News Brief No. 99/41

News Brief: IMF Completes Review and Approves US$213 Million Credit Tranche for the Philippines

July 22, 1999

Shigemitsu Sugisaki, Deputy Managing Director of the International Monetary Fund (IMF), said: "The Executive Board of the IMF today completed the fourth review under the stand-by arrangement of the Philippines. As a result, the Philippines will now be able to access SDR 158.27 million (about US$213.5 million) from the IMF.

"During today's discussion, the Executive Board emphasized the following key points:

"Directors commended the authorities for the implementation of economic policies that had allowed the Philippine economy to weather the regional crisis relatively well. They expressed satisfaction about the ongoing recovery in economic activity, the continued improvement in the external position, and the significant reduction of inflation in recent months. Looking ahead, Directors endorsed the authorities' policy plans for the remainder of the program, and emphasized the timely implementation of the structural reform agenda to sustain economic recovery over the medium term.

"Directors considered the overall fiscal policy stance as appropriately supportive of the recovery. Directors expressed some concern, however, about the continuing shortfalls in budget revenues which constrained the room for essential expenditures. A stronger revenue effort was seen as critical to medium-term fiscal sustainability and rapid growth with increased equity. In this context, Directors welcomed the authorities' renewed commitment to strengthening tax administration as well as the plan to rationalize the system of fiscal incentives. Directors also noted the need to arrest the deterioration in the finances of several important government-owned corporations, and in particular urged speedy restructuring and privatization of the National Power Corporation. Directors encouraged the authorities to improve the targeting and efficiency of social programs, and to support higher outlays for essential social services through an enhanced revenue effort.

"Directors praised the Bangko Sentral for the successful implementation of monetary policy through the turbulence of the past two years. As a result, the peso has stabilized, and inflation has remained well under control, allowing interest rate policy to become increasingly supportive of the recovery. They noted that further interest rate reductions should remain conditioned on continued peso stability and disinflation.

"Directors stressed the importance of continued structural reforms to support sustained stabilization and high-quality growth. They noted the progress made in banking reforms, and welcomed the authorities' renewed commitment to tax administration reform. They called for full and timely implementation of the reform agenda in these two key areas. Directors also urged the adoption of a suitably revised corporate debt resolution framework that is fully in line with best international practice, and noted the importance of other planned reforms in the public and social sectors," Sugisaki said.