and corruption. He puts the case for small but efficient government to Matthew Montagu-Pollock.

Morgan Stanley knew it had its work cut out when it chose to finance Japanese company Aiful's acquisition of failed consumer credit company Life. But although the deal presented some spectacular obstacles, Japan's first securitization-backed acquisition financing looks like it was worth the effort. By Fiona Haddock.

After the euphoria of Estrada's removal, the Arroyo leadership and forthcoming elections in the Philippines are being viewed with comparative calm. New appointments, particularly of secretary of finance Alberto Romulo seem solid, but after past disappointments it will take time for confidence to return. By Matthew Montagu-Pollock.

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Axis Capital Management plans to launch by the end of the month a European convertible arbitrage fund that will use derivatives. George Philips, chief investment officer in London, said the fund will buy investment grade convertible bonds and use derivatives to strip out the interest-rate, equity and credit risk. It then hopes to profit from the implied volatility on the convertible rising. Philips said the notional size of the transactions would typically be between USD5-50 million. He expects the fund to return 17.5% profit with 4%-4.5% volatility.

KBC Asset Management is buying call options and put spreads on a basket of financial stocks to structure a guaranteed fund. Lode Roose, product development manager in Brussels, said the fund gives investors 110% participation in the upside of a basket of 20 financial stocks with a 90% capital guarantee. The investor wins if the basket of stocks increases in value. Roose said the asset manager started buying the options at the beginning of April when it began marketing the fund and will continue adding to the position until May as more investors come forward. The asset manager has been buying options in typical notional sizes of EUR10-15 million (USD9-13.6 million).

Merrill Lynch and Banca Commerciale Italiana have structured a synthetic securitization based on a USD1 billion reference basket of airplane loans, in what is widely thought to be the first deal of its kind.

Axia Energy Europe plans to hire up to 15 energy derivatives professionals to expand its structured products desk in London. Uday Narang, managing director and head of trading for Europe, said it plans to hire five or six structurers and eight or nine quants for structured products across power, gas and weather derivatives. The department has approximately five pros at the moment and forms part of the trading division. The pros will be based in London and are expected to be on board by the summer.

Deutsche Bank andSchroder Salomon Smith Barney are recommending investors enter total-return equity swaps to take advantage of possible price changes following a rebalancing of the Morgan Stanley Capital International (MSCI) Europe index, details of which MSCI is expected to announce in June. The weightings will be changed in May 2002.

BNP Paribas has recently made two new hires for fixed income and credit derivatives in Asia and is looking to hire a synthetic securitization structurer. Emmanuel Dianflon, head of credit derivatives Asia, based in Hong Kong, says the French bank is seeing growing demand for derivatives products.

Commerzbank Capital Markets is ramping up its equity derivatives desk in New York to meet strong demand for U.S. equity derivatives products from hedge funds, corporates and high-net-worth individuals.