[Reuters]

Published date: 20th Jul 1987

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20 July 1987 

Reuters News 

English 

(c) 1987 Reuters Limited 

MANILA, July 20 – The speedy and cordial conclusion of a 13.2 billion dollar debt rescheduling package by Philippine officials and bank creditors apparently was intended to pre-empt the country’s new Congress which convenes on July 27, bankers and economists polled by Reuters said. 

Omar Cruz, a director of the Center for Research and Communication, said “If the package had been delayed it would have passed into the sphere of influence of Congress where it could get bogged down in months of debate. There was prudence and wisdom in getting the approval out of the way.” 

The Philippines and its 12-bank advisory committee reached agreement on the debt package on March 27. More than 400 banks signed the package with Finance Secretary Jaime Ongpin and Central Bank Governor Jose Fernandez in New York on Friday. 

“The National Economic Development Authority has just started briefing the new Congressmen on the economy. It might take them about six months just to assimilate all the information,” Cruz said, adding the finalisation of the package would give the government valuable breathing space. 

“Now we can go from the financing side to the operational side,” he said, which would allow priorities to be decided on. 

A banker closely involved with the negotiations, which started last October, said the banks obviously had been propelled by the fear that Congress might threaten to reopen the entire question of debt rescheduling. 

“There was every likelihood of Congress wishing to grandstand on the issue,” the banker said. “This way they are presented with a fait accompli.” 

A senior Central Bank official said the package could have been finalised even earlier if Ongpin had not objected in April to a marginally lower interest rate granted to Argentina by its creditor banks. The dispute was resolved last month. 

The Philippines rescheduled 9.3 billion dollars of debt over 17 years with 7-1/2 years of grace on repayment of principal at 7/8 percentage points over the London Interbank Offered Rate (Libor). Argentina won a 13/16 point spread over Libor. 

“In fact, the Philippines got an unprecedented cut in interest rates, from 1-5/8 percentage points to 7/8ths,” the Central Bank official said. “Also, in another concession, Manila’s package is retroactive from January 1, 1987, while the Argentine package takes effect only when it is signed.” 

The official said the Philippines hoped to save 931 million dollars over the package’s 17 year life because of the accord. 

The official said Central Bank projections showed the country’s debt service burden would be 29 pct this year. 

He said the burden was likely to increase because Libor, which had been projected at an average 6.5 pct in 1987, had been steadily rising, touching a peak of 7.6 pct in the third week of May before subsiding last week to seven pct. 

“We calculate that every percentage point rise in Libor will increase the country’s debt repayments on a net basis by an average 130 million dollars a year,” the official said, adding repayments this year were estimated at 2.8 billion dollars. “Of this, two billion will go towards interest alone,” he said. 

The Central Bank official said commercial banks accounted for only 15.4 billion dollars of the country’s end- 1986 foreign debt of 28.25 billion dollars. He said multilateral institutions such as the World Bank and the International Monetary Fund accounted for 4.7 billion dollars, bilateral creditors for 3.9 billion, and other creditors for 4.3 billion. 

The country’s foreign debt was officially estimated to have risen to 28.58 billion dollars at the end of the first quarter of this year, the official added, because of exchange rate fluctuations on the yen and Deutschemark components of the debt. 

Cruz said the debt pact was a major component in the process of economic recovery begun by President Corazon Aquino when she took power last year. 

“But my optimism is tempered,” he said, “Although consumer sales are growing by about 25 to 30 pct on an annualised basis and personal consumption expenditure could account for as much as 70 pct of Gross National Product (GNP) this year, I doubt the government can achieve its 6.5 pct GNP growth target.” 

Cruz said a drought that had hit rice and corn growing areas was likely to slash growth in the agricultural sector to only about two pct. “The problems are not over,” he said,