EXTERNAL DEBT MANAGEMENT

IN THE PHILIPPINES

Celia M. Gonzalez
Director
International Operations Department
Bangko Sentral ng Pilipinas
7 July 2004
Bangkok, Thailand
 EXTERNAL DEBT MANAGEMENT
IN THE PHILIPPINES

DEBT MANAGEMENT
FROM A MACRO PERSPECTIVE

 Identification of priority areas for foreign

financing
 Determination of project viability and
borrower’s capacity to pay
 Assessment of country’s debt servicing
capability

Bangko Sentral ng Pilipinas

 EXTERNAL DEBT MANAGEMENT
IN THE PHILIPPINES
INSTITUTIONAL ARRANGEMENTS
FOR DEBT MANAGEMENT
 Bangko Sentral ng Pilipinas
 Department of Finance
 Investment Coordination Committee
 Inter-agency Committee for Review of Foreign
Loan Documents
 National Economic Development Authority
 Development Budget Coordination Committee
 Board of Investments
Bangko Sentral ng Pilipinas
 EXTERNAL DEBT MANAGEMENT
IN THE PHILIPPINES

LEGAL BASES

 The Philippine Constitution – 15 October 1986

 Letter of Instructions No. 158 – 21 January 1974
 Foreign Borrowings Act (Republic Act 4860)
– 8 September 1966
 New Central Bank Act (Republic Act 7653)
– 10 June 1993

Bangko Sentral ng Pilipinas

 EXTERNAL DEBT MANAGEMENT
IN THE PHILIPPINES

BSP DEBT MANAGEMENT

RESPONSIBILITIES
 Monitoring the level of external debt
 Keeping outstanding debt and debt burden
at manageable levels
 Obtaining the best available terms and conditions
for foreign financing and avoid bunching of
maturities

Bangko Sentral ng Pilipinas

 EXTERNAL DEBT MANAGEMENT
IN THE PHILIPPINES

BSP DEBT MANAGEMENT TOOLS

 Regulatory issuances (policies and procedures)

 Administrative mechanisms (approval and
registration process; reporting system)
 Observance of ceilings on new commercial MLT
loans and outstanding ST public sector debt
 Debt Strategies

Bangko Sentral ng Pilipinas

 EXTERNAL DEBT MANAGEMENT
IN THE PHILIPPINES
REGULATORY & ADMINISTRATIVE
FRAMEWORK
 Public Sector Borrowings –
All loans of the government, its instrumentalities
and agencies (e.g., LGUs, GFIs & GOCCs) require
prior BSP approval
 Private Sector Borrowings
Loans which carry public or banking sector
guarantee or which will be serviced with foreign
exchange purchased from the banking system require
prior BSP approval
Bangko Sentral ng Pilipinas
 EXTERNAL DEBT MANAGEMENT
IN THE PHILIPPINES
PUBLIC SECTOR BORROWINGS
Evaluation stages:

Approval-in-Principle

Negotiation

Final
Approval

Bangko Sentral ng Pilipinas

 EXTERNAL DEBT MANAGEMENT
IN THE PHILIPPINES
PUBLIC SECTOR BORROWINGS
Approval-in-Principle – gives the borrower clearance to
negotiate with the creditor
Negotiation – borrower may proceed to negotiate with
creditor
The Inter-Agency Committee for Review of Foreign Loan
Documents (IAC-RFLD) serves as a forum in reviewing
the covering agreements.
Final Approval – the terms as finally negotiated are
compared with the terms as approved-in-principle to
determine consistency with &/or deviations therefrom.
Bangko Sentral ng Pilipinas
 EXTERNAL DEBT MANAGEMENT
IN THE PHILIPPINES

PRIVATE SECTOR BORROWINGS

Evaluation stages:

Approval

Registration

Bangko Sentral ng Pilipinas

 EXTERNAL DEBT MANAGEMENT
IN THE PHILIPPINES

PRIVATE SECTOR BORROWINGS

Approval – gives the borrower clearance to conclude
negotiations & finalize/sign loan documents
Registration – the borrower is given authority to purchase
foreign exchange from the banking system to cover payment
of principal, interest, and other charges
BSP reviews copies of signed loan agreements for
compliance with approved terms and conditions, and
determines whether funds were actually disbursed &
utilized.

Bangko Sentral ng Pilipinas

 EXTERNAL DEBT MANAGEMENT
IN THE PHILIPPINES
DEBT MONITORING
SYSTEM
 The Philippine external debt monitoring system covers
all data categories such as:
 by borrower
(public, private, bank and non-bank);
 by original and residual maturity
(short-term, medium- and long-term);
 by creditor type;
 by currency; and
 by country

Bangko Sentral ng Pilipinas

 EXTERNAL DEBT MANAGEMENT
IN THE PHILIPPINES
DEBT MONITORING
SYSTEM
 Principal data sources include regular reports from
borrowers, banks and other financial institutions and
selected creditors plus news articles in local and
international publications
 BSP requires submission of monthly reports on the
status of BSP-approved loans and transactions
 BSP also requires borrowers that did not seek prior
approval of their loans to submit monthly reports for
statistical purposes to allow compilation of
comprehensive debt statistics

Bangko Sentral ng Pilipinas

 EXTERNAL DEBT MANAGEMENT
IN THE PHILIPPINES
DEBT STRATEGY
Optimization of available foreign financing by –
 Identifying projects eligible for financing
 encouraging credits with longer tenor and lower cost
 encouraging private sector participation in
development efforts through BOT and other new
financing schemes
 closely coordinating approaches to international
capital markets to avoid competition among
Philippine borrowers

