Philippine external debt ratio goes down but total foreign debt rises

The external debt ratio of the Philippines, or the total foreign debt taken as a percentage of the country's gross domestic product (GDP), has dropped in the first quarter of this year.

In a press statement issued on Friday, the Bangko Sentral ng Pilipinas (BSP), the country's central bank, said the external debt ratio was down to 27.4 percent from January to March this year from the 29.5 percent registered for the same period last year.

However, the BSP said that in absolute terms, the outstanding external debt of the Philippines in the first quarter rose to 62.9 billion U.S. dollars, up by 3.3 percent from 60.9 billion U.S. dollars as of the same period last year.

The BSP explained that despite the increase in the absolute amount of debt incurred by the government and the private sector for the first quarter, the debt ratio dropped because the growth of GDP in the first quarter was much faster. The country's GDP grew by 6.4 percent in the first quarter, a big jump from the 3.7 percent full-year growth in 2011.

According to BSP officials, the country's outstanding foreign debt grew because of an increase in investments.

"The increase is due largely to 2.3 billion U.S. dollars net availments (excess of borrowings over repayments) as investment and business activities by both public and private sector entities escalated due to the upbeat business sentiment," the BSP said.

Despite the higher debt level, major external debt indicators remain at prudent and comfortable levels in the first quarter, the BSP added.

The National Statistical Coordination Board (NSCB), the Philippine government agency tasked to monitor and evaluate all economic data, said that the mix of indicators used to forecast economic developments points to sustained growth for the country in the second quarter of 2012.

After a decline in the third quarter of 2011, the composite leading economic indicators, or LEIs, accelerated over the next three consecutive quarters, strongly indicating a continuation of positive outlook for the country's economy, NSCB said.

In a report posted on its website, the NSCB said that the LEIs grew 0.125 in the second quarter of the year from a revised 0.064 in the first quarter.

NSCB Secretary General Romulo A. Virola said growth in LEIs hinted at better prospects for business and, thus, economic expansion for the rest of the year.

Of the 11 indicators that make up the composite LEI, seven contributed positively in the second quarter of 2012, the NSCB said.

The LEI System, or LEIS, was developed by the NSCB and the National Economic and Development Authority to serve as basis for short-term forecasting of macroeconomic activity in the country.

The NSCB has also estimated that as of the end of last year, every Filipino owed 51,675 pesos (1,200 U.S dollars), to domestic and foreign creditors.

The Philippines has now a population of more than 95 million.

Despite its huge debt burden, the Philippines managed to lend 1 billion U.S. dollars to the International Monetary Fund (IMF).

Malaca?ang, the seat of the Philippine government, said that it was an obligation on the part of the Philippines to help countries in dire need of funding through the (IMF) as it brushed off criticisms that it was improper for the government to lend money when it needs funds for programs to alleviate poverty and hunger in the country.

Edwin Lacierda, President Benigno Aquino's spokesperson, justified the move by saying that the Philippines had been a recipient of IMF assistance for the past 40 years.

"Now that we have been considered a creditor nation, we feel it is our obligation to assist those nations who require funding from IMF," Lacierda said in a press briefing.

Lacierda said that contribution of 1 billion U.S. dollars to IMF's standby fund of 456 billion U.S. dollars "would also help in stabilizing the crisis that's going on in Europe."

"It is our responsibility; it is part of our obligation (to the) IMF who has assisted us during our times of crisis in the Philippines," Lacierda said.

In a separate statement, BSP Governor Amando Tetangco said the Philippines will get returns from the loan it extended to the IMF.

Tetangco said that for nearly 40 years until 2006, the Philippines itself was a net borrower from the IMF. "We finally fully paid our loans to IMF in December 2006 as the implementation of continuing reforms has made our economy stronger," he said.

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Philippines with other 19 countries Pledges Billion Dollars to Boost IMF

20 Countries Pledges to Boost IMF (International Monetary Fund) to save Europe

1. Belgium - $13.2 Billion
2. Brazil - $10 Billion
3. Britain (UK)- $15 Billion
4. China - $43 Billon
5. France - $41.4 Billion
6. Germany - $54.7 Billion
7. India - $10 Billion
8. Italy - $31 Billion
9. Japan - $60 Billion
10. Mexico - $10 Billion
11. Netherlands - $18 Billion
12. Philippines - $1 Billion
13. Russia - $10 Billion
14. Saudi Arabia - $15 Billion
15. Spain - $ 19.6 Billion
16. Sweden - $10 Billion
17. Switzerland - $10 Billion
18. Singapore - pledged smaller undisclosed amount
19. South Africa - $2 Billion
20. South Korea - $15 Billion
21. USA - refused to pledge

President Aquino administration's pledge to lend $1 billion USD to the International Monetary Fund (IMF) on Friday drew mixed reactions.

A militant labor group slammed the administration's pledge, saying the funds should be spent for Filipinos suffering from widespread unemployment, poverty, malnutrition and hunger.

