Debt prepayments encouraged by strong peso

Gov’t, private borrowers retired $1.84B last year

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Philippine borrowers prepaid more debts to foreign creditors last year, taking advantage of the stronger peso that made dollar-denominated borrowings cheaper.

According to the Bangko Sentral ng Pilipinas, prepayment of debts owed to foreign creditors is a prudent exercise in times of significant appreciation of the peso. Such a move benefits not only the borrowers but the economy as well, it said.

Data from the BSP showed that government and private entities in the country last year paid $1.84 billion worth of foreign currency-denominated debts ahead of their maturity dates. The amount was higher by 17 percent than the $1.57 billion worth of prepayments done in 2011.

The BSP said significant liquidity among borrowers allowed them to prepay debts.

Data further showed that of the total foreign currency-denominated debts prepaid last year, the bigger share of $1.2 billion was accounted for by liabilities settled by private firms. This was down by about 12 percent from $1.36 billion the previous year.

The decline was attributed partly to substantial prepayments already done by the private sector in previous years.

The government sector accounted for $641.2 million of the total external debts prepaid last year, more than tripling the $201.6 million recorded in 2011.

The surge in prepayments by the government came amid prodding by the BSP.

The central bank said the prepayment of foreign currency-denominated debts during a time of an appreciating peso helps borrowers save on debt settlement costs. It also said settling these debts in advance will help temper the significant appreciation pressures on the peso.

The strengthening of the local currency had elicited complaints among exporters, who said the peso’s movement was hurting competitiveness of Philippine exports.

Market players, however, said the peso could have been even stronger if not for several measures by the BSP to temper its rise. Besides encouraging government and private entities to prepay external debts, the BSP likewise was buying dollars from the market to avoid an even sharper and more sudden rise.

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  • Hayek_sa_Maynila

    but many PHL corporations have been floating FX denominated bonds and had redonominated their debt from PHP to USD because foreign banks have been telling them/forecasting that the peso will continue to strenghten, that its a one way bet.

    I say BS! there is no telling where USD/PHP will go! JPY could tank! Europe could recede further and US growth could slow to sub-2.0%.

    these PHL corps were deceived/made to think PHP is going to appreciate, no matter what…unfortunately this may not be the case…just look back at 2007. same feeling about PHL causing 18% appreciation. By 2008, when the GFC came PHP went to the opposite direction….

    bottom linel there is no 1-way bet and unless BSP makes sure that this is the case, there will always be a risk the PHL will go back to 1997 – Asian Crisis

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