(STAR) By Des Ferriols - Over $1.611 billion worth of foreign debt was pre-paid by the public and private sector in the first five months of the year, the Bangko Sentral ng Pilipinas (BSP) said over the weekend.

The BSP said the private sector alone prepaid a total of $607 million worth of foreign debt in January to May, seeking to reduce their obligation while the peso was gaining strength.

As the peso strengthened to new seven-year highs, central bank officials said they expected the private sector to take advantage of this momentum by paying off external loans borrowed at the time the peso was a lot weaker.

BSP Governor Amando M. Tetangco Jr. said yesterday that during the January-May period, the public sector prepaid a total of $1.004 million worth of foreign obligations.

Tetangco said the total foreign debt prepaid by the National Government included $805 million that was paid by the BSP out of its remaining obligations.

In May alone, the BSP reported that the public sector prepaid a total of $73 million while the private sector prepaid a total of $175 million to take advantage of the peso’s strength.

According to Tetangco, the BSP has already prepaid all of its loans that could be prepaid without penalty since not all loans allow prepayment without additional cost to the borrower.

Tetangco said both the public and the private sector are still looking at the possibility of prepaying more of their foreign obligations, a move that is expected to help ease the upward pressure on the peso.

Tetangco told reporters that the National Government is looking into its portfolio of foreign debt to determine if there were still obligations that are advantageous to pre-pay.

Tetangco said not all obligations have prepayment options but those that do carry the option could be prepaid if the savings would justify it.

“We have not received actual proposals from the National Government,” Tetangco said. “They’re still looking at it.”

“It’s a natural strategy for both the private and the public sector,” Tetangco. “Marami pang susunod dyan.”

In the first quarter alone, the BSP reported that the country’s outstanding external debt dropped by 2.3 percent, topping at $54 billion at the end of March compared with $55.3 billion in 2006.

Official data revealed that the decline in the total foreign debt stock resulted primarily from the repayment of private and public debt amounting to $2.5 billion, including prepayment.

Over the medium term, the BSP said paring down the principals on the debt burden would translate into releasing funds that would otherwise be spent on continuing debt service. These funds would be re-invested and generate more economic activity.

With the continuing strength of the peso, economists expect the National Government debt to drop to 41 percent of gross domestic product by 2010.

Economic officials said the government has revised its original projected drop in the NG debt as a proportion of the gross domestic product

Chief News Editor: Sol Jose Vanzi

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