Bangko Sentral ng Pilipinas

 EXTERNAL DEBT MANAGEMENT
IN THE PHILIPPINES
DEBT STRATEGY
FX Liberalization
 Lifting of BSP approval and registration requirement
for Private sector provided loan –
• Is not guaranteed by public sector/banks
• Will not be serviced with FX from banking system
 Full discretion for disposition of residents’ FX receipts
BUT
BSP Reporting requirement maintained

Bangko Sentral ng Pilipinas

 EXTERNAL DEBT MANAGEMENT
IN THE PHILIPPINES
DEBT STRATEGY

Diversification of Funding Mode and Source

Tapping Private Sector as Partner for Development
 BOT Law
 Deregulation of key industries

Bangko Sentral ng Pilipinas

 EXTERNAL DEBT MANAGEMENT
IN THE PHILIPPINES

POST 1983 DEBT SITUATION

Measures to manage capital surge
 Reserve build up
 Limits on bank’s FX position
 Liberal rules on outward investments and capital
withdrawal for investments under debt to equity
conversion program
 Allowed residents to (a) retain FX receipts and
(b) open/maintain FX deposit accounts
onshore and offshore

Bangko Sentral ng Pilipinas

 EXTERNAL DEBT MANAGEMENT
IN THE PHILIPPINES

THE 1997 ASIAN CRISIS

 Widening of spreads on debt papers
 Volatile Peso/Dollar exchange rate

Confidence in Philippine Debt Monitoring System

 Well managed and provides up-to-date data
 Allows comparisons with other statistics
 Inclusion in new international debt guide:
Philippine monitoring system for private sector
as example of best country practices
Bangko Sentral ng Pilipinas
 EXTERNAL DEBT MANAGEMENT
IN THE PHILIPPINES

Policy Initiatives
 Amortizing versus bullet payment terms
 Staggered purchase of FX for debt servicing
 Hedging mechanism for FX obligations
 Documentation of FX sales by banks
 Alignment of rules for bank-affiliated Forex
Corporations

Bangko Sentral ng Pilipinas

Philippine External Debt: Profile as of March 31, 2004

By Original Maturity By Remaining Maturity ST plus portion of

Weighted MLT debts falling
Average Maturity due within next
Total = 17.3 yrs 12 months
ST
ST
13%
Public = 19.5 yrs 22%

Private = 11.2 yrs MLT

MLT 78%
87%

By Borrower By Creditor By Currency

Others
7% Others
11%
Private
33% NG Bonds Official
44% 27% 46% JPY USD
29% 51%

BSP BFIs
20% MC
7% GOCCs 9%
16%
 Philippine External Debt: 1997 to March 31, 2004
80
1997
By Original Maturity
70
ST
15%
60

50 MLT
In Billion USD

85%
March 2004
Original Maturity
40
ST

30 MLT 13%

20 MLT
87%

10
ST
0
1997 1998 1999 2000 2001 2002 2003 2004
 Philippine External Debt: 1997 to March 31, 2004
80 1997
Remaining Maturity

70 ST
21%

60
MLT
79%
March 2004
50
In Billion USD

Remaining Maturity

40 ST
22%

30 MLT
MLT
78%

20
ST Portion of MLT
10
ST
0
1997 1998 1999 2000 2001 2002 2003 2004
 Philippine External Debt: 1997 to March 31, 2004
80
1997
By Borrower
70

Private
60 38%
Public
62%

50
In Billion USD

Private

40 March 2004
By Borrower

30 Public

Private
20 33%
Public
67%

10

0
1997 1998 1999 2000 2001 2002 2003 2004
 Philippine External Debt: 1997 to March 31, 2004
80 1997
By Creditor

70
60 Comme
rcial
49%
Official
51%

50
In Billion USD

40 Commercial March 2004

By Creditor

30
20 Comme
rcial
Official
44%

Official 56%

10
0
1997 1998 1999 2000 2001 2002 2003 2004
 Philippine External Debt: 1997 to March 31, 2004
80 1997
By Currency

70 Others
7.6%
JPY
23.9%
60 USD
54.7%
MC
13.9%
Loans from WB and
50
In Billion USD

Others ADB committed in USD

but disbursed and repaid
40 in various currencies
Japanese Yen March 2004
By Currency
30 Multi-Currency
Others
11.2%
20 US Dollar USD
JPY
51.2%
28.6%

10 MC
9.0%

0
1997 1998 1999 2000 2001 2002 2003 2004
 EXTERNAL DEBT MANAGEMENT
IN THE PHILIPPINES
Ratio of Debt Service Burden to GNP and XGSI
1983 to 2003
8 50

45
7

40
6
35
5
DSB to XGSI 30

Percent
4 25

20
3
DSB to GNP
17 15
2
10
9
1
5

0 0
1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Bangko Sentral ng Pilipinas

 EXTERNAL DEBT MANAGEMENT
IN THE PHILIPPINES
Ratio of Reserves to DSB and ST Debt
1983 to 2003

15 273 300
GIR to ST

13 250
214

10 200

Percent
8 150

5 100
GIR to DSB

3 50

0 0
1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Bangko Sentral ng Pilipinas

 EXTERNAL DEBT MANAGEMENT
IN THE PHILIPPINES

CONCLUSION
 Encouraging developments
 Reliance on external financing to continue
 Policies will continue to be proactive
and market-oriented but consistent with regulatory
concerns
 Continuing review and improvement of debt
monitoring system

Bangko Sentral ng Pilipinas

EXTERNAL DEBT MANAGEMENT
IN THE PHILIPPINES