Memories of the Philippines debt crisis
EYES WIDE OPEN - Iris Gonzales (The Philippine Star) - April 22, 2019 - 12:00am

 “Gentlemen, do you know that your country is broke? You have overstated your foreign exchange reserves by $600 million,” the banker told former prime minister Cesar Virata, central bank governor Jaime Laya and Monetary Board member Cesar Buenaventura. 

The year is 1983 and the gentlemen are in New York, in the glass-sheathed office of banking giant Manufacturers Hanover Trust Co. along 5th Avenue. 

Manufacturers Hanover, the country’s lead creditor bank, had summoned the Philippine officials to The Big Apple to update them on the worsening debt situation.

It was the most turbulent of times. There was an international debt crisis aggravated by spiralling oil prices and a war in the Middle East. Then lone opposition senator Benigno “Ninoy” Aquino was gunned down. The economy was in shambles as investor confidence hit rock bottom. 

The gentlemen were shocked to hear just how badly Manila was buried in debt. They had no time to waste. They needed to avert a debt default. With bated breath and sweating heavily in nervousness amidst the cold New York weather, they boarded the next flight home to convince former president Ferdinand Marcos to request for a debt moratorium.

I learned all these from Cesar Buenaventura himself who was the lone private sector representative to the Monetary Board of the Philippine Central Bank at the time. He was chairman of Pilipinas Shell.

I wanted to hear how bad the situation was back then and Mr. Buenaventura, a director of many listed companies and who is well respected in the business community, was kind enough to share his time and memories of the debt crisis.

This octogenarian’s memory is unparalleled and for almost an hour, I was on the edge of my seat, wide eyed and in awe listening to his stories on how the government navigated through the turbulent times.

It was a firsthand account of what happened — no historical revisionism, just the truth as he experienced it.

Did we or did we not default on our debts?

Finance Secretary Carlos Dominguez said we “never, never” defaulted on our loans, brushing aside warnings that we might fall into a China debt trap.

The secretary is right. It’s true that the lenders did not declare the Philippines in default, but only because the government requested for a three-month debt moratorium.

The Philippines had $20 billion in outstanding debt to some 300 banks at the time, according to an Oct. 15, 1983 article in The New York Times.

We were broke, indeed, and we could no longer pay our debts.

What did the situation mean for ordinary Filipinos?

Mr. Buenaventura said it was so bad.

“We did not even have dollars to pay for airline tickets,” he said.

What went wrong?

Mr. Buenaventura said the problem started in the 1970s when the Philippines suffered from spiralling oil prices.

The Organization of Petroleum Exporting Countries (OPEC) showed its clout starting in 1973 after the Arab States war with Israel. 

In 1980, oil prices peaked due to the fall of the Shah of Iran. It was like gold. International banks were awash with petroleum dollars which were lent to developing countries like the Philippines.

Benchmark interest rates on loans rose to 14 percent. The cost went as high as 20 percent, aggravating our debt service bill, he added.

The peso went into a tailspin.  It depreciated to P11 against the dollar in 1983 from only roughly P5 in the ’70s.

The airlines obviously wanted to be paid in US dollars, but the banks did not have enough dollars to sell to passengers because the Central Bank ‘s reserves had dwindled.

Whatever dollars we had could only be used to pay for oil which the country depended on greatly.


Companies could not pay for imported raw materials because of the dollar shortage. This led to retrenchment and massive joblessness.

Even medicines were scarce because pharmaceutical companies could not import. 

It was indeed a most difficult time. But the technocrats did what they could to salvage the situation. 

In January 1984, then president Ferdinand Marcos was prevailed upon to appoint former Far East Bank chairman and president Jose “Jobo” Fernandez as the new Central Bank governor. He was well known and respected in the international banking community.

It was also the time when the government organized the infamous Binondo Central Bank to narrow the gap between the official guiding rate for the dollar and the black market rate. Then trade minister at the time, Roberto V. Ongpin, cracked the whip on Filipino-Chinese traders who were hoarding dollars.

Avoiding a China debt trap

Thirty six years later, we seem to have forgotten the bitter lessons from the debt crisis. The government is getting warnings about a possible China debt trap. 

The Duterte administration said there’s nothing to fear. But let us remember that to be buried in debt is no joke; even worse if we use our patrimonial assets as collateral. We actually don’t even have to do that because our credit ratings are strong. 

During the debt crisis of the ’80s, we were lucky because our creditors heeded the request for a debt moratorium. 

But will our present-day lenders such as China be as kind if we ever get buried in Chinese loans?

I hope we never have to find out.  

Iris gonzales’ email address is Follow her on twitter @eyesgonzales.

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