RP graduates from IMF tutelage

As the last program funded by the International Monetary Fund (IMF) for the Philippine government ended in 2000, the nature of the country’s relationship with the Fund has shifted into an increasingly nebulous and tenuous tie.

This week, the IMF concluded its annual post-program monitoring (PPM) review, one of only two visits that the Philippines gets from the Fund. The review takes into account the country’s economic performance and government policies deemed critical to the IMF’s wishes.

The mission arrived with the undercurrent of strain that stemmed from the incident involving former IMF mission head Joshua Felman, who was replaced on the urging of the Philippine government earlier this year.

Headed by the IMF senior adviser Masahiko Takeda and Sean Nolan, head of the Fund’s Asia and Pacific Division, the mission spent two weeks meeting with Philippine officials who spent more than two months preparing their presentations.

At the end of the review, however, the IMF mission was at a loss when asked about the consequences of the government’s non-compliance with the recommendations presented by the team which included, among other things, increasing the tax rates and chopping down the bureaucracy.

"We have no power to force our recommendations," was the candid admission made by Takeda. "Clearly, we can only present these recommendations and the rest will be up to the Philippine government."

The government, in fact, has already rejected a number of IMF recommendations including the widely unpopular suggestion to tax text messages in order to generate additional revenues that would help reduce the budget deficit.

"That proposal, I believe, was rejected," recalled Nolan, who served a term as the IMF’s resident representative to the Philippines. "The Philippines technically left IMF tutelage in 2000 at the end of the last IMF program here."

IMF programs, Nolan explained, had conditionalities that the Philippine government was obliged to follow at the risk of being branded for bad housekeeping which would have adversely affected the confidence of international investors and creditors.

"Now, of course, it doesn’t work that way anymore," Nolan said.

According to IMF resident representative Vikram Haksar, the IMF’s relationship with the Philippines is no different from its relationship with its other member countries that are not under any IMF program.

"We monitor developments closely and essentially stand by in case our assistance is needed," Haksar said. "After all, we are the lender of last resort."

All three IMF officials, however, became instantly tongue-tied when asked about the incident where the Philippine government asked the IMF to relieve Felman early this year. He was implicated in the controversy involving the untimely release of IMF comments on the country’s current account data which were undergoing revisions at the time.

The controversy, according to Finance Secretary Jose Isidro Camacho, cost the government 25 basis points on its bond float as the market reacted negatively to hints that the data on possible capital flight was being fudged by the government.

After the pricing of the bond offer, the government immediately wrote to the IMF headquarters to ask for Felman’s replacement as head of the IMF’s Philippine mission.

Camacho said the incident was already water under the bridge but he was quick to point out that the Philippines has little need for IMF assistance even with its yawning budget gap and worsening debt levels.

"Technically, we can even get out of the PPM monitoring by November because then, we would have reached the point where we have become net contributors to the fund," Camacho said. "The only difference between being inside and outside of PPM monitoring is the number of visits we will get from them every year."

Camacho said that the IMF’s importance depends on how the economy performs at any given time. "If we perform well, then it won’t be so important and if not, it will be important," he said.

As the government’s chief negotiator, Bangko Sentral ng Pilipinas (BSP) Governor Rafael Buenaventura said that although the recommendations of the IMF no longer have the force and pressure they used to have, at the very least, he said the Fund’s continued review is a seal of good housekeeping.

"But of course we no longer have to do whatever they say," he added.