'
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-114312
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED APRIL 15, 2004
[REPUBLIC OF THE PHILIPPINES LOGO]
US$700,000,000
REPUBLIC OF THE PHILIPPINES
10.625% GLOBAL BONDS DUE 2025
----------------------
The Republic will pay interest on the global bonds each March 16 and September
16. The first interest payment on the global bonds will be made on March 16,
2005. The global bonds will constitute a further issuance of, are fungible with
and are consolidated and form a single series with, the 10.625% Global Bonds due
2025 issued by the Republic on March 16, 2000 and the 10.625% Global Bonds due
2025 issued by the Republic on October 23, 2003. The total principal amount of
the previously issued global bonds and the global bonds now being issued is
$2,000,000,000. The Republic may not redeem the global bonds prior to their
maturity.
The offering of the global bonds is conditional on the receipt of certain
approvals of the Monetary Board of the Bangko Sentral ng Pilipinas, the central
bank of the Republic.
The global bonds are being offered globally for sale in the jurisdictions where
it is lawful to make such offers and sales. We have applied to list the global
bonds on the Luxembourg Stock Exchange. We cannot guarantee that the application
to the Luxembourg Stock Exchange will be approved, and settlement of the global
bonds is not conditioned on obtaining the listing.
The Republic expects to deliver the global bonds to investors in registered
book-entry form only through the facilities of The Depository Trust Company,
Clearstream Banking, societe anonyme, and Euroclear Bank, S.A./N.V., as operator
of the Euroclear System, on or about September 17, 2004.
<Table>
<Caption>
PER BOND TOTAL
-------- ------------
Price to investors(1)............................. 106.25% $743,750,000
Underwriting discounts and commissions............ 0.12% $ 840,000
Proceeds, before expenses, to the Republic........ 106.13% $742,910,000
</Table>
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(1) Plus accrued interest from and including September 16, 2004. Purchasers
of the global bonds will be entitled to receive the regular semi-annual
interest payment due on March 16, 2005.
NEITHER THE US SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED THAT THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Joint Lead Managers and Joint Bookrunners
<Table>
CREDIT SUISSE DEUTSCHE BANK SECURITIES JPMORGAN
FIRST BOSTON
</Table>
----------------------
The date of this prospectus supplement is September 8, 2004.
[MAP]
TABLE OF CONTENTS
<Table>
<Caption>
PROSPECTUS SUPPLEMENT PAGES
- ------------------------------------- -----
INTRODUCTORY STATEMENTS.............. S-3
SUMMARY OF THE OFFERING.............. S-5
USE OF PROCEEDS...................... S-8
RECENT DEVELOPMENTS.................. S-9
DESCRIPTION OF THE GLOBAL BONDS...... S-18
GLOBAL CLEARANCE AND SETTLEMENT...... S-21
TAXATION............................. S-24
UNDERWRITING......................... S-26
LEGAL MATTERS........................ S-29
GENERAL INFORMATION.................. S-29
</Table>
<Table>
<Caption>
PROSPECTUS PAGES
- ------------------------------------- -----
CERTAIN DEFINED TERMS AND
CONVENTIONS........................ 2
FORWARD LOOKING STATEMENTS........... 2
DATA DISSEMINATION................... 3
USE OF PROCEEDS...................... 3
PROSPECTUS SUMMARY................... 4
REPUBLIC OF THE PHILIPPINES.......... 9
DESCRIPTION OF THE SECURITIES........ 85
COLLECTIVE ACTION SECURITIES......... 96
TAXATION............................. 100
PLAN OF DISTRIBUTION................. 108
VALIDITY OF THE SECURITIES........... 109
AUTHORIZED REPRESENTATIVE IN THE
UNITED STATES...................... 109
EXPERTS; OFFICIAL STATEMENTS AND
DOCUMENTS.......................... 109
FURTHER INFORMATION.................. 109
DEBT TABLES OF THE REPUBLIC OF THE
PHILIPPINES........................ T-1
</Table>
------------------------
YOU SHOULD READ THIS PROSPECTUS SUPPLEMENT ALONG WITH THE ATTACHED
PROSPECTUS THAT ACCOMPANIES IT. YOU SHOULD RELY ONLY ON THE INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE IN THIS DOCUMENT AND THE ACCOMPANYING
PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT
IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE
SECURITIES. THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS MAY ONLY BE ACCURATE AS OF THE DATE OF THIS PROSPECTUS SUPPLEMENT OR
THE ACCOMPANYING PROSPECTUS, AS APPLICABLE. TERMS USED HEREIN BUT NOT OTHERWISE
DEFINED SHALL HAVE THE MEANING GIVEN TO THEM IN THE PROSPECTUS THAT ACCOMPANIES
THIS PROSPECTUS SUPPLEMENT.
------------------------
INTRODUCTORY STATEMENTS
The Republic accepts responsibility for the information contained in this
prospectus supplement and the prospectus that accompanies it. To the best of the
knowledge and belief of the Republic (which has taken all reasonable care to
ensure that such is the case), the information contained in this prospectus
supplement and the accompanying prospectus is in accordance with the facts and
does not omit anything likely to affect the import of such information.
The Republic is a foreign sovereign state. Consequently, it may be
difficult for you to obtain or realize upon judgments of courts in the United
States against the Republic. See "Description of the Securities -- Description
of the Debt Securities -- Jurisdiction and Enforceability" in the accompanying
prospectus.
The distribution of this prospectus supplement and the accompanying
prospectus and the offering of the global bonds may be legally restricted in
some countries. If you wish to distribute this prospectus supplement or the
accompanying prospectus, you should observe any applicable restrictions. This
prospectus supplement and the accompanying prospectus should not be considered
an offer, and it is prohibited to use them to make an offer, in any state or
country in which the making of the offering of the bonds is prohibited. For a
S-3
description of some restrictions on the offering and sale of the global bonds
and the distribution of this prospectus supplement and the accompanying
prospectus, see "Underwriting" on page S-26.
Unless otherwise indicated, all references in this prospectus supplement to
"Philippine pesos", "pesos" or "P" are to the lawful national currency of the
Philippines, those to "dollars", "US dollars", "US$" or "$" are to the lawful
currency of the United States of America and those to "SDR" are to Special
Drawing Rights of the International Monetary Fund.
All references in this prospectus supplement to (a) the "Republic" or the
"Philippines" are to the Republic of the Philippines, (b) the "Government" are
to the national government of the Philippines, (c) the "administration" are to
the current administration of President Gloria Macapagal-Arroyo and (d) "Bangko
Sentral" are to Bangko Sentral ng Pilipinas, the central bank of the
Philippines.
S-4
SUMMARY OF THE OFFERING
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information appearing elsewhere in this
prospectus supplement and the prospectus to which it relates.
ISSUER........................ Republic of the Philippines.
BONDS......................... $700,000,000 aggregate principal amount of
10.625% global bonds due 2025. The global bonds
constitute a further issuance of, and upon
issuance will be fungible with and consolidated
and form a single series with, the 10.625%
Global Bonds due 2025 issued by the Republic on
March 16, 2000, in the amount of $1,000,000,000
and the 10.625% Global Bonds due 2025 issued by
the Republic on October 23, 2003 in the amount
of $300,000,000. Upon issuance, the global
bonds will rank pari passu with the previously
issued global bonds in all respects. The total
principal amount of the previously issued
global bonds and the global bonds now being
issued is $2,000,000,000.
INTEREST...................... The global bonds will bear interest at 10.625%
per annum from September 16, 2004, payable
semi-annually in arrears.
INTEREST PAYMENT DATES........ March 16 and September 16 of each year,
commencing on March 16, 2005, payable to the
persons who are registered holders thereof at
the close of business on the preceding March 1
or September 1, as applicable, whether or not a
business day.
ISSUER REDEMPTION............. The Republic may not redeem the global bonds
prior to maturity.
STATUS OF BONDS............... The global bonds will be direct, unconditional,
unsecured and general obligations of the
Republic. Except as otherwise described, the
global bonds will at all times rank at least
equally with all other unsecured and
unsubordinated External Indebtedness (as
defined in the accompanying prospectus) of the
Republic. The full faith and credit of the
Republic will be pledged for the due and
punctual payment of all principal and interest
on the global bonds. See "Description of the
Securities -- Description of Debt Securities --
Status of Bonds" in the accompanying
prospectus.
NEGATIVE PLEDGE............... With certain exceptions, the Republic has
agreed that it will not create or permit to
subsist any Lien (as defined in the
accompanying prospectus) on its revenues or
assets to secure External Public Indebtedness
(as defined in the accompanying prospectus) of
the Republic, unless at the same time or prior
thereto, the global bonds are secured at least
equally and ratably with such External Public
Indebtedness. The international reserves of
Bangko Sentral ng Pilipinas ("Bangko Sentral")
represent substantially all of the official
gross international reserves of the Republic.
Because Bangko Sentral is an independent
entity, the Republic and Bangko Sentral believe
that the international reserves owned by Bangko
Sentral are not subject to the negative pledge
covenant in the global bonds and that Bangko
Sentral could in the future incur External
Public Indebtedness secured by such reserves
without securing amounts payable under the
global bonds. See "Description of the
Securities -- Description of Debt
Securities -- Negative Pledge Covenant" in the
accompanying prospectus.
