For prime minister of Philippines, nation's foreign debt has top priority
In recent months Philippine Prime Minister Cesar Virata has spent more time than he would like on dealing with his nation's foreign debt problem. ``But it is key to normalization in the Philippines,'' he said in a recent interview.
That effort at last appears to have paid off. He's scheduled to fly to New York the week of May 20 to sign a deal with some 300 commercial banks that will provide the Philippines with $925 million in new loans and about $3 billion of trade financing.
With this money, the Philippines should be able to ease its restrictions on imports and thereby enjoy a more healthy recovery.
``If we have a better recovery, we can do more coordinated rural development work,'' Mr. Virata said. Economic growth, combined with justice and the punishment of ``anyone who abuses the people,'' will help stop the spread of the Communist insurgency, he said.
The Philippines has some $26 billion in external debts. A debt crisis began in October 1983 when the Philippines was unable to service its debts on time. Since then the Philippines has had to ask for seven extensions of a freeze on payments of the principal. It has been paying only the interest on its debt.
Getting the Philippine debt rescheduled has been ``one of the more difficult ones,'' said David L. Pflug Jr., chairman of the 12-bank ``advisory committee'' that has negotiated with Philippine officials and among the commercial bank lenders themselves.
The most recent hang-up was the refusal of the National Commercial Bank of Saudi Arabia to join in providing new funds. It held that its loans were to finance oil shipments and thus special.
Groups of commercial banks, in rescheduling the debts of developing countries, believe it crucial that all banks with outstanding loans in a nation must share the burden of extending further new credits. Such new commercial bank credits are indeed usually required by the International Monetary Fund (IMF) when it makes a loan to a country in a balance-of-payments crisis. Otherwise, the fund could be accused of ``bailing out'' the commercial banks, since the IMF could be used by the nation to pay back a portion of the commercial bank loans.
Saudi banks have been allowed to leave loan syndicates for other sovereign borrowers because their exposure has been small. But the National Commercial Bank has lent about $150 million to the Philippines. The commercial bankers feared that if the Saudi bank got away with not providing its $12 million share of the $925 million in new money for the Philippines, it would set a bad precedent.
Presumably the bank was convinced that self-interest required it to go along. If the Philippine economy gets into better shape with the help of new money, the nation will be better able to service its external debts.
Mr. Pflug said there was ``substantially 100 percent participation of lending banks,'' but he wouldn't spell out how the Saudi bank was persuaded to go along with the lending group.
Pflug, an officer of Manufacturers Hanover Trust Company, praised the Philippines for its ``good performance'' in tackling its balance-of-payments problem. ``They have done a lot of tough things,'' he said.
Under a stringent austerity program required to get an 18-month, $608 million loan from the IMF last December, the output of goods and services dropped 5.5 percent last year in real terms.
``Economic activity is still low,'' says Virata. He notes the National Economic Development Authority predicts a 1 percent real gain in gross national product this year.
Exports were up 7.4 percent last year; imports down 20 percent. Virata hopes exports will rise as much this year. He figures trade should be approximately in balance this year.
The Philippines also has been bringing down its inflation rate, from about 64 percent last October to about 15 percent now. Virata expects the current interest rates of 31 to 38 percent to drop with the lower inflation rate. He sees an improvement in the attitude of business, reflected in a modest rise in the value of the Philippine peso to about 18.50 to the dollar, compared to 20 last October.
Unemployment stands at more than 6 percent and underemployment around 26 percent.
Virata, often regarded as a technocrat, works under the Philippines' powerful President, Ferdinand Marcos. The debt crisis and pressure from the IMF have enabled Virata to carry out some housecleaning operations in some state-owned operations, such as the coconut authority, where executives said to be cronies of the President were in control.
``When you are in a crisis, there are no alternatives,'' Virata said.
Aside from the debt crisis, Virata sees rapid population growth -- 2.4 percent a year -- as one of the most pressing problems the Philippines faces. The government had hoped to reduce that growth rate to 2 percent by 1990. But he doubts if that target will be reached.