Annual Report on Exchange Arrangements and Exchange Restrictions, 2007
Chapter

PHILIPPINES

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2007
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(Position as of April 30, 2007)

Status under IMF Articles of Agreement
Article VIIIDate of acceptance: September 8, 1995.
Exchange Measures
Restrictions and/or multiple currency practicesNo restrictions as reported in the latest staff report as of December 31, 2006.
International security restrictionsNo.
References to legal instruments and hyperlinksn.a.
Exchange Arrangement
CurrencyThe currency of the Philippines is the Philippine peso.
Exchange rate structureUnitary.
Classification
Independently floatingExchange rates are determined by market forces. However, when necessary, the Bangko Sentral ng Pilipinas (BSP) acts to limit sharp fluctuations in the exchange rate and intervenes when necessary to maintain orderly conditions in the foreign exchange market. Commercial banks trade in foreign exchange through the Philippine Dealing System (PDS), an electronic screen-based network. The PDS allows trading between 9:00 a.m. and 4:00 p.m. daily among Bankers Association of the Philippines member banks and the BSP. The system allows participants to electronically share information and transact business.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketForward transactions involving the sale of foreign exchange to nonresidents require BSP approval, except for those hedging foreign investments registered with the BSP.
References to legal instruments and hyperlinksn.a.
Arrangements for Payments and Receipts
Prescription of currency requirementsPayments for exports may be made in the following currencies, which are included in the country’s international reserves: Australian dollars, Bahrain dinars, Brunei dollars, Canadian dollars, Chinese renminbi, euros, Hong Kong dollars, Indonesian rupiah, Korean won, pounds sterling, Saudi Arabian riyals, Singapore dollars, Swiss francs, Thai baht, U.A.E. dirhams, U.S. dollars, yen, and other such currencies that may be declared acceptable by the BSP. Effective December 4, 2006, the Chinese renminbi and the Korean won were included in the list of currencies convertible with the BSP.
Controls on the use of domestic currencyThe use of domestic currency for international payments and receipts is not allowed, except for imports from and exports to ASEAN countries. However, in practice, the bulk of all cross-border payments is settled in U.S. dollars.
For current transactions and paymentsYes.
For capital transactionsCross-border payment and settlement of these transactions are not allowed in domestic currency exceeding the equivalent of PHLP 10,000.
Transactions in capital and money market instrumentsYes.
Transactions in derivatives and other instrumentsYes.
Credit operationsBanks are not allowed to extend peso loans to nonresidents.
Use of foreign exchange among residentsThere are no restrictions, provided the transaction does not involve the purchase of foreign exchange from the domestic banking system. Effective April 2, 2007, residents are allowed to purchase foreign exchange from the domestic banking system for investment in foreign-currency-denominated bonds or notes issued by the Republic of the Philippines and other resident entities.
Payments arrangements
Bilateral payments arrangements
OperativeA bilateral payments agreement with Bank Negara Malaysia (BNM) is in force for an indefinite period. Commercial banks accredited by the BSP are the authorized channels for transactions within the framework of the agreement, and settlements take place through the BSP or the BNM on a net basis over a two-month period.
Regional arrangementsThe Philippines is a member of ASEAN.
Administration of controlForeign exchange regulations are administered by the BSP on the basis of existing laws and policy decisions adopted by the Monetary Board of the BSP.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)
On domestic ownership and/or tradeAll forms or types of gold may be bought and sold without specific approval of the BSP, except that small-scale miners are required to sell all their production to the BSP.
On external tradeThere are no restrictions on the importation of gold in any form, except gold coin blanks and gold bullion lacking indication of the actual fineness of the gold content; the importation of gold blanks requires prior BSP clearance, and the importation of such gold bullion is prohibited. All forms of gold may be exported without BSP approval except gold from small-scale mining, which is required to be sold to the BSP.
Controls on exports and imports of banknotes
On exports
Domestic currencyResident and nonresident travelers must obtain prior authorization from the BSP to take out more than PHLP 10,000 in domestic banknotes and coins or checks, money orders, and other bills of exchange denominated in pesos.
Foreign currencyFor anti–money laundering purposes, a written declaration on the physical cross-border transport of foreign currency and other foreign-exchange-denominated bearer monetary instruments is required to be submitted to the Bureau of Customs at the exit point if the amount exceeds $10,000 or its equivalent.
On imports
Domestic currencyResident and nonresident travelers must obtain prior authorization from the BSP to bring in more than PHLP 10,000 in domestic banknotes and coins or checks, money orders, and other bills of exchange denominated in pesos.
Foreign currencyA written declaration of the foreign currency notes and coins imported is required to be submitted to the Bureau of Customs at the entry point only if the amount exceeds $10,000 or its equivalent.
References to legal instruments and hyperlinkswww.bsp.gov.ph/regulations/regulations.asp?type=1&id=1377.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyYes.
Held abroadResidents may open accounts abroad. However, foreign exchange may not be purchased from the domestic banking system to deposit in these accounts.
Accounts in domestic currency held abroadn.a.
