Washington sources revealed over the weekend that the IMF has temporarily assigned Nolan to head the IMF’s Philippine mission until a permanent replacement has been found.
The IMF is currently represented in the Philippines by Vikram Haksar but Felman is the official head of mission who visits the country several times a year to oversee the conduct of key evaluation missions, including the so-called Article IV review or post program monitoring.
Felman was removed as head of the IMF’s Philippine mission after he was implicated in the controversy that surrounded the government’s $500-million bond offer last year.
According to sources, Nolan had accepted the temporary assignment and he would head the mission when it visits the Philippines for the post-program monitoring review sometime this year.
However, sources said the IMF had not abandoned its search and it could still appoint another head of mission. Felman, on the other hand, was reportedly going to move to "another senior position."
Nolan had been in the country as resident IMF representative from 1999 until late last year when his assignment lapsed and he was replaced by Haksar. He was subsequently assigned to the IMF’s Washington headquarters.
The controversy involving Felman stemmed from the ill-timed release of IMF data to UBS Warburg which subsequently leaked the information to the Asian Wallstreet Journal days before the pricing of the Philippine global bonds.
The market reaction to IMF comments fueled speculations that the Philippines might have been fudging its current accounts data to cover up capital flight. This altered the perception of prospective investors and resulted in a 25-basis point hit on the sovereign’s global bond offer.
As a result, the borrowing ended up being 25 basis points more expensive than it should have been were it not for the newspaper article. UBS eventually apologized to the Philippine government but officials still lobbied for Felman’s recall, saying that "loss of confidence." would be counterproductive for IMF-Philippine relations.
Felman’s motives are unclear but local sources said the former IMF mission head had always been critical of the government’s handling of its deficit problem and its resistance against the IMF’s recommendation to raise taxes as a step towards increasing revenues.
UBS has formally apologized for its disclosure but the source said the Philippines was not satisfied with the apology and wanted to resolve the "bad blood" between the IMF and the Philippines.
The source said Phililippine officials "could no longer deal" with Felman due to loss of confidence. The only way to smoothen relationships between the IMF and the Philippines, the official said, was for the IMF to appoint a new head of mission.
Since the Philippines emerged out of IMF tutelage, its relationship with its biggest creditor has become increasingly strained over the last few years with the Fund growing more pessimistic about the country’s prospects.
Its deficit estimates alone reflect its extreme pessimism as it projected that the country’s budget deficit could go up to as high as P262.88 billion, equivalent to 6.2 percent of gross domestic product (GDP) for 2003.