From being a debtor, the Philippines now has a creditor position with the International Monetary Fund (IMF), having contributed $250 million through the Fund’s financial transaction plan (FTP).

The FTP is the mechanism by which the Fund finances its lending and repayment operations through a transfer of foreign exchange from members with strong external position to borrowing members.

The Philippines holds a creditor (or reserve) position in the IMF through its participation in the Fund’s FTP in 2010.

A member is said to have a creditor position in the Fund when the latter has used the holdings of the member’s currency to provide financial assistance to other members.

"By virtue of their participation in the FTP, emerging market economies like the Philippines have joined international cooperation efforts to mitigate the spillover effects of Europe’s sovereign debt crisis by enhancing global financial safety nets," Bangko Sentral governor Amando Tetangco said.

He added that as of 31 December 2011, the Philippines has made available to the Fund through a currency exchange arrangement SDR163.8 million or about $251.5 million.

"More than half of these funds were disbursed by the IMF to European countries such as Ireland, Portugal and Greece in an effort to address the financial crisis impacting the European economic zone," Tetangco said.

Most important, Tetangco said the country’s continued participation in the FTP will pave the way for the BSP’s admission in the New Arrangements to Borrow (NAB) facility of the IMF, a credit (lending) arrangement between the IMF and member countries or institutions which aims to forestall or cope with difficult situations that could impair the international monetary system.

"The participation in the NAB would be a significant step in strengthening international cooperation. This would also demonstrate the BSP’s strong commitment to global efforts to help address threats to the international monetary system," Tetangco said.

The Philippines’ participation in the FTP marks a transition in the country’s relationship with the IMF.

In critical times, the recourse is always to seek the aid of the Fund. But before the multilateral agency lends money, it requires more taxes in exchange for a "good housekeeping" record that, in turn, is an endorsement of the Fund to allow the country to borrow from commercial and other fund sources.

The end of a long borrowing history of the Philippines frees the country from what are variously described as "conditionalities" that are perceived to help sink the country even deeper instead of pulling it out of the financial rut.

In 2006, the BSP prepaid all outstanding debt from the IMF, triggering the country’s early exit from its Post-Program Monitoring Arrangement and concluding the country’s use of IMF resources after nearly four-and-a-half decades.

The Philippines became a creditor of the Fund as a result of rising gross international reserves, strengthened by declining disbursements for imported capital goods.

The country has effectively reversed its bust-and-boom cycle of economic growth and has strengthened its external payments position.

It has achieved balance of payments surplus in the last seven years.

The economy may turn to the service sector as a driver of growth. The size of the reserves gets larger by rising remittances of overseas Filipinos. There is less reliance from foreign trade as a source of foreign exchange.

"This strong external payments position paved the way for the Philippines’ entry into the creditors’ list among the Fund members," Tetangco said.

In the region, the Philippines is also a contributor to the Chiang Mai Initiative Multilateralization (CMIM) facility, a $120 billion regional pooling arrangement among ASEAN member states, China, Japan, Korea, and Hong Kong which aims to provide quick liquidity access in case of balance of payments difficulties.

The Philippines, through the BSP, has a contribution commitment of $4.552 billion to the CMIM, higher than the original $3.68 billion commitment, which is indicative of the country’s proactive involvement in international cooperation efforts to address future challenges.

CMIM originally started as bilateral swap arrangements in the wake of the Asian financial crisis but has since taken a multilateral character.

Tetangco said the higher commitment is intended to "achieve uniform commitments for Asean 5 (the Philippines, Indonesia, Malaysia, Singapore and Thailand.")

Previously, when country’s gross international reserves (GIR) were below those of the four other original members of Asian, the other countries agreed "to shoulder" equally the balance from the Philippines’ contribution of $3.68 billion representing 10 percent of the GIR at the time.

Under the implementing agreement of the Chiang Mai Initiative, Philippines can source up to 2.5 times its contribution, equivalent to $11.38 billion, from the facility through currency swaps in the event of short-term liquidity or balance-of-payments difficulties.

Tetangco said this provides an ample source of liquidity support that can supplement the country’s foreign exchange position comprised of the GIR, currency swaps with local commercial banks, foreign currency assets under the Philippine foreign currency deposit system and other bilateral currency swap arrangements with foreign central banks. -- Jimmy C. Calapati

Source: Malaya