S-5
TAXATION...................... The Republic will make all payments of
principal and interest in respect of the global
bonds free and clear of, and without
withholding or deducting, any present or future
taxes of any nature imposed by or within the
Republic, unless required by law. In that
event, the Republic will pay additional amounts
so that the holders of the global bonds receive
the amounts that would have been received by
them had no withholding or deduction been
required. See "Description of the
Securities -- Description of Debt Securities --
Additional Amounts" in the accompanying
prospectus. For a description of certain United
States tax aspects of the global bonds, see
"Taxation -- United States Tax Considerations"
in the accompanying prospectus, and
"Taxation -- United States Taxation".
CROSS-DEFAULTS................ Events of default with respect to the global
bonds include (i) if the Republic fails to make
a payment of principal, premium, prepayment
charge or interest when due on any External
Public Indebtedness with a principal amount
equal to or greater than $25,000,000 or its
equivalent, and this failure continues beyond
the applicable grace period; or (ii) if any
External Public Indebtedness of the Republic or
the central monetary authority in principal
amount equal to or greater than $25,000,000 is
accelerated, other than by optional or
mandatory prepayment or redemption. See
"Description of the Securities -- Description
of the Debt Securities -- Events of Default:
Cross Default and Cross Acceleration" in the
accompanying prospectus.
LISTING....................... The Republic is offering the global bonds for
sale in the United States and elsewhere where
such offer and sale is permitted. The Republic
has applied to have the global bonds listed and
traded in accordance with the rules of the
Luxembourg Stock Exchange. The Republic cannot
guarantee that the application to the
Luxembourg Stock Exchange will be approved, and
settlement of the global bonds is not
conditioned on obtaining the listing.
FORM, DENOMINATION AND
REGISTRATION.................. The global bonds will be issued in fully
registered form in denominations of $1,000 and
integral multiples thereof. The global bonds
will be represented by one or more global
securities registered in the name of a
depositary, its nominee or a custodian.
Beneficial interests in the global securities
will be shown on, and the transfer thereof will
be effected only through, records maintained by
the depositary and its direct and indirect
participants. Settlement of all secondary
market trading activity in the global bonds
will be made in immediately available funds.
See "Description of the
Securities -- Description of the Debt
Securities -- Global Securities" in the
accompanying prospectus.
FURTHER ISSUES................ The Republic may from time to time, without
notice to or the consent of the registered
holders of global bonds, issue further bonds
which will form a single series with the global
bonds. See "Description of the
Securities -- Description of the Debt
Securities -- Further Issues of Debt
Securities" in the accompanying prospectus, and
"Description of the Global Bonds -- Further
Issues".
S-6
USE OF PROCEEDS............... The Republic intends to use the net proceeds
from the sale of the global bonds to provide
capital to National Power Corporation for its
use in meeting its financing requirements and
for the general purposes of the Republic,
including budgetary support.
FISCAL AGENT.................. JPMorgan Chase Bank.
GOVERNING LAW................. The fiscal agency agreement and the global
bonds will be governed by and interpreted in
accordance with the laws of the State of New
York. The laws of the Republic will govern all
matters governing authorization and execution
of the global bonds by the Republic.
S-7
USE OF PROCEEDS
The Republic intends to use the net proceeds from the sale of the global
bonds to provide capital to National Power Corporation for its use in meeting
its financing requirements and for the general purposes of the Republic,
including budgetary support.
S-8
RECENT DEVELOPMENTS
The information in this section supplements the information about the
Republic that is included in the accompanying prospectus dated April 15, 2004.
RECENT POLITICAL DEVELOPMENTS
RECENT NATIONAL ELECTION RESULTS
On May 10, 2004, national elections were held for the positions of
President, Vice President, twelve Senators, more than 200 Representatives and
all local government posts (excluding Barangay officials). On June 24, 2004,
pursuant to the Constitution, the joint session of Congress declared Gloria
Macapagal-Arroyo and Noli de Castro as President-elect and Vice President-elect,
respectively. They began their six-year terms on June 30, 2004.
Both Mrs. Arroyo and Mr. de Castro are members of the ruling Lakas-CMD
coalition. The ruling coalition enlarged its majority in both the Senate and the
House of Representatives in the new Congress which convened on July 26, 2004.
Certain opposition candidates, including defeated presidential candidate
Fernando Poe, Jr., are questioning the election results, alleging fraud and
disenfranchisement of voters. On July 23, 2004, Mr. Poe petitioned the
Philippine Supreme Court, acting in its capacity as the Presidential Electoral
Tribunal, to order a recount of approximately 60% of votes cast nationwide. In
response, President Arroyo and Vice-President de Castro have asked the tribunal
to dismiss the petition for lack of merit.
ARROYO ADMINISTRATION POLICY
On June 28, 2004, President Arroyo announced a ten-point agenda of policy
priorities for her new six-year term in office. The President's agenda includes
the following goals:
- creating six to ten million jobs in six years through increased support
for entrepreneurs, increased lending to small and medium enterprises and
the development of one to two million hectares of land for agriculture;
- improving education through the construction of new classrooms, the
provision of books and supplies for students and scholarships to poor
families;
- balancing the Government budget;
- spreading the benefits of economic growth through expanded transportation
networks and digital infrastructure;
- providing electricity and water to local communities across the country;
- alleviating congestion in Metro Manila by establishing new government and
housing centers in other regions;
- developing the Clark Special Economic Zone and the Subic Bay Freeport
Area as international service and logistics centers;
- automating the electoral process;
- completing the peace process with rebel groups in the Philippines; and
- promoting reconciliation among opposing political movements.
Concurrently with President Arroyo's ten-point agenda, the National
Economic and Development Authority ("NEDA") announced the elements of the
National Development Agenda intended to sustain economic expansion in the
Philippines and reduce poverty. The specific goals announced include:
- achieving a balanced budget by 2009;
- managing inflation by enhancing agricultural productivity and increasing
energy independence;
S-9
- improving logistical efficiency through reforms in energy supply,
shipping, telecommunications, and transportation and increased investment
in infrastructure;
- supporting the growth of information technology, electronics, mining,
automobile manufacturing, shipbuilding, tourism, medical services,
agribusiness, housing and small and medium enterprises;
- enhancing social justice and alleviating poverty in Mindanao and other
areas affected by political conflict and economic isolation; and
- improving governance and reducing political discord.
On July 26, 2004, President Arroyo gave her State of the Nation Address. In
it, she announced that her administration would pursue five key reform packages,
including:
- job creation through economic growth, stimulated by reducing the fiscal
deficit through reducing government costs and raising revenue;
- reduction and elimination of corruption through good government,
including implementing judicial reforms, strengthening the role of
ombudsmen, and reducing government inefficiency;
- improvement in social justice and basic needs through environmental
reforms and promotion of the agribusiness sector;
- expansion of technical and vocational training, and English and science
learning; and
- achievement of energy independence and savings by securing sufficient
production and distribution of energy through the privatization of
National Power Corporation's power generating facilities and transmission
lines.
As part of its economic growth agenda, the Government has announced a
fiscal consolidation program that aims to achieve a balanced budget by 2009 and
reduce the consolidated public sector deficit to GDP to 6% in 2005 and 3% by
2009. The Government has proposed a number of legislative and administrative
measures intended to generate approximately P100 billion in additional revenues
and savings per year (based on current levels of revenues and expenditures),
including:
- tax measures such as the indexation of taxes on tobacco and alcohol, an
increase in excise taxes and duties on petroleum products, incremental
increases in value-added taxes, a new tax on telecommunications, new
gross income taxation for corporations and self-employed individuals, and
a tax amnesty program;
- repeal of fiscal incentives which are inefficient or redundant, or that
are inconsistent with the rules of the World Trade Organization;
- removal or transfer of employees of revenue-collection agencies which
fail to meet performance standards;
- upward adjustment of fees and charges generally; and
- improvements in the management and control of Government-owned and
controlled corporations.
Also, the Government intends to restructure and reform the financial sector
by:
- strengthening the supervisory powers of the monetary authority;
- institutionalizing corporate governance standards;
- establishing credible credit information through domestic credit rating
systems;
- improving the regulation of credit cooperatives; and
- professionalizing management of state pension funds.
S-10
FORMATION OF THE NEW ARROYO ADMINISTRATION
In August 2004, President Arroyo appointed the Cabinet members of her new
administration. The new appointees include former representative Raul Gonzalez
as Secretary of Justice and former Chief Presidential Legal Counsel Avelino Cruz
Jr. as Secretary of Defense. Among the Cabinet members reappointed from
President Arroyo's first administration are Secretary of Finance, Juanita
Amatong, Budget Secretary, Emilia Boncodin, Trade Secretary, Cesar Purisima and
Secretary of Socioeconomic Planning Romulo Neri.
