The Philippines has reached agreement with its key bank lenders to borrow $925 million in new money and refinance $5.8 billion in outstanding loans, New York banking sources said yesterday.
The bank package must be approved by 90 percent of the Philippines' 350 bank lenders before the International Monetary Fund will lend the debt-laden nation $630 million.
But the IMF executive board is expected to endorse the $630 million Philippine credit late this month. IMF Managing Director Jacques de Larosiere endorsed the bank package as "adequate."
Late yesterday, with the bank and IMF portions of the Philippine economic package in place, the U.S. Treasury said it would lend the financially troubled country $45 million to tide it over until bank and IMF money becomes available. The Japanese central bank is expected to provide a similar "bridge" loan of about $30 million, and Korea will provide $5 million. The $80 million in bridge loans will be repaid when the IMF funds are available.
As happened in negotiations with Latin American nations, the banks declined to make commitments to lend funds to the Philippines until the country devised an economic program acceptable to the IMF. The IMF, after approving the economic program, made its loan contingent upon new bank financing.
The major Philippine lenders also have agreed to provide up to another $3 billion in trade credits to finance Philippine imports and exports. There are 12 major multinational banks on the Philippine advisery committee.
The Philippines owes about $24 billion to foreigners, including $14 billion to commercial banks.
The Philippines has been negotiating with its lenders and the IMF since October 1983, when its deepening debt crisis forced the country to take drastic measures to conserve its dwindling reserves of foreign currencies -- including freezing foreign deposits, suspending some foreign loan payments and cutting down sharply on oil imports.
Sharp devaluations of the peso made imports more expensive and exports more attractive to foreign buyers. The devaluations also exacerbated inflation in the country. The dictatorship of Ferdinand Marcos has been under severe internal attacks by opposition political elements, especially since last year's assassination of Marcos's political foe, Benigno Aquino. Aquino was gunned down moments after his return to Manila. A special governent investigative panel implicated Philippine officials all the way up to the army chief of staff.
The bank advisory committee agreed to lend the country $925 million in new money at a rate of 1.75 percentage points over the London Interbank Offered Rate (Libor) -- a measure of the cost of obtaining money for banks -- or 1.375 points over the U.S. prime rate. The lending banks can choose which rate they will charge.
The new money must be paid back in nine years, but for the first five years of the loan the Philippines will be responsible for repaying interest only.
The banks also agreed to restructure about $5.8 billion in loans to the Philippines that have matured since Oct. 17, 1983 -- when the country stopped repaying loan principal -- or that will come due before Dec. 31, 1986. The restructured debts must be repaid in 10 years, with a five-year grace period on principal repayment. The rate will be 1.625 points over Libor.
The $3 billion in trade credits will be financed at 1.25 points over Libor and will remain in effect until Dec. 31, 1986.