The Philippines has failed to comply with terms of an economic program it agreed to with the International Monetary Fund and is in danger of being denied any more money until it brings itself back in line, financial sources said yesterday.
The nation, beset with internal political strife and suffering a severe recession, is one of the world's major debtors. Although there is increasing tension between the United States and the dictatorship of President Ferdinand Marcos, the Philippines is considered a strategic Pacific ally of the United States.
At stake is not only the $106 million the Philippines was scheduled to borrow from the IMF next month, but another $175 million commercial banks are scheduled to lend as well. The banks require the country to be in compliance with IMF programs.
The Philippines is the second major debtor country in recent weeks to fall out of compliance with IMF loan terms.
Mexico, long considered the model debtor country, has veered widely from the inflation and budget deficit paths it agreed to and will be unable to make a scheduled $450 million borrowing from the international financial rescue agency next month. But Mexico, which was devastated by an earthquake the same day reports of its IMF problems surfaced, may be eligible for as much as $400 million in emergency IMF assistance and hundreds of millions of dollars of other aid.
The Philippines, with $24 billion in foreign debts, has permitted its budget to rise rapidly in the last few months. The country had agreed to reduce its budget deficit to reduce its need to borrow.
The IMF also is reported to be disappointed with the lack of progress in dismantling monopolies in the coconut and sugar industries. The monopolies are controlled by friends of Marcos.
But bankers said the island nation has made substantial progress on reining in inflation and reducing money growth. In the last few years, inflation has been reduced from more than 60 percent to about 6 percent.
The Marcos government has resisted devaluing the peso, even though that might give an impetus to exports. The government is said to be more concerned that a sharp devaluation could further inflame the country's political unrest.
"It's not clear, though, that a strong devaluation would do much to increase the commodities that the Philippines exports," said a banker familiar with the country's economy.
Prime Minister Cesar Virata has said that the budget imbalance is because of the recession, which has made it impossible to increase tax revenue. Industrial production has declined substantially, and unemployment has doubled to 15 percent in the last year.
Earlier this month, central bank governor Jose Fernandez proposed new tax increases and spending cuts to the IMF that the Marcos government said would bring the country back into compliance. If the IMF agrees that the new measures will reverse the increase in the government deficit, the scheduled borrowing might be completed.
"I think the odds are 50-50," said one banker.
"It doesn't look like the fund will disburse any money next month," said an international financial official.
Although the cash-starved country desperately needs the nearly $300 million it is scheduled to receive from the banks and the IMF next month, bankers said the country needs serious economic and political reform even more.
Money began to flee the Philippines after the assassination of opposition leader Benigno Aquino two years ago, and lack of confidence engendered by increasingly virulent opposition to the Marcos regime has virtually halted both domestic and foreign investments in the island nation.