This developed as Fund officials said the Philippines could opt for one last extension of the post-program monitoring (PPM).
The IMF has just concluded its annual Article IV performance review this weekend and Fund officials said the policy stance of the Bangko Sentral ng Pilipinas (BSP) was "sufficiently cautious" given prevailing inflationary pressures.
IMF Asia Pacific division chief James Gordon told reporters that the Fund did not see serious second-round effects of the sharp fluctuations in world oil prices this year and possibly next year.
The IMF’s projected average inflation rate for 2005 and 2006 are both lower than the BSP’s projected inflation rate of 7.6 percent to 7.9 percent for this year and eight percent to 8.5 percent next year.
Gordon said that despite the difference in the projected rate, the trajectory of the inflation rate seen by the BSP and the IMF are the same.
"We are looking at the impact of higher oil prices as well as the effect of the increase in the value added tax rate but those effects will not come out of the index until after a year," Gordon said. "At the moment, we don’t see the second round effects from these shocks and we think the BSP is being sufficiently cautious."
According to Gordon, the IMF is expecting the average inflation rate to ease near the five to six percent target by 2007 once the first round effects have settled down.
"We don’t see the need to raise interest rates, at the moment. We don’t see the second round effects and there is no need (for the BSP) to take additional action at this stage," Gordon said.
The IMF said it would continue monitoring the economic fundamentals but according to Gordon, the Philippines was in the position to wind down the PPM review with only one last extension available.
IMF senior adviser Masahiko Takeda explained that the absolute end of the PPM review for any Fund member was the point where the sovereign’s loans falls to zero although authorities had the option of ending the PPM once its total liabilities fall below 30 percent of its quota contributions.
The Philippines’ outstanding liabilities would fall to $415.6 million, or 31 percent below its quota contributions to the Fund, by end-2005. By end 2006, the liabilities would decline further to $223.9 million and to $31.4 million, or 2.3 percent of the quota, by end-2007.
"It’s been a number of years now since the Philippines’ IMF program has ended and there could be one more extension of the PPM for one more year," Gordon said. "That is up to the authorities to decide if they want to continue," he added.
Once the PPM is terminated, the IMF would be required to review the Philippines’ economic performance only once a year under the so-called Article IV review.
Philippine authorities, however, have repeatedly opted to extend the PPM review since continued IMF monitoring is regarded as a seal of good housekeeping by the country’s investors and creditors.