BSP to lend gov’t P 300B to fight virus pandemic

The Philippine central bank on Monday unveiled a massive stimulus program for the national government’s fight against the coronavirus pandemic, saying it would lend as as much as P300 billion to the Bureau of the Treasury for this purpose.

“Para sa bayan,” Bangko Sentral ng Pilipinas Governor Benjamin Diokno said in a mobile phone message, as he shared the text of a statement explaining the country’s version of the “quantitative easing” scheme first used by the US Federal Reserve in response to the 2008 global financial crisis.

“To further support the Filipino people during the COVID-19 pandemic, the Monetary Board authorized the Bangko Sentral ng Pilipinas to purchase securities from the Bureau of the Treasury under a repurchase agreement in the amount of P300 billion with a maximum repayment period of 6 months,” the statement said.

“The fund generated from the said agreement shall be used to support the national government’s programs to counter the impact of the coronavirus disease,” it added, explaining the workings of the regulator’s newly restored ability to conduct open market operations.

Under the scheme, the Treasury will issue debt securities—whether in the form of short term bills or longer term bonds—which the central bank will then buy or invest in. The money that the Treasury receives from this transaction will be used to fund the government’s public health spending. Once the debt securities mature, the government will repay the central bank the amount it borrowed, with interest.

The central bank’s open markets operations—where the regulator can inject into or drain cash from the financial system by buying or selling debt securities—was taken away by the new law creating the Bangko Sentral ng Pilipinas in 1993 to replace the bankrupt Central Bank of the Philippines. Congress restored this power, along with the ability to issue its own debt securities, in the most recent amendment of the central bank’s charter in February 2019.

“This arrangement is the most cost-effective way for us to provide an extra lifeline to the national government to support the programs to fight this pandemic,” National Treasurer Rosalia de Leon said in a statement issued jointly with the central bank.

For his part, Diokno said: “We continue to support the government’s initiatives and objectives during the enhanced community quarantine. This additional amount is intended to provide support for those most affected by the [quarantine], especially in Luzon, for the next 60 to 90 days.”

“Rest assured that the BSP, in coordination with the relevant government agencies, will continue to fulfill its mandate with the benefit of the Filipino people in mind,” Diokno added. INQ