Accounts in domestic currency convertible into foreign currencyNo.
References to legal instruments and hyperlinksn.a.
Nonresident Accounts
Foreign exchange accounts permittedYes.
Domestic currency accountsThese accounts are allowed, provided they are funded by inward remittances of foreign currency; by peso income from nonresidents’ properties, whether real or personal, located in the Philippines; or by proceeds from the sale of the relevant properties.
Convertible into foreign currencyBalances are convertible if these pertain to (1) deposits by tourists or “balikbayans” up to the amount of the peso conversion proceeds of foreign currency brought in and sold to the domestic banking system, and (2) peso proceeds of the divestment of BSP-registered inward foreign investments and accumulated earnings thereon.
Blocked accountsNo.
References to legal instruments and hyperlinksn.a.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for importsCommercial banks may sell foreign exchange for import payments on presentation of the required documents.
Letters of creditLCs must be opened on or before the date of shipment, with a validity period of up to one year. Only one LC may be opened for each import transaction; amendments to such an arrangement need not be referred to the BSP for prior approval except when the amendment extends the total validity of the LC beyond one year.
Import licenses and other nontariff measures
Negative listThe importation of certain products is regulated or prohibited for reasons of public health and safety, environmental considerations, national security, international commitments, or development and rationalization of local industries.
Open general licensesCommodity imports are classified into three categories: freely importable, regulated, and prohibited. To import regulated products, a clearance or permit is required from the appropriate government regulatory agency.
Licenses with quotasQuantitative restrictions are imposed on imports of selected agricultural products.
Import taxes and/or tariffsThe tariff structure clusters around five tariff rates: 1%, 3%, 7%, 10%, and 15%. The number of tariff lines dutiable at these rates accounts for more than four-fifths of the total tariff lines. The Philippines is a party to the CEPT scheme for the AFTA.
State import monopolyNo.
References to legal instruments and hyperlinksn.a.
Exports and Export Proceeds
Repatriation requirementsNo.
Financing requirementsNo.
Documentation requirementsAll exports must be covered by an export declaration, which may be obtained from the Bureau of Customs or the Philippine Exporters Confederation Inc.’s (Philexport’s) One Stop Exports Documentation Center.
Preshipment inspectionFor selected items, inspection is conducted by specialized government agencies.
Export licensesA few export items are regulated for reasons of health, security, national interest, or environmental protection; such exports require prior clearance from the appropriate government regulatory agency.
Without quotasYes.
Export taxesNo.
References to legal instruments and hyperlinksn.a.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersEffective April 2, 2007, the maximum amount of foreign exchange that may be sold by a bank to a resident for any nontrade transaction (excluding payments related to foreign loans and investments) without documentation is $10,000 (previously, $5,000). The “no splitting” rule, which required that cumulative sales to a resident within a 20-day period not exceed the maximum amount of foreign exchange that can be sold to a resident, was eliminated. For sales in excess of this amount, or for payments related to foreign loans and investments, regardless of amount, a resident must submit an application with the prescribed supporting documents; the previous notarization requirement for these applications was eliminated.
Investment-related paymentsRemittance of profits, dividends, and earnings related to BSP-registered foreign investments may be fully effected using foreign exchange purchased from the domestic banking system.
References to legal instruments and hyperlinkswww.bsp.gov.ph/regulations/regulations.asp?type=1&id=1737.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
References to legal instruments and hyperlinksn.a.
Capital Transactions
Controls on capital transactionsForeign loans and investments registered with the BSP may be serviced using foreign exchange purchased from the domestic banking system.
Repatriation requirementsNo.
Controls on capital and money market instruments
On capital market securitiesAs a general rule, no securities may be sold or offered for sale to the public within the country unless such securities have been registered with and are permitted to be sold by the Securities and Exchange Commission (SEC).
Shares or other securities of a participating nature
Purchase locally by nonresidentsIf at least one of the parties in the securities transaction is a bank or a nonbank financial intermediary (NBFI) under BSP supervision, securities purchased are required to be held by a BSP-accredited securities custodian/registry that must be a third party, i.e., with no subsidiary or affiliate relationship with the issuer or seller of the securities. However, if the purchaser is a nonresident that is a party to an existing global custody agreement governed by foreign laws and conventions wherein the bank or NBFI is designated as custodian or subcustodian, the requirement for a third-party BSP-accredited custodian does not apply. Registration of the shares purchased is necessary only if the foreign exchange needed for capital repatriation and remittance of dividends, profits, and earnings that accrue thereon will be purchased from the domestic banking system.
Sale or issue locally by nonresidentsThe shares or securities issued or sold by nonresidents are subject to the same SEC approval and registration requirements imposed on those issued by local companies. Payment for redemption of such shares or securities should, however, not involve the purchase of foreign exchange from the domestic banking system.



