Unknown to the administration of the motorbike-riding Duterte Harley, the PPP Center has been hiding from the public its huge stink.
The public-private partnership (PPP) program was the much-applauded project of the Aquino (Part II) administration, hailed as the savior that will protect us all from the country’s hellish infrastructure.
It turned out the past administration used the program to hide billions of pesos worth of foreign debts, technically known as “contingent liabilities.”
It was the International Monetary Fund (IMF) that actually brought the alleged PPP deception to the attention of the clueless boys of Duterte Harley.
IMF computed the “contingent liabilities” from the PPP projects at some $2.5 billion (or more than P120 billion) and still counting.
To sweeten the PPP projects, the past administration gave out guarantees to protect the massive foreign loans tapped by various PPP proponents. The guarantees actually emboldened them to offer to the government unrealistic amounts of “premium” on their PPP biddings, which were separate from the project costs.
In the P55-billion 47-kilometer Cavite-Laguna Expressway (Calax) project, for example, the government got a fantastic premium of P27 billion.
But the proponents simply borrowed heavily for the abnormal premium, backed up by government guarantee anyway, which the IMF figured to be P120 billion at least.
Take note that these are long term PPP projects, which means that if anything happens, and if the companies will default on the loans, the government will be exposed.
In short, the PPP companies only fronted for the government as borrowers for—guess what?—more expensive loans.
Those surely made some executives of both lender and borrower quite happy.
Interestingly, the highly influential Bankers Association of the Philippines (BAP) recently launched its campaign to scrap the so-called Agri-Agra Law.
The law compelled banks to lend 25 percent of their loanable funds for agriculture, of which 10 percent should go to agrarian reform beneficiaries.
The law came about during the martial rule of the late former President Ferdinand Marcos, or way back in 1975, through Presidential Decree No. 717.
For the past 40 years of the existence of the law, banks took issue against such an imposition of a flawed legislation.
Is it legally right for the government to force banks to lend to specified sectors, when it’s the money of their depositors?
Indeed, the banks were never able to comply with the law in the past 40 years. In fact, they simply had to pay billions upon billions of pesos in penalties.
The banking sector even viewed the Agri-Agra Law as one of the many maneuverings during the martial rule to please the political mob. But those were different times, when the military would jail you for mere dissent.
Still, banks really tried to comply with the Marcos decree, such as the Bank of the Philippine Islands of the Ayala group, which formed the BPI Agricultural Development Bank and then hiring a certain Carlos Dominguez as its first president, a farm boy from Davao, at that time fresh from Stanford University for his doctorate degree.
BPI perhaps figured that it would be better to teach banking to a farmer than farming to a banker.
And so, more than 40 years later, the Philippines remained as the only country in the world that forced its banks to lend money to “special” sectors.
Based on figures as of March 2016, the banking system had loanable funds of almost P3 trillion. Yes, that big!
To comply with the law, banks must have outstanding loans to the agriculture sector totaling some P740 billion.
To follow the 10-percent Agra rule, they must have outstanding loans to agrarian reform beneficiaries of almost P300 billion.
That amount would mean that banks should lend out some P100 billion per hectare in the land reform program. Yes, that kind of impossible.
In a way, to comply with the law, the banks would have to throw away money, or simply suffer the stiff penalties.
Either way, it would be bad for millions of bank depositors.
Think about it: Despite 40 years of the Agri-Agra Law, poor farmers are still very much dependent on usurious rates imposed by ruthless rice traders.
Instead of the mandated 25-percent Agri-Agra loans, the BAP said banks would rather put their money in PPP projects—perhaps minus government guarantee.