$1-B Loan Boosts Global Stability

MANILA, Philippines - Malacañang said on Tuesday that the country's $1-billion contribution to the pool of funds the International Monetary Fund (IMF) is drawing up for lending to the economies in the European Community that are in financial dire strait will help promote global stability, while the Bangko Sentral ng Pilipinas (BSP) stands to earn interest from the transaction.

Presidential spokesman Edwin Lacierda emphasized that it is in the interest of the Philippines to help promote global stability in order to shield overseas Filipino workers from any possible economic fallout.

"It is a loan and the BSP will earn from the transaction," former BSP Governor Gabriel C. Singson said in an interview with the Manila Bulletin.

The BSP contribution to the IMF facility under the Financial Transaction Plan (FTP) is a form of portfolio diversification.

It does not only constitute lending, per se, but more importantly helps the economies in the Eurozone going on a tailspin, thereby, averting any spill-over effect on the Philippine economy.

Under the transaction, the BSP earns interest rate of 0.3 percent, which is higher than the US Treasuries currently playing at 0.29 percent and carries a tenor or 10 years between the BSP and the IMF.

On the other hand, economies from the Eurozone borrowing from FTP will have a maturity, ranging from three years and three months to ten years depending on the amount loaned.

The IMF has asked nations with strong dollar reserves to contribute to the FTP to assists, in particular, nations in the Eurozones facing financial difficulty and to avert any negative spill-over effect on other countries and the global economy, in general.

The IMF is aiming to raise more than $400 billion for the FTP.

The need to pool in resources has been underscored in order to prevent spillover to other parts of the world that includes emerging economies like the Philippines.

At present, the Eurozone accounts for 17 percent of the country's export performance, including thousands of overseas Filipino workers.

It was pointed out that the BSP participation to the FTP using the Gross International Reserves (GIR) is another form of investment. GIRs are reserve assets held in gold and foreign currencies.

The Monetary Board (MB), the policy-making body of the BSP, under Section 75 of Republic Act 7653 - the law creating the autonomous BSP, has the flexibility and authority to invest the dollar reserves or the GIR in Triple AAA investment grade financial instruments such as foreign banks and international financial institutions - as in this case, the IMF.

Triple AAA financial instruments are debt notes believed to the very least chance of default such as Japanese and Euro bonds and US Treasuries. The BSP is allowed to shift or diversify its portfolio from investments or holdings of debt instruments in bonds/notes and other foreign currencies to loans.

Thus, the $1 billion commitment of the BSP to the FTP is a form of portfolio diversification.

Singson stressed this amidst the flurry of criticisms BSP has been receiving from lawmakers, some of whom suggested that to enter into such a transaction would require congressional approval.

"The BSP can engage in international transactions like borrowings. When we borrow, do we need Congressional approval?" Singson asked.

But Sen. Ralph G. Recto said BSP, as a creation of Congress, could not claim sole proprietary rights over the country's dollar reserves and should seek consensus first or secure appropriation cover from Congress.

"I'm not totally opposing it but how can the government, through the BSP, lend money to IMF without authority from Congress?" the senator asked.

It was stressed that the country's dollar reserves is not part of the general fund of the national government and, therefore, could not be used for maintenance and operating expenses such as paying salaries of state employees and finance vital infrastructure projects.

According to BSP Deputy Governor Diwa Guinigundo, the monetary authorities have approved the country's contribution to the FTP.

The Department of Finance has been consulted about it and has given its consent, Guinigundo said.

Finance Secretary Cesar Purisima is an MB member representing the national government, which paved the way for the policy decision to be officially transmitted to Malacañang for approval.

On June 19, the Palace has given the green light for the BSP to proceed with the country's participation to the FTP.

To date, the Japanese government has pledged to infuse $60 billion; China, $43 biilion; and Indonesia and Thailand, $1 billion each.

BSP builds up the reserves by buying the dollar holdings of the private sector that needs peso or local currency.

It also buys the foreign loan proceeds of the national government.

Despite these assurances, Recto said the government, particularly the Bangko Sentral ng Pilipinas (BSP) owe it to the Filipino people to clarify its move to commit $1 billion of the country's dollar reserves for the economic bailout being packaged by the IMF for troubled European economies.

Recto said the BSP must clearly explain to the people why the government is lending out to IMF while it continuously borrows from international lending and multilateral institutions for budgetary support and deficit spending.

On the part of public school teachers, they "scolded" President Benigno S. Aquino III for not "knowing his priorities" after the disclosure of the Philippines' $1-billion loan.

According to Alliance of Concerned Teachers (ACT), Aquino "again missed the whole point" when it comes to priorities. "In crisis situations, we teach our children that they should know their priorities. Obviously, PNoy again did not understand this one great lesson," ACT secretary general France Castro said.

ACT said that Aquino should have considered first the country's internal needs, particularly of education sector. "The $1 billion is more than enough to fund the current budgetary requirements for kindergarten program," Castro said.

Retired Lingayen-Dagupan Archbishop Oscar Cruz reminded the Aquino administration that "charity begins at home".

"Charity begins at home. I'm not saying that it's wrong to help others, but I think you should also consider your people who are in need of more help," he said in a forum in Manila.

Despite these criticisms, the Malacañang said there are no plans to pull out the government's $1-billion loan commitment to the IMF.

Presidential spokesman Edwin Lacierda instead urged the public to trust the BSP in its loan pledge to the IMF aimed at helping troubled European nations, saying the BSP Governor Amando Tetangco Jr. would not do anything to harm the country's fiscal position.

Lacierda emphasized that it is in the "interest" of the Philippines to help promote global stability in order to shield overseas Filipino workers from any possible economic fallout.

"We are not wasting the money. It is a loan and the IMF will pay us back the loan. Non-monetarily, it is going to help us because it is going to help the economies of Europe where we have a substantial number of overseas Filipino workers," Lacierda said in a Palace news conference. -with reports from Rolly T. Carandang, Ina Hernando Malipot, and Leslie Ann G. Aquino