Philippines Finds Much to Cheer in New Debt Package

Philippine Finance Secretary Jaime Ongpin, citing a number of key indicators, declared Monday that the battered Philippine economy “is well on the way to recovery” following the successful rescheduling last week of nearly half the nation’s $28 billion in foreign debt.

Speaking for the first time since his return from the negotiating table in New York on Sunday, Ongpin told a large group of Filipino businessmen that the rescheduling alone will save the Philippines $2 billion during the next 17 years and cut its interest payments nearly in half.

In the year since President Corazon Aquino took power, the Philippines has been forced to spend nearly half of its export earnings just for interest payments on foreign loans. The new agreement, reached Friday after a month of intensive talks with the country’s 10 largest creditor banks, will reduce those interest payments to between 25% and 30% of foreign-exchange earnings.

But, filled with optimism and congratulations during a banquet lunch Monday at a luxury hotel in Manila’s Makati business district, Ongpin and the businessmen themselves pointed to several other signs that one of the world’s most deeply troubled economies is on the upswing.

Construction Industry Booms

The construction industry is booming nationwide, they said, an important sign that the economy is again expanding. Growth in demand has been so great that the president of the nation’s private cement manufacturing association confirmed that there is an acute shortage of cement in the country.

Real estate prices are soaring. Ongpin himself told the group that a Makati condominium that he bought just a year ago, when former President Ferdinand E. Marcos was forced into exile, already has increased 50% in value. Several independent economic experts said the increased demand in the real estate market is an indication that Filipinos are keeping their money here, rather than sending it abroad.

And Ongpin told the group that the country now has $2.5 billion in foreign exchange reserves, the most in Philippine history.

“It has been delightful to hear this,” one American businessman in the audience told Ongpin publicly before the session ended.

Mostly, though, during the finance secretary’s rare public discussion of the Philippines’ economy, he and Manila’s now-bullish private sector businessmen discussed the complex debt restructuring agreement, which Ongpin had described as “crucial” to the economic recovery program.

Ongpin described the negotiations, which had failed late last year when Citibank blocked the first proposed rescheduling, as “difficult,” “protracted” and “often-times frustrating.”

Even this month’s negotiations went on twice as long as the scheduled two weeks “because the banks were beginning to slice the salami into micro-millimeters,” he said.

Ongpin added that Aquino took an almost-daily personal interest in the talks, quoting the president as saying, “Do not yield one more millimeter and I don’t care how long it takes. Get a green card (for U.S. residency) if you have to, but don’t come home without a deal we can all be proud of.”

Specifically, the final agreement gives the Philippines a seven-year grace period on interest due on the principal of commercial bank loans incurred under Marcos, deferring a total of $9.3 billion in payments.

Exempt From Taxes

It also introduces what Ongpin has dubbed the Philippine Investment Note: “an innovative mechanism designed to allow a portion of the interest payments on commercial bank debt to return to the Philippines in the form of approved equity investments.”

The notes allow creditor banks or private investors to buy Philippine debt at discounts of up to 12% through American brokers. The notes, which will have a six-year maturity, can be converted at any time in the Philippines into pesos at full value, provided the money is used to finance equity investments here.

Such investments will be exempt from Philippine taxes and levies normally charged to foreign corporations operating in the country.

Ongpin said the plan is expected to save the Philippines more than half of the $2 billion that will be saved during the 17-year period covered by the overall restructuring plan, and it could serve as a model for other debtor nations.

The finance secretary also said the Philippine agreement is better than the one secured by Mexico last October, largely because the terms of the Mexico restructuring deal “were so unpalatable to the universe of 500 banks who had to pony up the money” that the actual agreement was signed only last week by the Bank Advisory Committee for Mexico.

“In other words, almost six months after the agreement, the Mexican ‘dream’ deal is far from being a ‘done’ deal,” Ongpin said.

Ambassador Sees Turnaround

Several key analysts in the Philippines have said in the past that a debt restructuring agreement was the last key piece in the foundation that the Aquino government is trying to lay for future economic recovery.

U.S. Ambassador Stephen Bosworth, in an interview during the final week of his three-year assignment in Manila, said last week that “a very abrupt turnaround is underway” in the economy and that a debt rescheduling would provide yet another dramatic boost.

“In 1986,” he said, “the economy stopped contracting and began going.” Noting that the country was blessed with a good harvest and was aided by improvement in the world price of coconut oil, a major Philippine product, Bosworth concluded: “There’s a distinct attitude of optimism among the business community.”

In a final note of optimism, World Bank officials, in a signing ceremony Monday evening, formally turned over a $310-million loan that had been promised to Aquino during her visit to Washington last September.