Finance Secretary Jose Isidro Camacho said yesterday that the Philippines, which relies heavily on foreign loans to meet government’s funding requirements, cannot afford to alienate its creditors by reneging on its debt payments.
"It is government’s policy to honor our contractual obligations and debts. At this point, it would not be wise to seek debt relief unless it is offered by the creditors such as during the period in the 1980s when lenders voluntarily sold their less developed countries loans at discounts," Camacho said.
Multilateral and bilateral loans already come with concessional terms, thus, seeking debt relief is not an option that is practized unless offered by creditors, he added.
Camacho was reacting to a statement of President Arroyo last Thursday that government would consider seeking debt relief from foreign lenders to cushion the impact of the economic fallout as a result of the Sept. 11 terrorist attacks on the US.
"President Arroyo and I have not had the opportunity to talk about this yet, before or after she was asked the question," Camacho said.
He warned that debt relief could lead to disastrous results, the most extreme of which is the cash-strapped government being deprived of funding. This, in turn, could cripple critical government projects.
"It is important for us to continue to have access to funding from both multilateral/bilateral institutions as well as commercial sources," Camacho said.
The government has scheduled at least two bond issuances to complete its foreign financing requirements for next year. These are the issuance of $500-million Shibusai bonds and the issuance of $300-million Singapore bonds.
Both bonds are preferred by the Philippine government because they carry concessional or light payment terms as well as a longer maturity period.
The government wants to rush the completion of its foreign funding needs for 2002 to avoid the anticipated increase in bonds spreads of emerging markets such as the Philippines, especially after the attacks on the US.
As of end-June, the country’s outstanding external debt stood at $50.895 billion, up by 1.9 percent to $946 million.
The Bangko Sentral ng Pilipinas (BSP) said the increase in debt stock largely resulted from availments by non-bank borrowers, both public and private totaling $1.704 billion. These were partially offset by net repayments by the banking sector, including the BSP and negative revaluations arising from movements in the value of other currencies against the US dollar, particularly the Japanese yen.
Amounts owed to official creditors that include foreign governments and their export credit agencies as well as international financial institutions like the World Bank and Asian Development Bank accounted for 48 percent of outstanding external obligations.
Debt securities such as bonds and notes that are generally traded in offshore capital markets represented about a quarter or 25.2 percent of the total, while 22 percent pertained to obligations to private banks and other foreign financial institutions.
Meanwhile, other businessmen said that the government should not go around begging for debt relief, taking advantage of the unstable situation brought about by the Sept. 11 terrorists attacks on the US.
"If we can get a debt relief close to the one give to Pakistan then fine. But we must not seek a relief using the Afghanistan issue. Pakistan virtually served as a launching pad for US military strikes against the Taliban in its guest to snatch Osama bin Laden, principal suspect to the Sept. 11 disaster," they said.
"If the principal reason for the debt relief is the war, that is not proper. The country had very limited participation in the attacks unlike Pakistan," they added.
Dr. Johnny Noe Ravalo, chief economist of the Bankers Association of the Philippines (BAP) said that "any kind of relief from our foreign debts is fine."
However, he pointed out the country is now in a position to manager its foreign debts since majority, it not all are long-term in nature. Under the Ramos administration, the country had entered into lending programs from various global financial institutions and lending agencies.