Press Release: IMF Approves Stand-By Credit for the Philippines

March 27, 1998

The International Monetary Fund (IMF) approved today a two-year stand-by credit for the Philippines equivalent to SDR 1,021 million (about US$1,371 million) to support the government’s economic program for 1998-99. The authorities have expressed their intention to treat the arrangement as precautionary and will draw on the credit only if necessary. The final review under the Extended Fund Facility, approved on June 24, 1994 (see Press Release 94/43), was also completed.


Following five years of impressive performance of the Philippine economy, the turbulence in regional markets since mid-1997 has put the economy and the authorities’ policy resolve to a serious test. Faced with mounting currency pressures, the authorities responded by floating the peso, tightening fiscal and monetary policies, and implementing additional measures to strengthen the banking system. Interest rates were reduced in the fourth quarter, but renewed exchange market pressures in East Asia required restoration of higher interest rates. By early 1998, the fiscal position was projected to deteriorate in the absence of strong corrective measures. Economic growth is slowing, and inflation is picking up.

The 1998-99 Program

The authorities program addresses the dual goals of managing the current crisis while creating the conditions for sustained growth over the medium term, providing for an orderly adjustment to lower capital inflows in the wake of the crisis, and creating the conditions for an early return to sustained rapid growth. The main macroeconomic objectives for 1998 and 1999 are to: (i) contain the slowdown of real GNP growth to 3 percent in 1998 and 5 percent in 1999; (ii) limit inflation to 8 percent in 1998 and 6.5 percent in 1999; and (iii) reduce the current account deficit to 3.1 percent of GNP in 1998 and 2.7 percent of GNP in 1999, from 5.2 percent of GNP in 1997, with adjusted reserve cover rising to 1.9 months of imports in 1998 and 2.3 months of imports in 1999.

To achieve these objectives, the consolidated public sector deficit will be limited to 0.9 percent of GNP in 1998 (compared with a projected deficit of 2.5 percent of GNP in the absence of corrective measures), followed by overall balance in 1999. Total revenues of the National Government, as a percent of GNP, are to remain broadly unchanged in 1998, with a drop innontax revenues offset by higher domestic tax and customs revenues. On the expenditure side, higher interest payments are to be compensated by cuts in other current and capital expenditures. The authorities intend, to the extent possible, to protect programs directed at poverty reduction in implementing the cuts. Monetary policy is designed to be consistent with the inflation objective and restore confidence in the peso, within the overall framework of base money targets and a floating exchange rate regime.

Structural Reforms

Comprehensive and proactive banking sector reforms are a central element of the authorities’ strategy to contain the effects of the slowdown in growth, the peso depreciation, and higher interest rates. These reforms, which are already in course of implementation comprise further increases in capital requirements; tightening provisioning requirements and strengthening regulatory oversight; reducing disincentives to peso intermediation; and adapting a resolution strategy for problem banks. The authorities will also implement a set of reforms to strengthen the corporate sector, including continuing trade and investment liberalization, comprehensive reform of the power sector, further privatization, strengthening of the domestic capital market, and measures to improve debt management.

Addressing Social Needs

Poverty reduction in the Philippines has not proceeded as far as other countries in the region, although substantial inroads have been made in recent high-growth years. Measures to strengthen agriculture and improvements in education and health services, with a focus on primary education and the rural areas, are key to the government’s strategy to reduce poverty. Also, to cushion the impact of the regional crisis on the poor, the authorities will: (i) ensure the availability of rice stocks and other basic commodities; (ii) contain the inflationary impact of the peso depreciation on socially sensitive petroleum products; and (iii) make best efforts to protect social programs in the budget, especially those directed at poverty reduction and the poorest regions.

The Challenge Ahead

Eight months after the float of the peso, the challenge is to fully restore confidence and resume the path of high growth while maintaining low inflation. Beyond successful crisis management, the medium-term outlook hinges on implementation of a strong policy package that addresses the remaining vulnerabilities in the economy. The thrust of such policies will need to aim at raising domestic savings, especially in the public sector; maintaining low inflation; strengthening the financial sector; and reducing widespread poverty.

The Philippines joined the IMF on December 27, 1945. Its quota1 is SDR 633.4 million (about US$851 million). Its outstanding use of IMF financing currently totals SDR 634 million (about US$851 million).

Philippines: Selected Economic Indicators






(Percent change)

Real GNP growth






Consumer price index (end of period)






(Percent of GNP)

National government balance (deficit -)






Current account (deficit -)






(Months of imports)

International reserves, adjusted1






Sources: Philippine authorities; and IMF staff estimates.

* Actual.
** Program.

1Gross reserves less gold and securities pledged as collateral against short-term liabilities.

1A member’s quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its share in the allocation of SDRs.


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