INTERNAL CONFLICT WITH REBEL GROUPS
Peace negotiations between the Government and the Moro Islamic Liberation
Front ("MILF"), which were originally planned for the first half of 2004, are
expected to resume in September or October 2004 in Malaysia. An advanced survey
party of a Malaysian-led international monitoring team is scheduled to arrive in
the southern Philippines on September 10, 2004 to investigate the implementation
of security measures related to the upcoming peace negotiations. The joint
cease-fire declaration between the Government and the MILF which was signed on
July 19, 2003 remains in effect.
The Government and the National Democratic Front ("NDF") held a third round
of peace negotiations in Oslo from June 22-24, 2004. The Government and the NDF
have reaffirmed their intention to continue the peace process; however, a fourth
round of peace talks originally planned for August 2004 has been postponed
indefinitely by the NDF. The NDF has indicated it will not participate in
further talks as long as it is designated a "terrorist organization" by the
United States government. Fighting has continued between the NDF and Government
forces, resulting in more than 100 casualties on each side during the first half
of 2004.
RECENT ECONOMIC DEVELOPMENTS
RECENT ECONOMIC INDICATORS
The following table sets out the performance of certain of the Republic's
principal economic indicators for the specified periods.
<Table>
<Caption>
2002 2003 2004
----- ---- ----
GDP growth (%).............................................. 4.3(1) 4.7 6.3(2)
GNP growth (%).............................................. 4.3(1) 5.6 6.1(2)
Inflation rate (%).......................................... 2.9 3.0 4.5(3)
Unemployment rate (%)....................................... 11.4(4) 11.4(4) 13.7(5)
91-day T-bill rate (%)...................................... 5.4 6.0 7.6(6)
External position
Balance of payments ($ million)........................... 663 111 (379)(7)
Trade-in-goods balance/GNP (%)............................ 0.5 0.1 (2.8)(2)
Export growth (%)...................................... 10.0 1.4 7.7(8)
Import growth (%)...................................... 6.2 6.2 7.2(2)
External debt ($ billion)(9)(10).......................... 53.6 57.4 56.7(11)(12)
International reserves
Gross ($ billion)(10).................................. 16.2 16.9 16.0(13)
Net ($ billion)(10).................................... 12.8 13.9 13.8(13)
Months of retained imports(10)(14)..................... 4.7 4.7 4.4(13)
Domestic credit growth (%).................................. 4.8 4.8 7.3(2)
</Table>
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(1) GDP and GNP growth figures for 2001 and 2002 have recently been revised. See
"GDP and Major Financial Indicators -- Periodic Revisions to Philippine
National Accounts" in the accompanying prospectus.
(2) First half of 2004.
(3) Average for first eight months of 2004 based on the 1994 CPI basket.
S-11
(4) Average of the January, April, July and October applicable statistics based
on the January, April, July and October labor force surveys for the relevant
year.
(5) In April 2004.
(6) For the month of July 2004.
(7) First quarter of 2004.
(8) First seven months of 2004.
(9) Includes Bangko Sentral obligations, public sector debt whether or not
guaranteed by the Government and private sector debt registered and approved
by Bangko Sentral. Does not include intercompany accounts of Philippine
branches of foreign banks, private sector debt not registered with Bangko
Sentral or private sector obligations under capital lease arrangements.
Figures have been revised beginning 1990 to reflect the change in treatment
of offshore banking units from non-resident to resident entities, pursuant
to the fifth edition of the IMF Balance of Payments Manual ("BPM5").
(10) As of December 31 of the relevant year, unless otherwise indicated.
(11) As of March 31, 2004.
(12) Beginning in 2004, Bangko Sentral revised its accounting methodology to
exclude resident-to-resident accounts.
(13) As of July 31, 2004.
(14) Number of months of average imports of merchandise goods and payments of
services and income that can be financed by gross reserves.
GNP/GDP
For the first half of 2004, GNP grew by 6.1% and GDP grew by 6.3% compared
to 5.6% and 4.5% growth in GNP and GDP, respectively, for the first half of 2003
(at constant 1985 prices).
Agriculture, Fishery and Forestry
The agriculture, fishery and forestry sector grew by 6.3% in the first half
of 2004 compared to 2.5% in the first half of 2003. The main contributors to
growth from agriculture were rice and palay production, due to an expansion in
harvest area, increased use of high-yielding variety seeds and favorable weather
conditions. The fishery subsector also was a main contributor due to improved
aquaculture and higher demand for Philippine seaweed. The forestry subsector
grew by 104.2% in the first half of 2004 compared to a 22.7% decline in the
first half of 2003.
Industry
The industry sector grew by 5.6% in the first half of 2004, compared to
4.2% in the first half of 2003. The mining and quarrying subsector grew 11.3% in
2004, compared to 20.5% growth in the first half of 2003. The decline in the
growth rate was attributed mainly to lower growth in gold and copper mining and
crude oil production. Growth in the manufacturing subsector was 4.2% in the
first half of 2004 compared to 4.9% in the first half of 2003. The slowdown in
growth in the manufacturing sector was caused mainly by slower growth in the
petroleum products and coal industries, even though growth accelerated for food,
beverages, electric machinery and chemicals and chemical products. Construction
grew by 11.6% in the first half of 2004 compared to a decline of 4.5% in the
first half of 2003, reflecting increased growth in both private and public
construction. The electricity and water subsector grew by 4.5% in the first half
of 2004 compared to 3.0% in the first half of 2003 due to an increase in
electric generation and sales to major customers and continued rehabilitation
and expansion in water supply service areas.
Services
The services sector grew 6.9% in the first half of 2004, compared to 5.6%
in the first half of 2003. The transportation, communication and storage
subsector grew by 11.4% in the first half of 2004 compared to 8.5% in the first
half of 2003 as mobile phone services were boosted by election-related services
and became more available and affordable to a larger base of customers. Major
contributors included air, land and water transport, due to an increase in
passenger and cargo movement as a result of election-related activities and
increased tourist arrivals. The trade subsector grew by 6.4% in the first half
of 2004 compared to 5.5% in the first half of 2003 due to an increase in retail
trade and an increase in wholesale trade in petroleum products,
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processed food and pharmaceutical products. The finance subsector grew by 7.9%
in the first half of 2004 compared to growth of 7.1% in the first half of 2003
due to increased growth in the banking, non-banking services and insurance. The
dwellings and real estate subsector grew by 4.2% in the first half of 2004
compared to 3.6% during the first half of 2003. Increased growth in this
subsector was due to improved sales of high-end residential properties and
income from rental and leasing operations. The private services subsector grew
by 6.7% in the first half of 2004 compared to growth of 5.1% in the first half
of 2003. Main contributors to growth were educational services, hotels and
restaurants and recreational services. The government services subsector
expanded by 2.5% in the first half of 2004, the same rate of growth as in the
first half of 2003.
Income from Abroad
Net factor income from abroad, which is a component of GNP but not included
in GDP, grew 3.2% for the first half of 2004 compared to 20.4% for the first
half of 2003. The decreased growth reflected higher interest payments.
INFLATION
For the first eight months of 2004, inflation measured using the 1994 CPI
basket averaged 4.5% and inflation measured using the 2000 CPI basket averaged
4.9%. Based on the 1994 CPI basket, inflation was 6.3% for the month of August
2004 compared to 6.0% in July 2004; based on the 2000 CPI basket, inflation was
6.8% for the month of August 2004 compared to 6.6% in July 2004. The increases
in inflation rates from July 2004 to August 2004 can be traced largely to higher
prices of fuel and transportation, higher commodity prices and supply
disruptions due to unfavorable weather.
In June 2004, the Producer's Price Index for the manufacturing sector
increased 5.7% from a year earlier. The increase was attributed to increases in
footwear and wearing apparel, basic metals, petroleum products, food
manufacturing and non-metallic mineral products.
EMPLOYMENT
The unemployment rate increased to 13.7% in April 2004 from 12.2% in April
2003 as job growth failed to keep pace with growth in the labor force. Total
employment increased by 1.1 million jobs from April 2003 to April 2004, while
1.9 million people entered the labor force. During this period the labor force
participation rate rose from 67.1% to 68.9% of the population 15 years old and
over. The unemployment rate for Metro Manila in April 2004 was 18.8%, the
highest in the country.
BALANCE OF PAYMENTS
The Republic's balance of payments recorded a deficit of $379 million for
the first three months of 2004, compared to the $510 million deficit in the
first quarter of 2003. A surplus of $824 million in the current account, more
than twice the surplus recorded for the first quarter of 2003, was offset by a
deficit of $476 million in the capital and financial account and a deficit of
$727 million in unclassified items. "Net unclassified items" comprise errors and
omissions due to timing differences between inflows and outflows,
double-counting and insufficient reporting of data.
Current Account
The current account recorded a surplus of $824 million in the first quarter
of 2004, more than twice the $370 million surplus for the first quarter in 2003.
The increase in the surplus was attributed to the smaller deficit in both the
trade-in-goods and trade-in-services accounts and the increase in net income
flows.
