Announcement of World Bank Approves Two Hundred Million Dollars Loan for Philippine Debt-Buyback Program on December 22, 1989

IMMt DIATF RELFAS[ World Bank J818 H Street, N.W., Washington, D.C. 20433, U.S.A.* Telephone: (202) 477-1234 BANK NEWS RELEASE NO. 90/37 Contact: P. Sison (202) 477-4347 Leandro V. Coronel (202) 477-3641 WORLD BANK APPROVES $200 MILLION LOAN FOR PHILIPPINE DEBT-BUYBACK PROGRAM WASHINGTON, December 22, 1989 -- The World Bank has approved a $200 million loan to help the Philippines buy back a portion of its commercial-bank debt. This is the first World Bank loan to be used exclusively for debt reduction. Bilateral sources and the International Monetary Fund are also expected to provide financing for the Philippine government's financing and debt-reduction package for 1989-90. The World Bank loan will be disbursed in two installments--$150 million as soon as the loan becomes effective and $50 million after the Philippines has completed actions agreed upon under the loan. The loan is expected to be fully disbursed by late 1990. The Philippine government is committed to a series of actions aimed at strengthening macroeconomic performance and improving the quality and level of investment. The debt-buyback portion of the Philippines' financing package will enable the country to retire $1.3 billion of long-term debt at a 50 percent discount. Debt reduction is crucial to the Philippines' medium-term strategy of sustaining growth by rebuilding confidence, attracting investment and enhancing international creditworthiness. At the end of 1988, the Philippines' foreign debt was $29 billion. Commercial banks held about $13 billion, $10 billion of which was medium and long term (MLT). About $6.6 billion of the MLT debt, or 24 percent of total debt, was owed by the public sector and is eligible for debt and debt-service reduction. The country's financing and debt-reduction package provides an "exit vehicle" for the banks with a relatively small exposure in the Philippines at a sizeable discount, while encouraging new flows from those banks with a long-term interest in the country. The financing package includes two principal features: "new money," in the form of either bonds or loans, and buybacks. While provision of new money by commercial banks is voluntary, Philippine authorities have indicated that more than $600 million has already been pledged. And offers in excess of the $1.3 billion in planned buybacks have been received. -2- The financing package, along with continued economic reforms, is expected to help sustain economic growth in the Philippines, increase public and private investment, and enhance the country's creditworthiness in international capital markets. The World Bank has taken the lead role in coordinating flows of official assistance to the Philippines, including recent actions under the Multilateral Assistance Initiative for the country. The Bank has shifted the emphasis of its assistance from stabilization efforts and macroeconomic adjustment support for programs in specific sectors. The basic thrust of the Bank's strategy is to focus on four broad areas: continued economic- policy reforms; improved capacity of the economy to absorb investments through orderly planning and more effective implementation; support for critical needs in infrastructure, social services and management of natural resources; and effective poverty-reduction efforts. The World Bank loan is for 20 years including five years' grace, with a variable interest rate, currently 7.74 percent, linked to the cost of the Bank's borrowings. It also carries an annual commitment charge of 0.25 percent on the undisbursed balance. NOTE: Money figures are expressed in U.S. dollar equivalents.