MANILA -- The government and private corporations last year ramped up payment of foreign currency-denominated debts ahead of time as the Philippine peso strengthened and amid concerns that foreign-exchange volatility could persist.

Combined pre-payments of medium and long-term loans from public and private entities rose 17.48 percent to $1.84 billion, Bangko Sentral ng Pilipinas (BSP) data covering the full-year 2012 showed.

The increase was more pronounced with public debt pre-payments, amounting to $641.2 million, up 219 percent from 2011. For private entities, pre-payments rose 12.2 percent to $1.2 billion.

“It’s a wise move for them to take advantage of the strong peso,” Jonathan Ravelas, chief market strategist for BDO Unibank Inc., said in a phone interview. The Philippine peso appreciated 6.8 percent last year to an average of P41.07, an effect of a surge in capital inflows as investors flocked to emerging markets like the Philippines to tap higher yields.

“The reason that they’re pre-paying is that they are not sure if the peso will continue to stay at these low levels,”
Ravelas said. Several foreign investment houses are forecasting the peso to further strengthen against the US dollar to below P40.

BSP Governor Amando M. Tetangco Jr. noted that volatility associated with capital inflows could linger depending on the progress of economic recovery in the US and euro zone.

But Ravelas took the opposite view, saying the peso could appreciate to P42 against the greenback this year, citing improving prospects in the US and as other central banks move to protect their currencies.

“If this continues, we will see a shift toward the dollar and that could probably take away expectations of a strong peso,” he added.

The peso closed at P40.66 on Thursday, up 0.11 percent from the previous day.