BSP’s $1B-loan commitment to IMF must seek Congress consensus, says Senator Recto

12:29 pm | Tuesday, June 26th, 2012

Sen. Ralph Recto. INQUIRER FILE PHOTO

MANILA, Philippines – Senator Ralph Recto said on Tuesday that the move of the Banko Sentral ng Pilipinas (BSP) to commit $1 billion from the country’s dollar reserves for the International Monetary Fund’s bailout package for European economies must be further explained.

In a statement, Recto said he is not opposing the government’s decision but said that the BSP has no sole proprietary rights over the Philippines’ dollar reserves. He added that the BSP should first request for a consensus 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?” Recto asked.

He added that he was willing to listen to the BSP’s explanation and why it would deny Filipinos of its claim to $1 billion worth of projects and programs that could better improve their lives.

The statement came after the BSP last week announced its plan to loan $1 billion to the IMF to be used for the stabilization of the global economy. The BSP said that the Philippines, as a member of the global community, has the obligation of ensuring global economic and financial stability.

However, Recto said that it must be made understandable by the people why such amount is being lent to the IMF while the country continues to borrow from other international lending and multilateral institutions to augment the national budget and deficit spending.

Recto added the $1-billion loan could instead be used to bankroll local projects like construction of schools, hospitals and other important infrastructure that will have more impact to the country.

“The BSP could remit the amount as dividend to the national government and use it for the country’s so many needs,” Recto said.

“Or the BSP, like a regular bank taking care of business, could loan the amount directly to the national government under the same interest rate that it would get from the IMF,” he added.

Recto also stressed that if the loan is being promised to attempt to stabilize the peso which has been lately appreciating, there could be other ways like boosting the export sector, protect the Philippine economy from the contagion of the European economic crisis, and use the $1-billion to boost local economy and trigger consumption and growth.

“Spending it to boost consumption is the better way to protect us from contagion,” he said.

Recto added that once the country’s economic growth attains a good foothold, global credit agencies will likely give the country a credit upgrade which will help attract more investors.

“At the end of the day, the country would not be judged on how it helped a troubled First World economic bloc, but on how it exercised fiscal maturity to achieve long-term growths and spared itself from befalling the same fate of the European economies,” Recto said.

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Tags: $1 billion loan , Bangko Sentral ng Pilipinas , dollar reserves , European economies , International Monetary Fund , Senator Ralph Recto

rickysgreyes

Kulong sa staff work yung mga staff ni Sen. Recto. Hindi kailangan ng congressional approval. Pagalitan mo lawyer mo, Senator. Read the BSP charter and the nature of equity contribution of governments to IMF.
ikabod_bubwit

Sen. Recto should have read the BSP Charter beforehand.
http://twitter.com/vonjunzt Carl Cruz

The Europeans can save themselves. The ECB has more than enough ammo to bail out every major bank in the union. The problem is the Germans think it’s a bad idea. Maybe Merkel is right.
Handiong

I think Sen. Recto is offside (I still have a hangover watching Euro2012 soccer games) here. The $1 billion loan to the IMF is not an expense appropriation so it does not require Congressional approval. It is in the nature of an investment transaction – an interest-bearing loan to the IMF, a transaction which is well within the authority of the Central Bank to make. Even if that $1 billion is not lent to the IMF, it is probably invested right now in US Treasury-Bills which, in reality, is a loan to the US Government. Let us not forget that our $76-billion foreign reserve is not all in US dollar notes lying around in the Central Bank’s vaults. The bulk of it is in interest-bearing investment instruments, mostly US Treasury-Bills. China and Japan are the biggest creditors of the US since very large portions of their foreign reserves are invested in US Treasury-Bills.

What Sen. Recto is saying is that we should spend our reserves. I don’t know if this is a good thing to do. It’s like urging a person to spend part of his savings instead, when that person only wants to invest his money from savings deposit to time deposit. But, if Sen. Recto wants to dip his fingers into the national reserves to fund the national budget, I think the Central Bank can still afford to spare another $1 billion of our reserves for consumption (if that’s what we really want). But, how come it’s only now that Sen. Recto is asking for our reserves to be spent, just because we are shifting $1 billion from a loan to the US Government to a loan to the IMF?

It looks to me like most of the arguments against this $1 billion loan to the IMF are just political demagoguery rather than sound policy discourse.

http://www.facebook.com/arcadroland Roland Arcadio

From what I understand, the BSP, though a public institution, is not a part of the national government. Though owned by the state, its funds are not the money of the government. This is similar to the GSIS and the SSS. The funds of these financial institutions do not belong to the government but to their members. They manage their funds depending on how the law define their objectives as financial institutions.

Handiong

The BSP is part of the national government, but it is autonomous, meaning it has its own charter. As an autonomous entity, it is beyond the control of the political instrumentalities, very much like the constitutional bodies

The BSP is the country’s monetary authority. It acts as the monetary policy-making body (managing the supply of money, including the country’s foreign exchange and gold reserves, and credit in the financial system to ensure that our currency is stable and inflation is checked). It is also the regulator of the financial system, ensuring that the banks and other financial institutions are stable and acting as the lender of last resort. In managing and regulating the monetary and financial system, the BSP can engage in open market operations, meaning it can lend and borrow money, mainly to influence the interest rates, and it can trade foreign exchange.

The funds of the BSP are public funds, but Congress cannot appropriate them. But, since the BSP earns profits from its open market operations, it remits dividends to the National Treasury. It is the money in the National Treasury that funds the national budget. That’s why the national government cannot spend the foreign exchange reserves as what Sen. Recto wants. However, it can lend to foreign governments (by investing in US treasury bills or Japanese government bonds) or multilateral institutions, such as the IMF, as part of its open market operations.

http://www.facebook.com/olivermia Oliver Mia

do you have a blog? :D would like to follow it if ever..

Handiong

Unfortunately, I don’t. But, I’ve been thinking of creating one. Thanks for your interest, Oliver.

BSP’s $1B-loan commitment to IMF must seek Congress consensus, says Senator Recto

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