Trade-in-goods. The deficit in the trade-in-goods account, as reported by
Bangko Sentral, declined to $378 million in the first quarter of 2004 from $441
million in the first quarter of 2003, with exports expanding faster than
imports. Exports of goods increased by 5.7% to reach $8.9 billion while imports
of goods rose 4.7% to $9.3 billion. The rise in exports of goods was attributed
mainly to the continued recovery in shipments of electronics and sustained sales
of machinery and transport equipment, the country's leading exports. Other
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export commodities contributing to the growth in exports were non-metallic
mineral manufactures, fruits and vegetables, sugar products and other agro-based
products. Imports in the first quarter grew 4.7% due to higher shipments of
electronics and machinery and transport equipment.
In the first seven months of 2004, merchandise exports (as reported by the
National Statistics Office) increased by 7.7% to $21.8 billion compared to $20.3
billion in the first seven months of 2003. This increase was primarily due to an
8.4% increase in exports of electronic products, which accounted for 66.7% of
total exports for the first seven months of 2004.
In the first six months of 2004, imports (as reported by the National
Statistics Office) grew by 7.2% to $19.9 billion compared to $18.6 billion for
the first six months of 2003. This increase resulted primarily from imports of
electronics products, which grew by 6.3% to $8.9 billion in the first six months
of 2004 compared to $8.4 billion for the first six months of 2003.
Trade-in-services. The trade-in-services account reported a deficit of
$143 million in the first quarter of 2004 compared to the $421 million deficit
in the same period of 2003. The decreased deficit was largely attributed to
higher receipts from travel and communication services. Net inflows from travel
grew 123.5% from the first quarter of 2003 to the first quarter of 2004. New
inflows from communication services grew to $121 million in the first quarter of
2004 from $33 million in the same period last year. Growth in communication
services inflows was attributed to the entry of a major call center company into
the Philippines.
Income. The income account recorded a surplus of $1.2 billion in the first
quarter of 2004, compared to a surplus of $1.1 billion in the first quarter of
2003. A 1.6% increase in deployment of both land-based and sea-based overseas
Filipino workers ("OFWs") caused OFW remittances to increase by 4.2%
year-on-year to $1.9 billion in the first quarter of 2004. Increases in OFW
remittances more than offset the rise in interest payments on bonds and notes by
the Government and private corporations.
OFW remittances for the six-month period ending June 30, 2004 totalled
US$4.0 billion, or a 2.6% increase from the amount for the six-month period
ending June 30, 2003. The increase was largely attributed to the aggressive
marketing efforts by domestic commercial banks to reach out to a greater number
of OFWs and the growth in the deployment of OFWs, particularly in Kuwait, Saudi
Arabia and United Arab Emirates.
Capital and Financial Account
The net outflow in the capital and financial account was $476 million in
the first quarter of 2004, reflecting an increase of 30.4% from the net outflow
of $365 million in the same period in 2003. The increased net outflow in the
capital and financial account during the first quarter of 2004 was attributed to
a significant decline in the portfolio investment account and a reversal in the
direct investment account, which were tempered by a decrease in outflows in the
other investment account.
Direct Investments. The direct investment account recorded a net outflow
of $36 million in the first quarter of 2004, a reversal of the $37 million net
inflow in the first quarter of 2003. This was attributed mainly to the sale of a
stake in a large food manufacturing company by a non-resident to a resident
firm, which more than offset the increase in new placements in equity capital.
Portfolio Investments. The portfolio investment account recorded net
inflows of $7 million during the first three months of 2004 compared to the $417
million net inflow in the first quarter in 2003. The decrease in net inflows was
attributed to bond repayments by private corporations, which offset increased
non-resident investments in the equities market and debt issuances of the
Government and government-owned-and-controlled corporations.
Other Investments. The net outflow in the other investment account for the
first quarter of 2004 was $443 million compared to $822 million in the first
quarter of 2003. The decrease in outflows in the other investments account was
due largely to the inflows from local banks' short-term foreign loans and
inter-bank borrowings as well as short-term private-sector loans to pay for
imports.
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INTERNATIONAL RESERVES
Bangko Sentral's gross international reserves stood at $16.0 billion as of
August 31, 2004, the same level as of July 31, 2004. Gross international
reserves as of August 31, 2004 were adequate to cover 4.3 months of imports of
goods and payments of services and income, and were equivalent to 2.2 times the
Republic's short-term debt based on original maturity and 1.3 times based on
residual maturity. From July 31, 2004 to August 31, 2004, an increase in
reserves due to the Government's deposit of global bond issue proceeds was
offset by the debt service requirements of the Government and Bangko Sentral.
Bangko Sentral's net international reserves decreased to $13.8 billion as
of July 31, 2004 from $13.9 billion as of June 30, 2004.
PESO/US$ EXCHANGE RATE
On September 8, 2004, the peso to US dollar exchange rate was P56.10 per US
dollar, compared to P55.57 per US dollar as of December 30, 2003.
PHILIPPINE SECURITIES MARKETS
As of September 8, 2004, the Philippine Stock Exchange composite index
closed at 1728.45, compared to a close of 1442.37 on December 30, 2003.
MONEY SUPPLY
The Republic's money supply (M3) as of July 31, 2004 was P1.71 trillion,
reflecting year-on-year growth of 6.4%. The increase was attributed to an
increase in net domestic assets caused mainly by growth in credits to the public
and private sectors.
BANKING SYSTEM NON-PERFORMING LOANS
The commercial banking system's non-performing loan ratio (the "NPL ratio")
increased to 13.8% at the end of June 2004 from 13.5% at the end of May 2004, a
decrease from 15.2% as of end-June 2003. Commercial bank loans outstanding
decreased 0.4% from end-May 2004 to end-June 2004 and 5.2% from end-June 2003 to
end-June 2004. Although the total loan portfolio expanded from end-May 2004 to
end-June 2004, the marginal increase in the NPL ratio was due to a reduction in
interbank loans outpacing the decline in NPLs.
SECURITIZATION ACT OF 2004
In April 2004, Congress approved the Securitization Act of 2004 (the
"Securitization Act"). The Securitization Act, together with other recent
changes in the legal and regulatory environment in the Philippines, is aimed at
providing a legal framework for securitization, creating a favorable market
environment for a range of asset-backed securities and encouraging the
development of a secondary market for these securities. The implementing rules
and regulations of the Securitization Act have not yet been issued.
REVENUES AND EXPENDITURES
Overall, the Government's fiscal deficit stood at P80.1 billion for the
first half of 2004, P0.5 billion higher than the target of P79.6 billion for the
first half of 2004.
Total Government revenues for the first half of 2004 were P343.3 billion,
reflecting a 12.4% increase in revenues over the first half of 2003. Bureau of
Internal Revenue ("BIR") collections in the first half of 2004 were P229.2
billion, a 9.6% increase from BIR collections in the same period for 2003. In
spite of the increase in tax collections, the BIR collections fell short of
their target by 2.4%.
Bureau of Customs revenues were P60.6 billion in the first half of 2004, an
increase of 14.2% from the same period of 2003, attributable mainly to peso
depreciation against the dollar, increased imports of goods
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with higher tariff rates and administrative reforms. Remittances to the Bureau
of the Treasury were P29.3 billion in the first half of 2004, an increase of
15.4% from the same period of 2003.
Total governmental expenditures in the first half of 2004 were P423.4
billion, 10.0% more than in the first half of 2003. The increase in expenditures
was attributable to increased interest payments, compensation adjustments for
soldiers which took effect in January 2004, expenditures related to the May 2004
elections, larger payments for pensions and retirement benefits of policemen,
and increased allocations to local government units and the Agrarian Reform
Program.
In August 2004, President Arroyo submitted to Congress a P907.6 billion
budget for 2005, 5.3% higher than the 2004 budget of P861.6 billion. Based on
the President's proposal, net of the internal revenue allotment and debt burden,
the social services sector will receive 44.4% of the budget, followed by the
economic sector with 23.7%, general public services, which include public order
and safety with 22.0% of the budget and defense with 9.9%.
The President's budget is based on macroeconomic targets for 2005 which
include GDP growth between 5.3% and 6.3% and inflation between 4.0% and 5.0%.
Revenues are projected to reach P758.5 billion, of which P677.7 billion, or
89.3%, will come from taxes while the remaining P80.8 billion will be derived
from non-tax sources such as fees and charges, income and foreign grants. The
budget deficit is projected to decrease from 4.2% of GDP in 2004 to 3.6% of GDP,
or P184.5 billion, in 2005.
In its current 2005 fiscal program, the Government has proposed net
borrowing of P214.0 billion, reflecting a 6.3% decrease in net borrowing from
the P228.6 billion forecast for 2004. The proposed net borrowing of P214.0
billion for 2005 would result from a decrease of P4.7 billion in external
borrowings and an increase of P218.7 billion in domestic borrowings. The
proposed 2005 fiscal program calls for P122.5 billion in gross external
borrowing, or 21.9% of total gross borrowing, and P435.7 billion in gross
domestic borrowing, or 78.1% of total gross borrowing. The Government also
intends to pursue a policy of spreading out maturities in its debt profile.
There can be no assurance that actual borrowings in 2005 will be the same as
proposed in the current 2005 fiscal program or otherwise reflect currently
proposed policies.
