The Monetary Board approved today the prepayment in full of the BSP’s outstanding obligations to the International Monetary Fund (IMF), amounting to SDR 146.3 million (US$219.7 million) as of 18 December 2006. The BSP will be paying the Fund ahead of the scheduled maturities of these obligations which extend to 2008. This will trigger the country’s early exit from its post-program monitoring (PPM) arrangement with the Fund, which is originally scheduled to end in April 2007. The prepayment is expected to be made before the end of 2006.
The prepayment will serve as a watershed event in the Philippines’ relationship with the IMF, since it will end the country’s use of IMF resources after nearly four and a half decades. The Philippines has been considered a “prolonged user” of IMF resources, with 23 IMF-supported programs (consisting mainly of standby arrangements and extended fund facilities) since 1962. It is only in recent years that the use of Fund resources has started to be reduced. The last availment under an IMF facility (under the Stand-By Arrangement facility) was in August 2000. The prepayment will also lead to interest savings for the BSP.
With the BSP’s international reserve level at a record high, the pre-payment of the IMF debt is expected to send a clear signal to the international community that the structural reform process and macroeconomic prudence in the Philippines have firmly taken root to allow reduced engagement with the Fund. The Philippines’ relationship with the Fund under the Post-Program Monitoring (PPM) framework since 2000 has helped reassure the international community with the government’s commitment to policy discipline and continuity. With the ongoing fiscal and other key reform efforts already starting to bear fruit, an early exit from the PPM sends a stronger, more positive signal to financial markets that the Philippine authorities can independently craft and pursue a credible policy framework and reform program that will extend the trajectory of the country’s economic growth and contribute to more durable external viability. In sum, this is a confidence-boosting move that will usher in a new level of relationship with the Fund.
The prepayment of the IMF obligations and exit from the PPM do not alter the good relationship between the Philippines and the Fund. The established close policy dialogue with the Fund will continue under the Article IV framework, which other countries go through on a regular basis.