MANILA, Philippines -- The Bangko Sentral ng Pilipinas (BSP) is reviewing the effectiveness of imposing annual ceilings on foreign loans and its impact on controlling the size of the country's external debt.
Sources said the BSP's foreign borrowing policy remains prudent, always an eye on sustainability of external obligations which it expects will rise from $60 billion in 2010 to $95 billion by 2016.
The Monetary Board has recently directed the concerned sectors within the central bank to study the BSP's foreign borrowing policy in the context of its ceilings on medium and long-term loans, which for 2011 is capped at $10.5 billion, almost the same amount in 2010.
After a board resolution, the BSP will review and assess the effectiveness of implementing a ceiling on the foreign loans of both the public and private sectors. The study, said sources, will determine if BSP should encourage or "be basically indifferent" or "slow down, or discourage foreign borrowings."
The BSP and the government sets internal annual debt ceiling to monitor foreign borrowings, either from commercial sources or from official development assistance funds or donor aids. These ceilings have so far proven effective in containing National Government debt.
From the 1970s to the early 1990s the International Monetary Fund imposed a debt ceiling for the government to keep in check the rising external debt. When the IMF program was terminated, the government maintained this internal cap for the purpose of debt management.
Last October, the Monetary Board instructed BSP concerned departments on instituting a pro-active policy response to impending reversals in foreign exchange (FX) flows by adapting a closer monitoring system to better capture FX transactions.
Sources said the International Operations Department has established a monitoring system to closely assess and review the effect of the revised rules on FX transactions approved last year.
The BSP has been reviewing FX forms and data sources to "institute measures that can enhance data capture and analysis and support a more pro-active policy response" such as in cases of capital flight.
Last year, the BSP approved amendments to the Manual of Regulations on Foreign Exchange Transactions to make FX policies more responsive to economic conditions and aligned with the policies of other Asian countries.
Key features of the amendments include the increase in FX purchases of up to $1 million to cover advance payment requirements for import transactions to encourage trade and stimulate business activities and allowing prepayment of BSP-registered foreign/foreign currency loans of the private sector for more flexibility in managing their FX obligations/exposures and finances.
In 2010, the central bank approved total foreign loans of $10.3 billion and 62.2 percent or $6.5 billion were charged against the ceiling.
