PHL govt, firms prepay $3.57B in foreign debt

More debts were prepaid by Philippine government and private corporations in the first 10 months of 2010, taking advantage of a financial system awash with cash and helping ease pressure in the foreign exchange market. Prepayments of foreign currency denominated debt reached $3.57 billion in January-October last year, nearly four times bigger than the $1 billion prepaid by national government and private companies in the same period in 2009, Bangko Sentral ng Pilipinas (BSP) data showed. Government prepaid $2.34 billion in the first 10 months of last year, and private corporations settled $1.22 billion ahead of scheduled maturity, the BSP said in a report Monday. The appreciation of the peso against the dollar and the liquid position of national government and the private sector led to prepayments of foreign obligations. BSP Gov. Amando Tetangco Jr. has been encouraging government and private corporations to pre-pay foreign obligations as the peso gained against the dollar with the influx of foreign capital into emerging market economies like the Philippines. “We should take advantage of all this external liquidity. This will reduce foreign debt. This will also become source of foreign demand and will also help moderate foreign exchange appreciation," Tetangco earlier said. He pointed out that government should prepay some of its foreign debts basically because there was enough dollars in the system. When local currency is strong prepayment becomes a good debt management strategy, he said. His call came amid market pressures against the US currency. While its policy leaves the exchange rate to market forces, the BSP intervenes in the market from time to time to avoid sharp and sudden appreciation of the peso. The BSP recorded a net loss of P17.43 billion in the first six months of 2010, largely on foreign exchange losses, a reversal of the P3.09 billion net income it booked in the same 2009 period. The government prepaid a little over $1 billion worth of debts in 2009, $3.92 billion in 2008, and $3.88 billion in 2007. The Philippines borrows heavily from domestic and foreign creditors to cover its budget deficit, which is expected to reach an all-time-high P325 billion or 3.9 percent of GDP (gross domestic product). Central bank data also show the country’s debt stock rose 7.5 percent to P4.664 trillion as of end-July 2010 from P4.338 billion in the same 2009 period. About 58 percent or P2.698 trillion was sourced from domestic creditors and 42 percent or P1.965 trillion from foreign lenders. — VS/KBK, GMANews.TV