EXTERNAL DEBT
As of March 31, 2004, the Republic's outstanding external debt approved by
or registered with Bangko Sentral was $56.7 billion, reflecting a decrease of
$700 million from the $57.4 billion recorded as of December 31, 2003 but an
increase of $1.2 billion from the $55.5 billion as of March 31, 2003. This
decrease over the first quarter of 2004 was mainly due to a change in Bangko
Sentral's accounting methodology to exclude resident-to-resident accounts from
external debt.
Applying the previously applied methodology, Bangko Sentral-approved
external debt rose by $1.3 billion over the first quarter of 2004 due to
additional borrowings and upward foreign exchange revaluation adjustments on
third-country-currency denominated debt resulting from the continued
depreciation of the US dollar against third-country currencies.
As of December 31, 2003, the outstanding direct external debt of the
Republic stood at $29.6 billion. Since December 31, 2003, the Government has
incurred an aggregate of $1.47 billion and E350 million of direct external debt.
Under the Electric Power Industry Reform Act of 2001, the Government is
obligated to assume P200 billion of NPC's debt. In June 2004, the Government
announced its intention to assume an additional P300 billion of debt of National
Power Corporation ("NPC") as part of the ongoing privatization of the Philippine
electric power industry. This would raise the total amount of debt of NPC to be
assumed by the Government to P500 billion (approximately $8.9 billion as of
September 8, 2004), but would not affect the consolidated public sector
financial position.
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INCREASE IN ELECTRICITY RATES BY NATIONAL POWER CORPORATION
On September 3, 2004, the Energy Regulatory Commission ("ERC") allowed
National Power Corporation ("NPC") a provisional increase in electricity rates
by an average of P0.98 per kilowatt-hour. NPC and Power Sector Assets and
Liabilities Management Corporation ("PSALM") had filed an application with the
ERC to increase electricity rates charged to its customers by an average of
P1.87 per kilowatt-hour. The rate increase will become effective on September
26, 2004 and is expected to reduce NPC's annual losses by P30 billion.
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DESCRIPTION OF THE GLOBAL BONDS
GENERAL
The global bonds will be issued under a fiscal agency agreement, dated as
of October 4, 1999, as amended by a supplement to the fiscal agency agreement
dated February 26, 2004 and supplemented by an additional supplement to be dated
September 17, 2004, between the Republic and JPMorgan Chase Bank, as fiscal
agent. The global bonds and the previously issued global bonds due 2025 referred
to below constitute a single series. The global bonds are a series of debt
securities more fully described in the accompanying prospectus, except to the
extent indicated below. The following statements are subject to the provisions
of the fiscal agency agreement, the supplemental fiscal agency agreement and the
global bonds. This summary does not purport to be complete and the description
below may not contain all of the information that is important to you as a
potential investor in the global bonds. The Republic has filed forms of these
documents as exhibits to the registration statement numbered 333-114312. You
should refer to the exhibits for more complete information. Capitalized terms
not defined below shall have the respective meanings given in the accompanying
prospectus.
The global bonds will:
- be a further issuance in an aggregate principal amount of $700,000,000,
for a total issuance of $2,000,000,000;
- bear interest at 10.625% per year from September 16, 2004;
- mature at par on March 16, 2025;
- pay interest on March 16 and September 16 of each year, commencing March
16, 2005; and
- pay interest to the persons in whose names the global bonds are
registered on the record date, which is the close of business on the
preceding March 1 or September 1 (whether or not a business day), as the
case may be. Interest will be calculated on the basis of a 360-day year,
consisting of twelve 30-day months.
The global bonds constitute a further issuance of, are fungible with and
are consolidated and form a single series with, the 10.625% Global Bonds due
2025 issued by the Republic on March 16, 2000 in the amount of $1,000,000,000
and the 10.625% Global Bonds due 2025 issued by the Republic on October 23, 2003
in the amount of $300,000,000. Upon issuance, the global bonds will rank pari
passu with the previously issued global bonds in all respects. The total
principal amount of the previously issued global bonds and the global bonds now
being issued is $2,000,000,000.
The Republic has applied to the Luxembourg Stock Exchange for listing of,
and permission to deal in, the global bonds in accordance with the rules of the
Luxembourg Stock Exchange. The Republic cannot guarantee that the application to
the Luxembourg Stock Exchange will be approved, and settlement of the global
bonds is not conditioned on obtaining the listing.
BOOK ENTRY
The Republic will issue the global bonds in the form of fully registered
global securities. The Republic will deposit the global securities with DTC and
register the global securities in the name of Cede & Co. as DTC's nominee.
Beneficial interests in the global securities will be represented by, and
transfers thereof will be effected only through, book-entry accounts maintained
by DTC and its participants.
You may hold your beneficial interests in a global security through
Euroclear or Clearstream, Luxembourg, or indirectly through organizations that
are participants in such systems. Euroclear and Clearstream, Luxembourg will
hold their participants' beneficial interests in a global security in their
customers' securities accounts with the Clearing System Depositaries. The
Clearing System Depositaries in turn will hold such interests in their
customers' securities accounts with DTC.
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CERTIFICATED SECURITIES
In circumstances detailed in the accompanying prospectus (see "Description
of the Securities -- Description of the Debt Securities -- Global Securities --
Registered Ownership of the Global Security"), the Republic could issue
certificated securities. The Republic will only issue certificated securities in
denominations of $1,000 and integral multiples of $1,000. The holders of
certificated securities shall present directly at the corporate trust office of
the fiscal agent, at the office of the Luxembourg paying and transfer agent or
at the office of any other transfer agent as the Republic may designate from
time to time all requests for the registration of any transfer of such
securities, for the exchange of such securities for one or more new certificated
securities in a like aggregate principal amount and in authorized denominations
and for the replacement of such securities in the cases of mutilation,
destruction, loss or theft. Certificated securities issued as a result of any
partial or whole transfer, exchange or replacement of the global bonds will be
delivered to the holder at the corporate trust office of the fiscal agent, at
the office of the Luxembourg paying and transfer agent or at the office of any
other transfer agent, or (at the risk of the holder) sent by mail to such
address as is specified by the holder in the holder's request for transfer,
exchange or replacement.
REGISTRATION AND PAYMENTS
The Republic will pay the principal amount of a global bond on its maturity
date in immediately available funds in the City of New York upon presentation of
the global bond at the office of the fiscal agent in the City of New York or,
subject to applicable law and regulations, at the office outside the United
States of any paying agent, including the Luxembourg paying agent (if the global
bonds are accepted for listing on the Luxembourg Stock Exchange and the rules of
the exchange so require).
The Republic will appoint the fiscal agent as registrar, principal paying
agent and transfer agent of the global bonds. In these capacities, the fiscal
agent will, among other things:
- maintain a record of the aggregate holdings of global bonds represented
by the global securities and any certificated securities and accept
global bonds for exchange and registration of transfer;
- ensure that payments of principal and interest in respect of the global
bonds received by the fiscal agent from the Republic are duly paid to the
depositaries for the global securities or their respective nominees and
any other holders of any global bonds; and
- transmit to the Republic any notices from holders of any of the global
bonds.
If the global bonds are accepted for listing on the Luxembourg Stock
Exchange, and the rules of the Luxembourg Stock Exchange so require, the
Republic will appoint and maintain a Luxembourg paying and transfer agent which
shall initially be J.P. Morgan Bank Luxembourg S.A. Payments and transfers with
respect to the global bonds may be effected through the Luxembourg paying and
transfer agent, which will be executed through Euroclear and Clearstream,
Luxembourg. Holders of certificated securities will be able to receive payments
thereon and effect transfers thereof at the offices of the Luxembourg paying and
transfer agent. Forms of the transfer notice (or other instrument of transfer)
are available, and duly completed transfer notices (or other instrument of
transfer) may be submitted, at the office of the Luxembourg paying and transfer
agent. For so long as the global bonds are listed on the Luxembourg Stock
Exchange, the Republic will publish any change as to the identity of the
Luxembourg paying and transfer agent in a leading newspaper in Luxembourg, which
is expected to be the Luxemburger Wort.
REDEMPTION AND SINKING FUND
The Republic may not redeem the global bonds prior to maturity. The
Republic will not provide a sinking fund for the amortization and retirement of
the global bonds.
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FURTHER ISSUES
For a description of the Republic's ability from time to time to issue
further bonds which will form a single series with the global bonds, see
"Description of the Securities -- Description of the Debt Securities -- Further
Issues of Debt Securities" in the accompanying prospectus.
REGARDING THE FISCAL AGENT
The fiscal agent has its principal corporate trust office at 4 New York
Plaza, 15th Floor, New York, New York 10004. The Republic will at all times
maintain a paying agent and a transfer agent in the City of New York which will,
unless otherwise provided, be the fiscal agent. The Republic may maintain
deposit accounts and conduct other banking transactions in the ordinary course
of business with the fiscal agent. The fiscal agent will be the agent of the
Republic, not a trustee for holders of any global bonds. Accordingly, the fiscal
agent will not have the same responsibilities or duties to act for such holders
as would a trustee, except that monies held by the fiscal agent as payment of
principal, premium or interest on the global bonds shall be held by the fiscal
agent in trust for the holders of the global bonds.