On the other hand, an administration ally in the House praised the government for agreeing to pitch in to the IMF's fund-raising efforts to bail out tumbling economies in Europe.

"Planet Earth to the Aquino government: The Philippines is still a poor country," the Kilusang Mayo Uno (KMU) said in a statement.

But Valenzuela Rep. Magtanggol "Magi" Gunigundo said the move to lend $1 billion from the country's gross international reserves to the IMF would "actually hit two birds with one stone."

KMU said the pledge, which was announced at the recent Group of 20 meeting in Mexico by Bangko Sentral ng Pilipinas governor Amando M. Tetangco Jr., would most likely be sourced from taxpayers' money and go to the IMF's "war chest" for helping economies distressed by the current severe economic crisis.

"What were they thinking? That amount can be used to improve social services such as education, health, and housing and build basic industries to generate employment," KMU chair Elmer Labog said.

"Where will the Aquino government get this huge amount? From a new tax measure, which will worsen the poverty and hunger being experienced by workers and the people?" he asked.

"We will earn interest and help our kababayans or overseas Filipino workers in Europe to keep their jobs by helping their economies survive the current turmoil," said Gunigundo. "If Europe's economy falls, our OFWs in the region will lose their jobs not to mention our exports will also fall."

Gunigundo said that while the Philippines does have its own problems, "we should have a global perspective considering that what happens in Europe will be felt in other regions such as Asia and the US."

Philippines with other 19

The country is one of an additional 12 that contributed to new crisis-fighting funds now amounting to $456 billion, the IMF said in a statement. The latest level is up from the $430 billion committed last April.

"Countries large and small have rallied to our call for action, and more may join," the statement quoted IMF Managing Director Christine Lagarde as saying.

The Bangko Sentral ng Pilipinas (BSP) said the country wanted to help promote global economic and financial stability.

"The BSP's commitment to the Fund's bilateral borrowing facility is the Philippines' show of support...," central bank Governor Amando M. Tetangco, Jr., said in a text message.

The new pledges to boost IMF resources were made during a recent G20 meeting in Los Cabos, Mexico, although the Philippines is not part of the group of major economies.

"Having facilities such as this in place does not indicate -- one way or the other -- that the view is such that the situation can worsen," Mr. Tetangco noted.

"Rather, prudence dictates that the best time to have safety nets in place is when you don't need them yet. The facility is there when it is needed," he added.

The Philippines is a participant in the IMF's Financial Transactions Plan (FTP). From the country's contributions, the IMF drew down 96.4 million special drawing rights (SDR) or approximately $148.9 million as of the end of last year.

Participation in the FTP since 2010 paved the way for the country' admission to the IMF's New Arrangements to Borrow (NAB) facility. The Philippines' commitment under this facility amounts to 340 million SDRs or about $524 million.

As of April, the IMF had drawn 34.7 million SDRs or $53.5 million from the NAB commitment to extend assistance to Portugal and Greece.

Dennis Botman, IMF resident representative, also welcomed the Philippines' new commitment.

"The [Philippine] government has made a generous contribution to the global firewall and the IMF is impressed by, and indeed grateful for, the strong support demonstrated by the Philippines," he said in an e-mail.

"This commitment will greatly help the collective endeavor to rekindle growth, restore confidence, and create jobs to put the global economy on the path of sustained recovery." Earlier this year, IMF made the call for additional resources to deal primarily with the euro zone debt crisis and its possible spillover.

BSP chief: $1B loan to IMF will earn interest, goodwill

Having near record-high foreign reserves of $76 billion, the Philippines is "capable of lending $1 billion" that will earn interest while helping other countries beset with financial problems, Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. pointed out Wednesday.

 "The Philippines is supporting the global efforts to stabilize the world economy and maintain it on a growth path.  This is the reason why the Philippines is extending a $1 billion loan to the IMF," Tetangco said in a statement.

 "We are a member of the global community of nations and it is also in our interest to ensure economic and financial stability across the globe," he added.

 This pledge to the IMF fund marks the third time that the country has extended a helping hand to other countries that were in troubled fiscal waters. In the past months, the country pitched in for a fund to assist troubled European economies and another buffer fund, the Chiang Mai Multilateral Initiative.

Getting used to being a creditor nation

Tetangco recalled that the Philippines was an IMF borrower for 40 years until 2006.

"We finally fully paid our loans to IMF in December 2006 as the implementation of continuing reforms have made our economy stronger. Today, our economic fundamentals are sound, our banks are able to meet domestic credit needs, and we are capable of lending $1 billion from our international reserves to the IMF," the BSP chief noted.

At the G20 Leaders' Summit in Los Cabos, Mexico, IMF managing director Christine Lagarde thanked the countries " large and small (that) "have rallied to our call for action, and more may join."

"I salute them and their commitment to multilateralism. As a result, total pledges have risen to US$456 billion, almost doubling our lending capacity," she said.

Lagarde explained that "(t)hese resources are being made available for crisis prevention and resolution and to meet the potential financing needs of all IMF members. They will be drawn only if they are needed, and if drawn, will be refunded with interest." 

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