Bangko Sentral seeks rescue package
After reporting a huge net loss in 2012, the Bangko Sentral ng Pilipinas has requested from the government a rescue package composed of tax exemption, additional capitalization and a mechanism for sharing of losses.
The monetary agency said the host of support would bolster its effectiveness in keeping a stable economy despite threats posed by surging foreign-exchange inflows and a growing domestic supply of money.
The central bank stressed that the losses it incurred over the last three years were the price to be paid for managing the enormous liquidity, which could have caused inflation to shoot up or the peso to steeply appreciate if not properly handled.
“Today, the BSP is faced with the challenge of dealing with the consequences of strong foreign-exchange inflows that have resulted in the strengthening of the peso against other currencies,” the BSP said in a statement. “In response to the heavy capital inflows, the BSP has been implementing various stabilization measures to moderate sharp currency movements. However, stability comes at a price.”
It explained that in managing liquidity, it had to accommodate more deposits from banks to prevent excessive money from circulating in the economy and, in turn, ensure that inflation remained moderate. The accommodation of more deposits from banks mainly through the special deposit account (SDA) facility meant bigger interest payments by the BSP.
The BSP said it also had to engage in heavy dollar buying to temper the appreciation of the peso. Upward pressures on the local currency were caused largely by rising dollar remittances, foreign investments in the business process outsourcing (BPO) sector and foreign portfolio investments, or “hot money.”
“A strong peso means that exporters and other foreign-exchange earners such as overseas Filipino workers get less pesos for every dollar they convert. To moderate the strong gains in the value of the peso, the BSP buys foreign exchange by participating in the currency trade,” it explained.
The BSP last year incurred its biggest net loss of P95.38 billion, nearly treble the P33.69 billion in losses in 2011. The BSP also lost P59.04 billion in 2010.
The BSP said an exemption from taxes would help reduce its expenses and allow it to focus more resources on liquidity management.
The BSP also said that it deserved additional capitalization to support its operations, noting that the economy already has substantially grown and that the amount of money in the system that has to be managed has become much bigger.
“The BSP’s authorized capital of P50 billion was set way back in 1993 or 20 years ago. This is no longer appropriate given the growth in size and scale of the economy and the financial system,” it said.
It also reiterated its request to adopt a scheme wherein the government would share not only with the BSP’s income but with its losses as well.
The BSP noted that under its charter, it was supposed to remit 75 percent of its net income—whenever the BSP registered one—to the national government as dividends instead of keeping the income as reserves. In times when the BSP registers a net loss, however, the charter does not provide a means for it to get automatic support from the national government.