The fiscal agency agreement and the supplement to the fiscal agency
agreement are not required to be qualified under the US Trust Indenture Act of
1939. Accordingly, the fiscal agency agreement and the supplemental fiscal
agency agreement may not contain all of the provisions which could be beneficial
to holders of the global bonds which would be contained in an indenture
qualified under the Trust Indenture Act.
NOTICES
All notices will be mailed to the registered holders of the global bonds.
If a depositary is the registered holder of the global bonds, each beneficial
holder must rely on the procedures of the depositary and its participants to
receive notice, subject to any statutory or regulatory requirements.
In connection with the application to list the global bonds on the
Luxembourg Stock Exchange, the Republic expects to undertake that so long as the
global bonds are listed on the Luxembourg Stock Exchange, all notices also will
be published in Luxembourg in the Luxembourg Wort. If the Republic cannot, for
any reason, publish notice in the Luxembourg Wort, it expects to choose an
appropriate alternate English language newspaper of general circulation in
Luxembourg. Notice will be considered made as of the first date of its
publication.
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GLOBAL CLEARANCE AND SETTLEMENT
The Depository Trust Company ("DTC"), Euroclear and Clearstream, Luxembourg
have established links among themselves to facilitate the initial settlement of
the global bonds and cross-market transfers of the global bonds in secondary
market trading. DTC will be linked to JPMorgan Chase Bank, a New York banking
corporation, as depositary of the Euroclear System ("Euroclear"), and Citibank,
N.A. as depositary for Clearstream Banking, societe anonyme ("Clearstream,
Luxembourg") (the "Clearing System Depositaries").
Although DTC, Euroclear and Clearstream, Luxembourg have agreed to the
procedures provided below to facilitate transfers of global bonds among
participants of DTC, Euroclear and Clearstream, Luxembourg, they are under no
obligation to perform such procedures. In addition, such procedures may be
modified or discontinued at any time. Neither the Republic nor the Fiscal Agent
will have any responsibility for the performance by DTC, Euroclear or
Clearstream, Luxembourg or their respective participants or indirect
participants of the respective obligations under the rules and procedures
governing their operations.
THE CLEARING SYSTEMS
THE DEPOSITORY TRUST COMPANY. DTC is:
- a limited-purpose trust company organized under the New York Banking Law;
- a "banking organization" under the New York Banking Law;
- a member of the Federal Reserve System;
- a "clearing corporation" under the New York Uniform Commercial Code; and
- a "clearing agency" registered under Section 17A of the US Securities
Exchange Act of 1934.
DTC was created to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between its participants. It
does this through electronic book-entry changes in the accounts of its direct
participants, eliminating the need for physical movement of securities
certificates. DTC is owned by a number of its direct participants and by the New
York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc.
DTC can act only on behalf of its direct participants, who in turn act on
behalf of indirect participants and certain banks. In addition, unless a global
security is exchanged in whole or in part for a definitive security, it may not
be physically transferred, except as a whole among DTC, its nominees and their
successors. Therefore, your ability to pledge a beneficial interest in the
global security to persons that do not participate in the DTC system, and to
take other actions, may be limited because you will not possess a physical
certificate that represents your interest.
EUROCLEAR AND CLEARSTREAM, LUXEMBOURG. Like DTC, Euroclear and
Clearstream, Luxembourg hold securities for their participants and facilitate
the clearance and settlement of securities transactions between their
participants through electronic book-entry changes in their accounts. Euroclear
and Clearstream, Luxembourg provide various services to their participants,
including the safekeeping, administration, clearance and settlement and lending
and borrowing of internationally traded securities. Euroclear and Clearstream,
Luxembourg participants are financial institutions such as underwriters,
securities brokers and dealers, banks, trust companies and other organizations.
The underwriters for the global bonds or their affiliates may be participants in
Euroclear or Clearstream, Luxembourg. Other banks, brokers, dealers and trust
companies have indirect access to Euroclear or Clearstream, Luxembourg by
clearing through or maintaining a custodial relationship with a Euroclear or
Clearstream, Luxembourg participant.
INITIAL SETTLEMENT
If you plan to hold your interests in the securities through DTC, you will
follow the settlement practices applicable to global security issues. If you
plan to hold your interests in the securities through Euroclear or Clearstream,
Luxembourg, you will follow the settlement procedures applicable to conventional
Eurobonds in
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registered form. If you are an investor on the settlement date, you will pay for
the global bonds by wire transfer and the entity through which you hold your
interests in the global bonds will credit your securities custody account.
SECONDARY MARKET TRADING
The purchaser of securities determines the place of delivery in secondary
market trading. Therefore, it is important for you to establish at the time of
the trade where both the purchaser's and seller's accounts are located to ensure
that settlement can be made on the desired value date (i.e., the date specified
by the purchaser and seller on which the price of the securities is fixed).
SETTLEMENT AMONG DTC PARTICIPANTS. DTC participants will transfer
interests in the securities among themselves in the ordinary way according to
the rules and operating procedures of DTC governing global security issues.
Participants will pay for these transfers by wire transfer.
SETTLEMENT AMONG EUROCLEAR AND/OR CLEARSTREAM, LUXEMBOURG
PARTICIPANTS. Euroclear and Clearstream, Luxembourg participants will transfer
interests in the securities among themselves in the ordinary way according to
the rules and operating procedures of Euroclear and Clearstream, Luxembourg
governing conventional Eurobonds. Participants will pay for these transfers by
wire transfer.
SETTLEMENT BETWEEN A DTC SELLER AND A EUROCLEAR OR CLEARSTREAM, LUXEMBOURG
PURCHASER. When the securities are to be transferred from the account of a DTC
participant to the account of a Euroclear or Clearstream, Luxembourg
participant, the purchaser must first send instructions to Euroclear or
Clearstream, Luxembourg through a participant at least one business day before
the settlement date for such securities. Euroclear or Clearstream, Luxembourg
will then instruct its depositary to receive the securities and make payment for
them. On the settlement date for such securities, the depositary will make
payment to the DTC participant's account and the securities will be credited to
the depositary's account. After settlement has been completed, DTC will credit
the securities to Euroclear or Clearstream, Luxembourg, Euroclear or
Clearstream, Luxembourg will credit the securities, in accordance with its usual
procedures, to the participant's account, and the participant will then credit
the purchaser's account. These securities credits will appear the next day
(European time) after the settlement date. The cash debit from the account of
Euroclear or Clearstream, Luxembourg will be back-valued to the value date,
which will be the preceding day if settlement occurs in New York. If settlement
is not completed on the intended value date (i.e., the trade fails), the cash
debit will instead be valued at the actual settlement date.
Participants in Euroclear and Clearstream, Luxembourg will need to make
funds available to Euroclear or Clearstream, Luxembourg in order to pay for the
securities by wire transfer on the value date. The most direct way of doing this
is to preposition funds (i.e., have funds in place at Euroclear or Clearstream,
Luxembourg before the value date), either from cash on hand or from existing
lines of credit. Under this approach, however, participants may take on credit
exposure to Euroclear and Clearstream, Luxembourg until the securities are
credited to their accounts one day later.
As an alternative, if Euroclear or Clearstream, Luxembourg has extended a
line of credit to a participant, the participant may decide not to preposition
funds, but to allow Euroclear or Clearstream, Luxembourg to draw on the line of
credit to finance settlement for the securities. Under this procedure, Euroclear
or Clearstream, Luxembourg would charge the participant overdraft charges for
one day, assuming that the overdraft would be cleared when the securities were
credited to the participant's account. However, interest on the securities would
accrue from the value date. Therefore, in many cases the interest income on
securities which the participant earns during that one-day period will
substantially reduce or offset the amount of the participant's overdraft
charges. Of course, this result will depend on the cost of funds to (i.e., the
interest rate that Euroclear or Clearstream, Luxembourg charges) each
participant.
Since the settlement will occur during New York business hours, a DTC
participant selling an interest in the securities can use its usual procedures
for transferring global securities to the Clearing System Depositaries of
Euroclear or Clearstream, Luxembourg for the benefit of Euroclear or
Clearstream,
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Luxembourg participants. The DTC seller will receive the sale proceeds on the
settlement date. Thus, to the DTC seller, a cross-market sale will settle no
differently than a trade between two DTC participants.
Finally, day traders that use Euroclear or Clearstream, Luxembourg and that
purchase global bonds from DTC participants for credit to Euroclear participants
or Clearstream, Luxembourg participants should note that these trades will
automatically fail on the sale side unless one of the following three steps is
taken:
- borrowing through Euroclear or Clearstream, Luxembourg for one day, until
the purchase side of the day trade is reflected in their Euroclear
account or Clearstream, Luxembourg account, in accordance with the
clearing system's customary procedures;
- borrowing the global bonds in the United States from a DTC participant no
later than one day prior to settlement, which would give the global bonds
sufficient time to be reflected in the borrower's Euroclear account or
Clearstream, Luxembourg account in order to settle the sale side of the
trade; or
- staggering the value dates for the buy and sell sides of the trade so
that the value date of the purchase from the DTC participant is at least
one day prior to the value date for the sale to the Euroclear participant
or Clearstream, Luxembourg participant.
