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BSP Clarifies the Reported $8.5 Billion Debt Service Payments for 2004

01.16.2004

We wish to clarify that the so-called “debt service payments” of $8.5 billion (principal of $6.593 billion and interest of $1.950 billion) quoted in four newspapers (Phil Star, Manila Standard, Manila Times, Daily Tribune) yesterday, 14 January, are not exactly debt service payments but potential claims on the country’s foreign exchange reserves. Some of these claims may not materialize because of the very nature of the accounts themselves. In technical terms, it refers to the amount of “predetermined short-term (ST) net drains on foreign exchange (FX) asset” in accordance with the IMF’s guidelines under the Special Data Dissemination Standards (SDDS). The potential claims on the country’s foreign currency assets represent all FX liabilities-related claims on the central bank’s international reserves over the next 12 months.

Under the IMF concept, such potential claims include the following:

a)   maturing foreign currency-denominated loans and securities—principal and interest— owed by the central bank and the central government that will fall due in the next 12 months; and

b)   claims arising from scheduled deliveries of foreign currencies under derivatives contract, i.e, forwards, futures, and swaps, of central bank and the central government.

These foreign loans include foreign currency deposits (FCDs) of foreign central banks, other foreign banking institutions, if there are any, and FCDs of residents with the central bank. Since these deposits can be withdrawn anytime in the next 12 months, they are considered Central Bank’s liabilities. But one can agree that these are not actually debt obligations but potential claims on the foreign reserves.

Finally, the $8.5 billion potential claims arise from the following transactions:

 a)  scheduled payments on foreign currency-denominated short-term and MLT loans—principal and interest—of the National Government (NG) and the BSP owed to residents and non-residents; and

 b)  claims due to FCDs with the BSP—mostly by the NG.

 It should be noted that of the total $8.5 billion, about $1.0 billion were claims arising from FCDs while about $1.85 billion were foreign loans backed by reserve collaterals which may be rolled over upon maturity, thus this will not actually represent drains on the GIR.

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