PH maintains $431 M in IMF war chest

Published April 10, 2022, 9:10 PM

by Lee C. Chipongian

The Philippines’ bilateral borrowing agreement (BBA) with the International Monetary Fund (IMF) will be maintained at a lower amount of $431 million from its previous $1 billion after raising its commitment to an IMF lending facility as standby resources.

(FILES) In this file photo an exterior view of the building of the International Monetary Fund (IMF), with the IMF logo, is seen on March 27, 2020 in Washington, DC. (Photo by Olivier DOULIERY / AFP)

The Bangko Sentral ng Pilipinas (BSP) as an IMF-creditor member will keep its “committed resources for lending” under the IMF’s Notes Purchase Agreement or NPA.

Under NPAs, countries such as the Philippines agree to buy notes or bonds issued by the IMF in special drawing rights (SDRs) in support of the IMF’s lending capacity. The SDR could be considered as IMF’s currency since its reserve assets and quotas – which are its main source of financing – are in SDRs.

The NPA or BBA is the central bank’s commitment to provide resources to the IMF to finance arrangements for countries with balance of payments difficulties.

As reported earlier, the BSP’s participation in the IMF’s New Arrangements to Borrow (NAB) lending facility has doubled in size from SDR 340 million or about $466.19 million to SDR 680 million or $932.38 million which it will maintain until 2025.

The BSP called this increase in the NAB commitment an “enhancement” of its relationship with the IMF. The central bank has been in the NAB since 2012 with an initial floor participation of SDR 340 million up until end 2020.

Overall, the BSP’s multilateral and bilateral borrowing contribution to the IMF amounts to about $1.8 billion.

Besides the NAB and the NPA, the BSP participates in the Financial Transactions Plan (FTP) with $400 million.

“The BSP’s active participation in sustaining these financial safety nets is a testament of the country’s strong external position while at the same time expanding the BSP’s policy toolkit in the event of external shocks or balance of payments problems,” the BSP said in its 2021 annual report.

The country’s commitment to purchase IMF notes when needed or requested was set at $1 billion from December 31, 2017 until December 31, 2020. It was in December 31 last year when the amount was reduced to $431 million, the same time the BSP raised its NAB participation amount.

The BSP said that aside from providing standby resources for financing arrangements with IMF, it has also contributed $4 million to the IMF’s Catastrophe Containment and Relief Trust to provide debt relief.

“The BSP also supported initiatives that aided the poorest and most vulnerable countries affected by natural and health disasters,” said the BSP. The $4 million will be disbursed in four equal annual installments starting in 2021.

The NAB, which is the IMF’s second line of defense after quota payments of members, is an arrangement where the BSP provides resources to the IMF while the FTP is a currency exchange arrangement between the IMF and selected IMF members.

The BSP in the original document detailing the NAB contribution said that transfers under the credit arrangement will not have any impact on the country’s foreign exchange reserves because it will only result in a change in portfolio allocation.

The IMF also gets its money from NPAs which is its third line of defense.

The BSP first participated in the IMF fund sourcing in 2013. It became a creditor-member in 2010 after pre-paying its last IMF loans in 2006.

The Marcos-era government borrowed extensively from the IMF since – based on an IMF paper – the Philippines was a “prolonged user” with “credit outstanding from the IMF continuously” since 1967. The former dictator, Ferdinand E. Marcos, who was president from 1965 until 1986, was manning the government during the 1982-1983 debt crisis resulting from the debt buildup in his 20-year rule. At the time, external imbalances and a huge deficit was “financed by rising external debt,” according to a 2002 IMF Philippine evaluation report. From 1967 until 1998, there were 10 standby arrangements with the IMF and three extended fund facility amounting to SDR 4.96 billion.