SETTLEMENT BETWEEN A EUROCLEAR OR CLEARSTREAM, LUXEMBOURG SELLER AND A DTC
PURCHASER. Due to time zone differences in their favor, Euroclear and
Clearstream, Luxembourg participants can use their usual procedures to transfer
securities through their Clearing System Depositaries to a DTC participant. The
seller must first send instructions to Euroclear or Clearstream, Luxembourg
through a participant at least one business day before the settlement date.
Euroclear or Clearstream, Luxembourg will then instruct its depositary to credit
the securities to the DTC participant's account and receive payment. The payment
will be credited in the account of the Euroclear or Clearstream, Luxembourg
participant on the following day, but the receipt of the cash proceeds will be
back valued to the value date, which will be the preceding day if settlement
occurs in New York. If settlement is not completed on the intended value date
(i.e., the trade fails), the receipt of the cash proceeds will instead be valued
at the actual settlement date.
If the Euroclear or Clearstream, Luxembourg participant selling the
securities has a line of credit with Euroclear or Clearstream, Luxembourg and
elects to be in debit for the securities until it receives the sale proceeds in
its account, then the back-valuation may substantially reduce or offset any
overdraft charges that the participant incurs over that one-day period.
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TAXATION
GENERAL
The Republic urges you to consult your own tax advisors to determine your
particular tax consequences in respect of participating in the offering, and of
owning and selling the global bonds.
PHILIPPINE TAXATION
The following is a summary of certain Philippine tax consequences that may
be relevant to non-Philippine holders of the global bonds in connection with the
holding and disposition of the global bonds. The Republic uses the term
"non-Philippine holders" to refer to (i) non-residents of the Philippines who
are neither citizens of the Philippines nor are engaged in trade or business
within the Philippines or (ii) non-Philippine corporations not engaged in trade
or business in the Philippines.
This summary is based on Philippine laws, rules, and regulations now in
effect, all of which are subject to change. It is not intended to constitute a
complete analysis of the tax consequences under Philippine law of the receipt,
ownership, or disposition of the global bonds, in each case by non-Philippine
holders, nor to describe any of the tax consequences that may be applicable to
residents of the Republic.
EFFECT OF HOLDING GLOBAL BONDS. Payments by the Republic of principal of
and interest on the global bonds to a non-Philippine holder will not subject
such non-Philippine holder to taxation in the Philippines by reason solely of
the holding of the global bonds or the receipt of principal or interest in
respect thereof.
TAXATION OF INTEREST ON THE GLOBAL BONDS. When the Republic makes payments
of principal and interest to you on the global bonds, no amount will be withheld
from such payments for, or on account of, any taxes of any kind imposed, levied,
withheld or assessed by the Philippines or any political subdivision or taxing
authority thereof or therein.
TAXATION OF CAPITAL GAINS. Non-Philippine holders of the global bonds will
not be subject to Philippine income or withholding tax in connection with the
sale, exchange, or retirement of a global bond if such sale, exchange or
retirement is made outside the Philippines or an exemption is available under an
applicable tax treaty in force between the Philippines and the country of
domicile of the non-Philippine holder. Under the Philippine Tax Code, any gain
realized from the sale, exchange or retirement of securities with an original
maturity of more than five years from the date of issuance will not be subject
to income tax. Since the global bonds have a maturity of more than five years
from the date of issuance, any gains realized by a holder of the global bonds
will not be subject to Philippine income tax.
DOCUMENTARY STAMP TAXES. No documentary stamp tax is imposed upon the
transfer of the global bonds. A documentary stamp tax, at the rate of P1.00 for
every P200, or fractional amount thereof, of the issue value, is payable upon
the issuance of the global bonds and will be for the account of the Republic.
ESTATE AND DONOR'S TAXES. The transfer of a global bond by way of
succession upon the death of a non-Philippine holder will be subject to
Philippine estate tax at progressive rates ranging from 5% to 20% if the value
of the net estate of properties located in the Philippines is over P200,000.
The transfer of a global bond by gift to an individual who is related to
the nonresident holder will generally be subject to a Philippine donor's tax at
progressive rates ranging from 2% to 15% if the value of the net gifts of
properties located in the Philippines exceed P100,000 during the relevant
calendar year. Gifts to unrelated donees are generally subject to tax at a flat
rate of 30%. An unrelated donee is a person who is not a (i) brother, sister
(whether by whole or half blood), spouse, ancestor, or lineal descendant or (ii)
relative by consanguinity in the collateral line within the fourth degree of
relationship.
The foregoing apply even if the holder is a nonresident holder. However,
the Republic will not collect estate and donor's taxes on the transfer of the
global bonds by gift or succession if the deceased at the time of death, or the
donor at the time of donation, was a citizen and resident of a foreign country
that provides certain reciprocal rights to citizens of the Philippines (a
"Reciprocating Jurisdiction"). For these purposes, a Reciprocating Jurisdiction
is a foreign country which at the time of death or donation (i) did not impose a
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transfer tax of any character in respect of intangible personal property of
citizens of the Philippines not residing in that foreign country or (ii) allowed
a similar exemption from transfer or death taxes of every character or
description in respect of intangible personal property owned by citizens of the
Philippines not residing in that foreign country.
UNITED STATES TAXATION
The global bonds to be issued pursuant to this offering should form part of
a "qualified reopening" and therefore, part of the issue by the Republic on
March 16, 2000, of 10.625% Global Bonds due 2025 for US federal tax purposes.
For a description of certain United States tax aspects of the global bonds,
see "Taxation -- United States Tax Considerations" in the accompanying
prospectus.
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UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement,
which consists of a terms agreement dated September 8, 2004 and the underwriting
agreement standard terms filed as an exhibit to the registration statement, the
Republic has agreed to sell to the underwriters, namely Credit Suisse First
Boston LLC, Deutsche Bank Securities Inc. and J.P. Morgan Securities Inc. In the
underwriting agreement, the Republic has agreed to sell to the underwriters, and
the underwriters have agreed to purchase from the Republic, global bonds in the
principal amount of $700,000,000. Each of the underwriters, severally and not
jointly, has agreed to purchase from the Republic, the principal amounts of the
global bonds listed opposite its name below.
<Table>
<Caption>
UNDERWRITERS PRINCIPAL AMOUNT
- ------------ ----------------
Credit Suisse First Boston LLC.............................. $233,333,334
Eleven Madison Avenue
New York, New York 10010
United States of America
Deutsche Bank Securities Inc. .............................. $233,333,333
60 Wall Street
New York, New York 10005
United States of America
J.P. Morgan Securities Inc. ................................ $233,333,333
270 Park Avenue
New York, New York 10017
United States of America
------------
Total.................................................. $700,000,000
============
</Table>
The underwriting agreement provides that the underwriters are obligated to
purchase all of the global bonds if any are purchased. The underwriting
agreement also provides that if an underwriter defaults, the purchase commitment
of the non-defaulting underwriters may be increased or the offering of the
global bonds may be terminated.
The Republic has agreed to indemnify the underwriters against liabilities
under the US Securities Act of 1933 or contribute to payments which the
underwriters may be required to make in that respect.
The Republic estimates that its out-of-pocket expenses for this offering
will be approximately $120,000. The underwriters have agreed to reimburse the
Republic for certain of its expenses.
COMMISSIONS AND DISCOUNTS
The underwriters have advised the Republic that they propose to offer the
global bonds to the public initially at the public offering price that appears
on the cover page of this prospectus supplement. After the initial public
offering, the underwriters may change the public offering price and any other
selling terms.
In connection with this offering of the global bonds, the underwriters may
engage in overallotment, stabilizing transactions and syndicate covering
transactions in accordance with Regulation M under the Securities Exchange Act
of 1934. Overallotment involves sales in excess of the offering size, which
create a short position for the underwriters. Stabilizing transactions involve
bids to purchase the global bonds in the open market for the purpose of pegging,
fixing or maintaining the price of the global bonds. Syndicate covering
transactions involve purchases of the global bonds in the open market after the
distribution has been completed in order to cover short positions. Stabilizing
transactions and syndicate covering transactions may cause the price of the
global bonds to be higher than it would otherwise be in the absence of those
transactions. If the underwriters engage in stabilizing or syndicate covering
transactions, they may discontinue them at any time. The Republic has been
advised by the underwriters that they intend to make a market in the global
bonds, but the underwriters are not obligated to do so and may discontinue any
market-making activities at any time without notice. No assurance can be given
as to the liquidity of or the trading market for the global bonds.
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In compliance with NASD guidelines the maximum compensation to any
underwriters or agents in connection with the sale of any securities pursuant to
the prospectus and applicable prospectus supplements (including this supplement)
will not exceed 8% of the aggregate total offering price to the public of such
securities as set forth on the cover page of the applicable prospectus
supplement; however, it is anticipated that the maximum compensation paid will
be significantly less than 8%.
UK SELLING RESTRICTIONS
Each underwriter represents and agrees that it has complied and will comply
with all applicable provisions of the FSMA with respect to anything done by it
in relation to the global bonds in, from or otherwise involving the United
Kingdom.
