Debt Rescheduling in Developing Countries - The Philippines' Experience

Abstract

The Philippines is one of the most heavily indebted countries in Asia Following the outbreak of the international debt crisis in 1982, the Philippines were forced to renegotiate its debt with its creditors. Prior to this it became necessary for the Philippines to enter into a stand-by agreement with the IMF. Without such an agreement the private creditors would not negotiate with the Philippine government. The program on which the parties finally agreed, contained a number of measures which are well known because of their application in other debtor countries. Having settled with the IMF, the Philippine government tried to reach a settlement with its other official creditors. After protracted bargaining, the so-called Paris Club agreed to extend debt relief for a time span of 18 months, covering an amount of about $ 800 million. The third element of the rescue package was the agreement with the Philippines' private creditors. Besides obtaining a temporary easing of principal and interest payments it was essential for the Philippines for its creditors to come up with fresh money. This problem was solved in three different ways: First, a number of banks agreed to prolong short-term trade credits, amounting to some $ 3 billion. Second, the banks provided a $ 925 million loan to the Central Bank under terms comparable to those granted to the major Latin American debtor countries. The third element of the agreement was a new rescheduling mechanism with the commercial banks. While the Philippines aimed at rescheduling its debt on a multi year basis, the banks insisted that the agreement would only cover amounts falling due between 1983 and 1986. Part of the debt($ 5.8 billion) was classified into three categories: public sector debt, private corporate sector debt and private financial sector debt. For each categorya separate agreement was signed. However, the common feature of all three agreements was that the Central Bank assumed the foreign currency liabilities of the debtors under each category.