The Bangko Sentral ng Pilipinas (BSP) said yesterday that as of this year, the country’s remaining obligations with the IMF has fallen to about 41 percent of its membership quota.
The IMF is currently in the process of conducting a two-week review of the country’s macro-economic performance, meeting with officials of the Arroyo administration to discuss its progress and remaining concerns.
According to BSP Assistant Governor Diwa Guinigundo, sovereigns can opt to bow out of the post-program monitoring (PPM) of the IMF even earlier but the process has to be by mutual agreement of the Fund’s executive directors and the member country.
"Countries can even opt out of the PPM as early as when their remaining obligations fall below 90 percent of their quota," Guinigundo said. "It’s a decision that is determined by a mutual agreement on whether the country is ready to be taken out of the PPM."
The PPM is a process where the IMF reviews the country at least once a year, aside from the regular Article IV review where all but the smallest economies are reviewed every year.
Since the Philippines is still under the PPM, the IMF effectively reviews the country’s economic performance twice a year instead of just once a year.
However, since the Philippines has managed to pare down its IMF obligations to the historic low of 41 percent of its membership quota, Guinigundo said the country could theoretically opt out of the PPM.
Guinigundo declined to confirm whether the IMF has offered to take the country out of the PPM but sources revealed that the final exit has already been considered by the IMF mission even before Congress approved the increase in the value added tax (VAT) rate.
When asked, however, Guinigundo admitted that following the amendments to the VAT law, the Philippines was now in an even better position to exit from the IMF’s PPM.
But Guinigundo stressed there was some benefit from staying within the PPM since the IMF acts as a third-party observer that investors and credit rating agencies could count as independent seal of good housekeeping.
"For one, it gives us the opportunity to sit down and assess the progress of our reform efforts," Guinigundo said. "If the market does not want to take our word for it, then they can check what the IMF has to say."
The PPM has been under attack particularly from Congress which said the IMF need not monitor the Philippines so closely since it no longer has an active IMF loan.
IMF resident representative Vikram Haksar said earlier that the PPM was supported by Philippine authorities themselves who have said the IMF’s persistently close monitoring was "useful."
"Right now, the authorities have indicated that it is useful to have these more enhanced policy discussions," Haksar said. "The PPM is purely a surveillance meeting anyway, it is not attached to any loan. It’s just a more enhanced monitoring."
According to Haksar, the PPM has been extended for another year "in principle" although the agreement on whether to continue the PPM was largely an "understanding" more than an actual agreement.
According to the BSP, on the other hand, the government had no problems continuing the PPM, saying that the IMF’s seal of good housekeeping was necessary to keep credit rating agencies calm.
"The PPM is not a policy-dictating monitoring, anyway," Guinigundo said. "All the IMF does is to validate and comment on our programs."
"When they make useful recommendations, we do it. When their recommendations are not appropriate, we don’t do it," he added.