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BSP: Refinancing, Not Debt Restructuring

03.22.2004

BSP Gov. Rafael Buenaventura has cautioned against using the term debt restructuring loosely when referring to lengthening loan maturities since it is associated with a lack of capacity to pay and is at times mistaken for debt repudiation.

“We have always dealt with our creditors responsibly and we will continue to do so,” he said.

He said debt restructuring itself is not bad, but it carries a negative perception that might make it more difficult for the country to borrow abroad and result in higher interest rates. Every percentage point increase in loan rates means P1 billion more in the budget deficit.

“Refinancing is the correct word if we mean borrowing long term to pay loans that are falling due shortly. Bond exchange is another if we refer to offering creditors new notes with longer maturity in exchange for those that are falling due,” he said.

He said the government had swapped bonds recently when creditors accepted higher yielding 2011 notes in exchange for those that are due in the next two years or so.

These efforts, he said, are part of liability management, stretching out maturities to ease the debt burden until the country generates enough revenues and grows substantially to finally break the cycle of borrowings.

Current talks and reports about debt restructuring could make creditors nervous and lead them to ask for higher interest rates on new loans, if they decide to lend at all.

“Given the perception that some people might think that debt restructuring is debt repudiation, it is best that we understand and use only the correct technical terms,” he said.

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