PHL’s $1-B loan to IMF not the first nor the biggest

One billion dollars is roughly P42 billion, and can buy 1.5 billion kgs of National Food Authority rice or 267.50 million Big Mac meals.  For a country like the Philippines, that as of March 31 owes $62.9 billion in foreign debt and where only about 20 percent of citizens have bank deposits, $1 billion is a significant amount.   So when Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. revealed that the BSP is “extending a $1-billion loan to the International Monetary Fund… to ensure economic and financial stability across the globe,” the news was a surprise to some at the very least.   The $1-billion loan of the Philippines forms the $456-billion multilateral fund that will be extended to debt-stricken European countries such as Greece, Portugal, Italy, and Spain.   “[BSP’s loan extension is] an arrogant pretension of a country very much in debt,” the Freedom from Debt Coalition (FDC) said in a statement.   “May pera pala tayo? Bakit kapag sa pagkain ng mga nagugutom, sa edukasyon ng mga bata, sa kalusugan ng mga may sakit, at sa pabahay para sa maralita, kung hindi kulang, walang budget?” added urban poor leader Mercy Donor, also a member of the FDC.   Public reaction to the loan was also one of surprise and disappointment based on the notion that international reserves in the custody and management of the BSP could be spent like the national budget.   Not just $1 billion   They also may have not known that in December 2009, the Philippines pitched in a much larger amount of $4.55 billion to a $120-billion Asian crisis buffer fund known as the Chiang Mai Initiative Multilateralization (CMIM).   “Hindi ko matandaan [kung gumawa kami ng statement]… As far as I recall wala pa [kaming statement tungkol sa CMIM loan],” Bobby Diciembre, media officer of Freedom from Debt Coalition, told GMA News Online.   The BSP said, “The Philippines, through the BSP contributed $9.104 billion to the CMIM. The Philippines may be able to borrow up to 2.5 times its contribution to the CMIM, i.e., $22.76 billion.”   It may have also escaped the attention of the FDC that in December 2011, the Philippines made available – also to the IMF – $251.5 million to the Financial Transactions Plan (FTP), through which the IMF finances its lending and repayment operations.   Then last May, during the Manila-hosted Asian Development Bank (ADB) annual meeting, the CMIM fund doubled to $240 billion and the Philippines pledged also doubled to $9 billion.   Foreign reserves   The gross international reserves (GIR), the source of the $1 billion pledged to the IMF stood at $76.1 billion as of end-March. Before the year ends, BSP estimated the GIR to reach $77.5 billion to $78 billion from an earlier forecast of $79 billion.   The New Central Bank Act mandates the BSP to maintain international reserves.   “In order to maintain the international stability and convertibility of the Philippine peso, the Bangko Sentral shall maintain international reserves adequate to meet any foreseeable net demands on the Bangko Sentral for foreign currencies,” Republic Act 7653 provides.   Tetangco said the Philippines’ “economic fundamentals are sound... and capable of lending $1 billion from our international reserves to the IMF.”   “This is a loan to the IMF and we will get our money back with interest,” the Bangko Sentral chief noted.   He boasted that after 45 years of being a borrower of the IMF, the Philippines in 2006 was able to pay all its debt to the multilateral lender.   Sought for comment, Cid Terosa, senior economist at the University of Asia and the Pacific, said, “Wala talagang direct benefit sa Philippines [ang loan extension sa IMF] except that we are fulfilling our duty to help other countries. I would like to call it an act of good will.”   He noted: “[The] indirect benefits probably includes helping our overseas Filipino workers based in European countries. Through the help given by the IMF to the European countries, it will revive the economy [of debt stricken countries], which hopefully creates more jobs for OFWs in Europe.”   Asked if the loan can be considered as an investment for the country, the senior economist said, “I believe so… A different kind of investment because [the European countries] may provide possible future assistance to us… Extending $1 billion loan could result to $1 billion future assistance.”   Technically, Terosa said the loan only reduces the amount of the GIR to about one to two months short.   “Our GIR levels are good for 11 months but [because of the loan] it will only be good for nine months,” the UA&P professor said, adding that the country’s GIR will gain what it lends within months.   BSP legal mandate   Some were of the impression that constitutional and legal issues are involved or related to the BSP decision to participate in the IMF loan funds.   Bayan Muna party-list Rep. Teodoro Casiño proposed to amend the charter of the Philippines’ central bank and ban BSP from lending money to international financial institutions without congressional approval.    RA 7653 provides that, “The  Monetary  Board  may  authorize  the  Bangko Sentral to grant loans to and receive loans from foreign banks and other foreign or international entities, both public and private, and may engage in such other operations with these entities as are in the national interest and are appropriate to its character as a central bank. The Bangko Sentral may also act as agent or correspondent for such entities.”     Senator Miriam Defensor-Santiago cited the same provision of the law in a recent keynote speech before the Credit Management Association of the Philippines.   She said the gross international reserves of the country could only be converted by the BSP to assets which could generate income – this time in a form of loan to an international institution.   “There is no such law that requires the President to consult Congress or the Senate.  If the Senate [or Congress] wishes to participate in the foreign loan process, then it should pass a bill to that effect,” Santiago said.   “BSP cannot lend part of its reserves to the national government to retire Philippine public debt, and the law prohibits the BSP from engaging in development banking or finance,” the senator said. — ELR/VS, GMA News