The Philippine negotiating team headed by BSP governor Gabriel C. Singson and the IMF mission headed by IMF senior advisor Margaret Kelly issued this joint press release:
"The IMF mission visited manila beginning on 7 April for discussions with the Philippine government for the fourth review of US$1.4 billion stand-by arrangement approved on 1 April 1998.
Recent economic developments have been generally favorable
"The IMF mission and the Philippine authorities agreed that the Philippine economy has made favorable gains under the program. GNP growth remained positive notwithstanding the turmoil in regional and global financial markets as well as a major weather-related decline in agriculture. The peso has stabilized and strengthened in recent months; inflation has been successfully contained; and growth is expected to recover in 1999. These gains testify to the relative resilience of the economy and reflect the implementation of sound economic policies before and after the outbreak of the crisis.
External challenges remain
"Both panels, nevertheless, noted that the external environment remains challenging, notwithstanding the notable improvement in the regional outlook. To meet these challenges, economic policies will be focused on nurturing a recovery without undermining stabilization gains, and protecting the poor from the worst effects of the crisis.
Specific policy strategies to be pursued
Macroeconomic assumptions. " Real GDP growth is expected to be well within the government’s target range of 1-3 percent, reflecting the ongoing recovery in agriculture and signs of a bottoming-out in other sectors. Inflation is projected to decline to 7.5 percent by year-end, in line with the program target. The external position is improving faster than expected, as evidenced by the continued strengthening of the peso and rising BSP reserves. For the whole year, a sizable current account surplus and returning private capital inflows are expected to raise gross international reserves to about 3.7 months of imports of goods and services or 5.3 months of imports of goods.
Fiscal strategy. "The government remains committed to the overall fiscal target under the program (an underlying consolidated public sector deficit of 3.2 percent of GNP). This target incorporates a measured fiscal stimulus in support of economic recovery, within a sustainable medium-term framework that envisages a return to fiscal balance within 2-3 years. Although budget revenues have fallen somewhat short of program targets in recent months, the government is confident that the annual deficit target will be met as it steps up tax collection efforts and reviews the other available options for savings.
Monetary strategy. "Monetary policy will continue to focus on stabilizing prices and the exchange rate. With significant progress on both fronts, interest rates have been reduced significantly providing sufficient liquidity in support of growth. Broad monetary growth in the program will be kept at 15 percent for 1999.
Banking reforms. "The mission strongly supports the program of banking sector reforms being implemented since early 1998. Prudential standards on loan classification and provisioning requirements have been raised, bringing the Philippines broadly in line with the best international practices. The BSP is making a commendable effort to further strengthen its supervisory capabilities. The government has reaffirmed its commitment to the privatization of the PNB by mid-2000.
Other structural reforms. "The Philippine government is fully committed to pushing ahead with a range of other structural reforms. Further improvements in tax administration are a priority under the IMF-supported program. The government also intends to launch several other reform initiatives to strengthen competitiveness and improve governance in the public sector, including further tax reforms to rationalize fiscal incentives as well as financial sector taxation, other improvements in the budget process, comprehensive reform of the power sector, a strengthening of the debt resolution and bankruptcy framework, and further trade and investment liberalization.
"The mission completed its work in manila on April 21, and review discussions are expected to be completed in the near future as the technical details of the fiscal program are finalized. Approval of the review by the IMF’s executive board will enable the Philippines to draw an additional US$220 million under the arrangement."