A foreign corporation whose securities are listed and traded on a local stock exchange must designate a transfer agent and registrar in the Philippines.
Purchase abroad by residentsEffective April 2, 2007, residents may freely invest abroad up to $12 million a year (previously, $6 million). Investments exceeding this amount require prior BSP approval and registration if the foreign exchange for such investments will be purchased from the domestic banking system. An application to purchase foreign exchange for outward investments, whether or not prior BSP approval is required, must be accompanied by the documents specified under existing rules.
Sale or issue abroad by residentsThe regulations governing commercial credits apply.
Bonds or other debt securities
Sale or issue locally by nonresidentsNonresidents may freely issue bonds and other debt securities locally after the proper approval or license to do business in the country is secured from the appropriate government agency, provided the foreign exchange used for the redemption of the securities issued will not be purchased from the domestic banking system.
Purchase abroad by residentsThe regulations governing shares or other securities of a participating nature apply. Effective April 2, 2007, residents are allowed to fund investments in foreign-currency-denominated bonds or notes of the Republic of the Philippines and other Philippine entities using foreign exchange purchased from the domestic banking system. Previously, residents were not allowed to purchase foreign exchange for such transactions.
Sale or issue abroad by residentsThe regulations governing commercial credits apply.
On money market instruments
Sale or issue locally by nonresidentsYes.
Purchase abroad by residentsYes.
Sale or issue abroad by residentsYes.
On collective investment securities
Sale or issue locally by nonresidentsYes.
Purchase abroad by residentsYes.
Sale or issue abroad by residentsYes.
Controls on derivatives and other instrumentsBSP-authorized financial institutions may engage in financial derivatives activities, provided one of the parties to the transaction is hedging. Foreign exchange regulations and documentary requirements for derivatives apply.
Purchase locally by nonresidentsDerivatives involving forward purchases of foreign exchange by nonresidents are not allowed, except for BSP-registered foreign investments under certain conditions.
Sale or issue locally by nonresidentsNonresidents’ derivatives transactions involving the local currency require BSP approval.
Purchase abroad by residentsForeign exchange contracts that do not involve the local currency may be freely contracted. Contracts involving local currency are subject to existing restrictions on the import and export of the local currency.
Sale or issue abroad by residentsForeign exchange contracts that do not involve the local currency may be freely contracted. Contracts involving local currency are subject to existing restrictions on the import and export of the local currency.
Controls on credit operations
Commercial credits
By residents to nonresidentsThese transactions may be freely undertaken provided they do not involve foreign exchange purchased from the banking system.
To residents from nonresidentsPrivate sector borrowing may be freely obtained provided there is no guarantee from the government sector and the domestic banking system, and payments are not funded with domestic banking system resources. Government sector borrowing requires prior BSP approval.
Financial creditsLoans by nonresidents from expanded foreign currency deposit units (EFCDUs), irrespective of maturity, do not require BSP approval, provided (1) the loan is serviced using foreign exchange purchased outside the domestic banking system; and (2) all applicable banking rules and regulations are complied with, including the single borrower’s limit.
By residents to nonresidentsThese transactions may be freely undertaken if they do not involve foreign exchange purchased from the domestic banking system.
To residents from nonresidentsThe regulations governing commercial credits apply.
Guarantees, sureties, and financial backup facilities
By residents to nonresidentsGuarantees for government sector accounts and those issued by government-owned and government-controlled corporations in favor of nonresidents require prior BSP approval.