HONG KONG SELLING RESTRICTIONS
Each underwriter has represented and agreed that it has not issued or had
in its possession for the purposes of issue, and will not issue or have in its
possession for the purpose of issue, any advertisement, invitation or document
relating to the global bonds, whether in Hong Kong or elsewhere, which is
directed at, or the contents of which are likely to be accessed or read by, the
public in Hong Kong (except if permitted to do so under the securities laws of
Hong Kong) other than with respect to global bonds which are or are intended to
be disposed of only to persons outside Hong Kong or only to "professional
investors" within the meaning of the Securities and Futures Ordinance (Cap. 571)
of the laws of Hong Kong and any rules made thereunder.
SINGAPORE SELLING RESTRICTIONS
This prospectus supplement and the prospectus to which it relates have not
been registered as a prospectus with the Monetary Authority of Singapore.
Accordingly, the global bonds may not be offered or sold or made the subject of
an invitation for subscription or purchase nor may this prospectus supplement
and the prospectus to which it relates or any other document or material in
connection with the offer or sale, or invitation for subscription or purchase of
such global bonds be circulated or distributed, whether directly or indirectly,
to the public or any member of the public in Singapore other than (1) to an
institutional investor or other person specified in Sections 274 and 289 of the
Securities and Futures Act (the "SFA"), (2) to a sophisticated investor (as
defined in Section 275 of the SFA) and in accordance with the conditions
specified in Section 275 of the SFA or (3) otherwise than pursuant to, and in
accordance with the conditions of, any other applicable provision of the SFA.
JAPAN SELLING RESTRICTIONS
The global bonds have not been and will not be registered under the
Securities and Exchange Law of Japan (the "Securities and Exchange Law"), and
each underwriter has not and will not offer or sell any global bonds, directly
or indirectly, in Japan or to, or for the benefit of, any resident of Japan
(which term as used herein means any person resident in Japan, including any
corporation or other entity organized under the laws of Japan) or to others for
reoffering or resale, directly or indirectly, in Japan or to any resident of
Japan except in compliance with all the applicable laws and regulations of
Japan. Pursuant to the Foreign Exchange and Foreign Trade Law of Japan, the
Republic may be required to file a report in connection with the issuance or
offering of global bonds in Japan or the issuance or offering outside Japan of
global bonds denominated or payable in Yen with the Ministry of Finance of Japan
(the "MOF") within a limited period of time after the issue of the global bonds.
Each underwriter is required to provide any necessary information on sales of
global bonds in Japan to the Republic (which shall not include the names of the
purchasers thereof) so that the Republic may make such reports to the MOF.
REPUBLIC OF THE PHILIPPINES SELLING RESTRICTIONS
The global bonds constitute exempt securities within the meaning of the
Philippine Securities Regulation Code and as such are not required to be
registered under the provisions of the said Code before they can be
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sold or offered for sale or distribution in the Philippines. However, the global
bonds may be sold or offered for sale in the Philippines only by underwriters,
dealers or brokers duly licensed by the Philippine Securities and Exchange
Commission.
NETHERLANDS SELLING RESTRICTIONS
The global bonds may not be offered, sold, transferred or delivered in the
Netherlands as part of their initial distribution or at any time thereafter,
directly or indirectly, other than to banks, brokers, pension funds, insurance
companies, securities firms, investment institutions, central governments, large
international and supranational institutions and other comparable entities,
including, inter alia, treasuries and finance companies of large enterprises
which trade or invest in securities in the conduct of a profession or trade.
Individuals or legal entities who or which do not trade or invest in securities
in the conduct of their profession or trade may not participate in the offering,
and the prospectus supplement and the accompanying prospectus may not be
considered an offer or the prospect of an offer to participate in the offering.
REPUBLIC OF ITALY SELLING RESTRICTIONS
No solicitations in connection with the global bond offering will be made
in Italy by any party, including the underwriters. No copies of this prospectus
supplement, the accompanying prospectus or any other documents relating to the
global bonds or the global bond offering will be distributed in Italy. No global
bonds will be offered, sold or delivered in Italy.
SETTLEMENT AND DELIVERY
The Republic expects that delivery of the global bonds will be made against
payment therefor on or about the closing date specified on the cover page of
this prospectus supplement, which will be the seventh business day following the
date of pricing of the global bonds. Under Rule 15c6-1 of the Exchange Act,
trades in the secondary market generally are required to settle in three
business days, unless the parties to a trade expressly agree otherwise.
Accordingly, purchasers who wish to trade global bonds on the date of pricing or
the next succeeding business day will be required, by virtue of the fact that
the global bonds initially will settle in T+7, to specify alternative settlement
arrangements to prevent a failed settlement.
RELATIONSHIP OF UNDERWRITERS WITH THE REPUBLIC
The underwriters have in the past and may in the future provide investment
and commercial banking and other related services to the Republic in the
ordinary course of business for which the underwriters and/or their respective
affiliates have received or may receive customary fees and reimbursement of out
of pocket expenses.
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LEGAL MATTERS
The validity of the global bonds will be passed upon on behalf of the
Republic as to Philippine law by the Secretary of the Department of Justice of
the Republic, and as to US and New York State law by Allen & Overy. Certain
matters will be passed upon for the underwriters by Cleary, Gottlieb, Steen &
Hamilton, United States counsel for the underwriters, as to matters of US and
New York State law, and by Romulo, Mabanta, Buenaventura, Sayoc & de los
Angeles, Philippine counsel for the underwriters, as to matters of Philippine
law.
GENERAL INFORMATION
1. The global bonds have been accepted for clearance through The Depository
Trust Corporation, Euroclear and Clearstream, Luxembourg. The Common Code number
is 010907888, the International Securities Identification Number is US718286AP29
and the CUSIP number is 718286AP2.
2. The issue and sale of the global bonds was authorized by the Special
Authority signed by the President of the Republic dated March 26, 2004 and the
Special Authority signed by the President of the Republic dated September 6,
2004.
3. Except as disclosed in this prospectus supplement and the accompanying
prospectus, there has been no material adverse change in the fiscal condition or
affairs of the Republic which is material in the context of the issue of the
global bonds since April 15, 2004.
4. Application has been made to list the global bonds on the Luxembourg
Stock Exchange. Copies of the following documents will, so long as any global
bonds are listed on the Luxembourg Stock Exchange, be available for inspection
during usual business hours at the specified office of J.P. Morgan Bank
Luxembourg S.A. in Luxembourg:
- copies of the Registration Statement, which includes the fiscal agency
agreement and the form of the underwriting agreement as exhibits thereto;
and
- the Special Authority signed by the President of the Republic dated March
26, 2004, the Special Authority signed by the President of the Republic
dated September 6, 2004 and the resolution of the Monetary Board of
Bangko Sentral adopted on September 2, 2004, authorizing the issue and
sale of the global bonds.
In addition, so long as the global bonds are outstanding or listed on the
Luxembourg Stock Exchange, copies of the Philippines' economic reports for each
year in English (as and when available) will be available at the offices of the
listing agent in Luxembourg during normal business hours on any weekday. The
underwriting agreement, the fiscal agency agreement and the supplement to the
fiscal agency agreement shall also be available free of charge at the office of
the listing agent and the Luxembourg paying and transfer agent.
5. J.P. Morgan Bank Luxembourg S.A. has been appointed as the Luxembourg
paying and transfer agent. For so long as the global bonds are listed on the
Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so
require, the Republic will maintain a Luxembourg paying and transfer agent.
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ISSUER
REPUBLIC OF THE PHILIPPINES
Department of Finance
Office of the Secretary
Department of Finance Building
BSP Complex
Manila
Republic of the Philippines
LEGAL ADVISORS TO THE REPUBLIC OF THE PHILIPPINES
<Table>
As to U.S. law: As to Philippine law:
ALLEN & OVERY DEPARTMENT OF JUSTICE
9th Floor, Three Exchange Square Padre Faura Street
Central Malate
Hong Kong Manila
Republic of the Philippines
</Table>
LEGAL ADVISORS TO THE DEALER MANAGERS AND UNDERWRITERS
<Table>
As to U.S. law: As to Philippine law:
CLEARY, GOTTLIEB, STEEN & HAMILTON ROMULO, MABANTA, BUENAVENTURA,
Bank of China Tower SAYOC & DE LOS ANGELES
One Garden Road 30th Floor, Citibank Tower
Hong Kong 8741 Paseo De Roxas
Makati City
Republic of the Philippines
FISCAL AGENT, REGISTRAR, TRANSFER AGENT AND LUXEMBOURG LISTING AGENT
PRINCIPAL PAYMENT AGENT
JPMORGAN CHASE BANK J.P. MORGAN BANK LUXEMBOURG S.A.
4 New York Plaza 5 Rue Plaetis
15th Floor L-2338 Luxembourg
New York, New York 10004 Luxembourg
United States of America
</Table>
LUXEMBOURG PAYING AND TRANSFER AGENT
J.P. MORGAN BANK LUXEMBOURG S.A.
5 Rue Plaetis
L-2338 Luxembourg
Luxembourg
[REPUBLIC OF THE PHILIPPINES LOGO]