Creditors, Philippines in Accord on Debt

The Philippine government and its major bank creditors said Wednesday that they have substantially agreed on a financing package that would provide the country with new loans and reduced debt.

The agreement, reached after only a week of negotiations, is the second since Treasury Secretary Nicholas F. Brady’s debt-reduction plan was unveiled in March. An agreement with Mexico was announced last month.

The bank committee represents creditors that are owed nearly half of the Philippines’ total debt of $28 billion. Because the banks involved are not obliged to participate, it was not possible to determine the deal’s exact value.

Bankers had said Tuesday that the overall package would likely be worth slightly less than the $1.7 billion that the Philippines requested when the talks began Aug. 8.

Debt Buyback Plan

In a press release, the Philippine government and its bank advisory committee, headed by Manufacturers Hanover Trust Co., said the talks have focused on the Philippines’ intention to pursue its program in line with Brady’s plan, which includes debt reduction and access to new financing.

“Our objectives in this exercise were candidly expressed to the banks at the outset of the talks,” said Philippine Central Bank governor Jose Fernandez, who led the country’s negotiating team.

Bankers involved in the negotiations, which took only a week to conclude, said the financing package is devised of a debt buyback plan that allows banks to end their lending to the country or new loan options. The banks can choose which course to take.

“The options of debt reduction and new lending are really directed at two different categories of banks--those that wish to exit from the process as opposed to those that have determined to maintain their credit relationships in the country,” said David Pflug, senior vice president at Manufacturers Hanover.

Financing ‘Critical’

He said the panel of negotiators is convinced that the country needs new financing and debt reduction.

“There is no question that we must reduce the country’s existing stock of commercial bank debt if we are to sustain the country’s economic growth over the longer term,” Fernandez said.

He added that “new commercial bank financing is critical for our program as the combined effect of our debt-reduction initiatives and our improving economy work to bring about the end of the debt problem for the Philippines.”

Veterans of the three-month-long negotiations with Mexico that yielded an agreement July 23 said they were impressed by the speed and ease of the Philippine talks. The talks had been expected to last two full weeks.

The Philippines and the committee of bankers negotiating on behalf of the country’s international bank lenders had already agreed to a lower interest rate of 0.813% above the floating London Interbank Offer Rate on the new money, bankers said. The Philippines pays 0.875% above the London interbank rate, a main international benchmark.