Guarantees issued by local banks and financial institutions that cover foreign obligations other than foreign loans must be registered with the BSP to be eligible for servicing using foreign exchange purchased from the domestic banking system.
To residents from nonresidentsGuarantees issued by foreign banks and financial institutions to cover obligations other than foreign loans must be registered with the BSP to allow these to be serviced using foreign exchange resources of the domestic banking system.
Controls on direct investment
Outward direct investmentEffective April 2, 2007, the amount of foreign exchange that may be purchased by residents from the domestic banking system to fund outward investments without prior BSP approval and registration is $12 million an investor a year (previously, $6 million).
Controls on liquidation of direct investmentNo.
Controls on real estate transactions
Purchase abroad by residentsResidents who have their own foreign exchange assets may freely engage in these transactions.
Purchase locally by nonresidentsPurchases are subject to constitutional and legal limits.
Sale locally by nonresidentsYes.
Controls on personal capital transactions
Loans
By residents to nonresidentsLoans are permitted, provided foreign exchange is not purchased from the domestic banking system.
To residents from nonresidentsLoans are permitted, provided the transaction is not serviced with foreign exchange purchased from the banking system.
Gifts, endowments, inheritances, and legacies
By residents to nonresidentsNo private land may be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold land in the public domain.
Transfer of gambling and prize earningsTransfers are subject to appropriate supporting documents.
References to legal instruments and hyperlinkswww.bsp.gov.ph/regulations/regulations.asp?type=1&id=1737.
Provisions Specific to the Financial Sector
Provisions specific to commercial banks and other credit institutionsBanks with foreign exchange trading corporations as subsidiaries or affiliates must make available on a daily basis the names of counterparties and other details of purchases and sales of foreign exchange. Effective April 7, 2006, qualified rural banks and cooperative banks may, subject to prior Monetary Board approval, be authorized to operate an FCDU to enhance their ability to play a meaningful role in the remittance business. They may undertake all transactions that thrift banks with FCDUs are authorized to enter into, except the granting of loans to producers or manufacturers, including oil companies and public utility concerns.



Also effective April 7, 2006, the minimum capital required for a thrift bank with authority to operate an FCDU or those desiring to operate an FCDU is reduced from PHLP 650 million for thrift banks with head offices located in Manila and PHLP 150 million for those with head offices outside Manila to PHLP 325 million and PHLP 52 million, respectively.
Borrowing abroadMedium- and long-term loans for relending require BSP approval and registration.
Lending to nonresidents (financial or commercial credits)Banks may grant commercial credit to nonresidents provided loans are serviced using foreign exchange purchased outside the domestic banking system.
Lending locally in foreign exchangeEFCDUs and FCDUs of universal and commercial banks, respectively, are authorized to grant foreign currency loans as allowed by the BSP. FCDUs of thrift banks are authorized to grant only short-term foreign currency loans. Effective April 2, 2007, FCDUs of rural/cooperative banks are also authorized to grant short-term foreign currency loans except to producers or manufacturers, including oil companies and public utility concerns.
Purchase of locally issued securities denominated in foreign exchangeEFCDUs of commercial banks may invest in foreign-currency-denominated securities. An FCDU of a thrift bank or rural/cooperative bank may invest only in foreign-currency-denominated debt instruments that are of short-term maturity and readily marketable.
Differential treatment of deposit accounts in foreign exchange
Reserve requirementsNo reserve requirement is applied to deposit accounts in foreign exchange. The total reserve requirement applied to peso deposits and deposit-substitute liabilities of universal and commercial banks is 21%, consisting of 10% regular reserves and 11% liquidity reserves.
Liquid asset requirementsDepository banks with FCDUs and EFCDUs must maintain at all times 100% asset cover for their foreign currency liabilities. At least 30% of the cover requirement for these liabilities must be in the form of liquid assets. For FCDUs and EFCDUs of commercial banks and expanded commercial banks, respectively, at least 70% of the cover must be maintained in the same currency as the deposit liability and up to 30% may be denominated in other acceptable foreign currencies. FCDUs of thrift banks and rural/cooperative banks must maintain foreign currency cover in the same currency as the deposit liability.
Investment regulations
Abroad by banksThe investment of a bank subsidiary in the equity of a subsidiary located abroad is subject to prior BSP approval provided (1) the bank subsidiary meets certain prequalification and documentary requirements, and (2) the applicant parent subsidiary complies with the licensing requirements of the host country and secures the necessary license to operate. The proposed subsidiary may also invest in another subsidiary with prior BSP approval and is subject to the applicable BSP reporting, supervision, and examination requirements. Any outward investment representing initial capital and other outlays is subject to BSP regulations. At least 50% of the yearly net profits of the proposed subsidiary must be declared and paid as cash dividends to the parent subsidiary. Any additional funding or advances of the parent bank in the Philippines to its subsidiaries abroad or its subsidiary in the Philippines requires prior BSP approval. After the overseas investment is made, the investor is required to register it with the BSP.
In banks by nonresidentsForeign ownership of domestic banks is allowed up to 100%. Foreign juridical and natural persons may own 40%. However, banks that are majority foreign owned may not account for more than 30% of the total resources of the banking system.
Open foreign exchange position limitsEffective April 2, 2007, banks’ allowable open foreign exchange position (either overbought or oversold) is the lower of 20% of their unimpaired capital or $50 million. Previously, the limit on a bank’s long (overbought) foreign exchange position was 2.5% of its unimpaired capital or the equivalent of $5 million, whichever was smaller. No limit applied on short (oversold) foreign exchange positions. Any excess above the overbought limit had to be settled daily. The BSP imposes sanctions for the violation of open position limits.
Provisions specific to institutional investorsAs a general rule, a broker, dealer, or salesperson must register with the SEC to conduct business in the country.
Insurance companies
Limits (max.) on investment portfolio held abroadYes.
Pension fundsn.a.
Investment firms and collective investment funds
Limits (max.) on securities issued by nonresidentsn.a.
Limits (max.) on investment portfolio held abroadExcept as may be authorized by the Monetary Board, total equity investments in and/or loans to any single enterprise abroad by an investment house with quasi-banking functions may not at any time exceed 15% of its net worth. Effective April 2, 2007, outward investments by residents in amounts exceeding $12 million (previously, $6 million) or the equivalent an investor a year require prior approval and registration by the BSP if funded by foreign exchange purchased from the domestic banking system. For amounts below that figure, the funds to be invested may be purchased from authorized agent banks, subject to documentary requirements prescribed by the BSP.
Limits (min.) on investment portfolio held locallyn.a.
Currency-matching regulations on assets/liabilities compositionn.a.
References to legal instruments and hyperlinkswww.bsp.gov.ph/regulations/regulations.asp?type=1&id=1737; www.bsp.gov.ph/regulations/regulations.asp?type=1&id=796.
Changes during 2006
Arrangements for payments and receiptsDecember 4. The Chinese renminbi and the Korean won were included in the list of currencies convertible with the BSP.
Provisions specific to the financial sector
Provisions specific to commercial banks and other credit institutionsApril 7. Qualified rural banks and cooperative banks were, subject to prior Monetary Board approval, authorized to operate an FCDU to enhance their ability to play a meaningful role in the remittance business. They may undertake all transactions that thrift banks with FCDUs are authorized to enter into, except the granting of loans to producers or manufacturers, including oil companies and public utility concerns.



