Admin mulls BSP proposal to pre-pay debt

MANILA, Philippines - The government is studying the proposal of the Bangko Sentral ng Pilipinas (BSP) to pre-pay some of its foreign obligations on the back of the low interest rate environment and the continued appreciation of the peso against the dollar.

A strong peso would reduce the value of the government’s foreign debts. The local currency has been strengthening against the greenback due to hefty inflows of foreign capital into emerging economies like the Philippines.

National Treasurer Roberto Tan said the National Government is seriously looking into the BSP’s proposal as it may indeed translate to savings for the government.

“We are looking at it. The thing to consider is what we can prepay,” Tan told reporters yesterday.

He noted for instance that most of the loans that the government can prepay are official development assistance or ODA loans as these are easy to identify.

On the other hand, he said that government’s foreign obligations in the form of bonds are not easy to prepay.

“Bonds are held by investors so it’s difficult to identify each of these investors,” Tan said.

The Department of Finance’s International Finance Group is now studying which ODA loans may be prepaid.

This, he said would depend largely on the lenders if they are willing to accept prepayments.

Some lenders, he said, do not want to accept payments for loans that are not yet due, as they would have to mobilize the funds that would come in.

Tan nonetheless expressed hopes that some lenders would agree so that the government can take advantage of the appreciation of the peso.

“If you have expensive indebtedness, it is better to borrow and just prepay some of the loans. We have an appreciating currency so we pay less in terms of foreign debt,” he said.

Prepayment also bodes well for the government’s credit standing as it would mean that it is engaged in “active liability management,” Tan said.

Monetary authorities have said that prepayment of the government’ foreign debt would create a demand for dollars and this could temper the rise of the peso against the dollar.

According to the latest data from the National Economic and Development Authority (NEDA) actual availment of ODA in the first half of the year amounted to $3.899 billion, lower than the program of $4.764 billion.

ODA is extended to the Philippines by financial institutions either through loans or grants, for purposes of capital and technical assistance.