April 7. The minimum capital required for a thrift bank with authority to operate an FCDU or those desiring to operate an FCDU was reduced from PHLP 650 million for thrift banks with head offices located in Manila and PHLP 150 million for those with head offices outside Manila to PHLP 325 million and PHLP 52 million, respectively.
Changes during 2007
Arrangements for payments and receiptsApril 2. Residents were allowed to purchase foreign exchange from the domestic banking system for investments in foreign-currency-denominated bonds of the Republic of the Philippines or other Philippine entities.
Payments for invisible transactions and current transfersApril 2. The maximum amount of foreign exchange a bank could sell to a resident for any nontrade purpose (excluding payments related to foreign loans and investments) without documentation was increased to $10,000 or its equivalent. For sales in excess of the limit, a resident must submit the prescribed supporting documents. The “no splitting rule,” which required that cumulative sales to a resident within a 20-day period not exceed the maximum amount of foreign exchange that can be sold to a resident, was eliminated. Notarization was no longer required for applications to purchase foreign exchange exceeding $10,000.
Capital transactionsApril 2. The amount of foreign exchange that may be purchased by residents from banks to fund their outward investments without prior BSP approval and registration was increased to $12 million an investor a year.
Controls on capital and money market instrumentsApril 2. Residents were allowed to purchase foreign exchange from the domestic banking system for investments in foreign-currency-denominated bonds of the Republic of the Philippines or other Philippine entities.
Controls on direct investmentApril 2. The amount of foreign exchange that may be purchased by residents from banks to fund their outward investments without prior BSP approval and registration was increased to $12 million an investor a year.
Provisions specific to the financial sector
Provisions specific to commercial banks and other credit institutionsApril 2. FCDUs of rural/cooperative banks were authorized to grant short-term foreign currency loans, except to producers or manufacturers, including oil companies and public utility concerns.



April 2. Banks’ allowable open foreign exchange position (either overbought or oversold) is the lower of 20% of their unimpaired capital or $50 million.



April 2. The amount of foreign exchange that may be purchased by residents from banks to fund their outward investments without prior BSP approval and registration was increased to $12 million an investor a year.

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