SDA funds should go to priority sectors, says IMF exec

MANILA, Philippines—The International Monetary Fund has stressed the need for measures that will help ensure that funds likely to leave the central bank’s special deposit account (SDA) facility would be used to support job-generating investments.

IMF Resident Representative Shanaka Peiris said the latest directive of the Bangko Sentral ng Pilipinas to limit access to its SDA facility was prudent. However, Peiris added that it should be complemented by measures that would help direct the funds to priority sectors.

Peiris said it was crucial that the money leaving the SDA facility would be used for direct investments, especially in manufacturing and other industries, rather than for buying stocks or making speculative investments in real estate. He said the additional liquidity to result from the new regulation should not cause price bubbles in equities and real estate.

“Ideally, there should not be too much liquidity deposited in a central bank. But you want the money taken out of the central bank to be used more to support direct investments rather than to purchase stocks or real estate,” Peiris told reporters last week.

Under the new BSP regulation, access to the SDA facility will be limited to funds placed in trust accounts and unit investment trust funds (UITFs). All other funds, under investment management accounts (IMAs) of retail investors, will no longer be allowed to entry to the SDA facility.

The BSP said banks should have withdrawn 30 percent of the affected funds by the end of July and the balance by the end of November.

The BSP said not all affected funds were expected to leave the SDA facility. This is because some of those funds are seen merely shifting from IMAs to UITFs in order to remain SDA-eligible.

Monetary officials said they were hoping that funds that would go out of the SDA facility would be used by banks to boost their lending activities. In particular, the BSP wants banks to lend more to support job-generating investments.

IMF’s Peiris said that for the objective of the BSP to materialize, measures that will help direct available money to the desired sectors of the economy should be in place.

One possible measure would be the liberalization of several industries to allow entry of more foreign investors, he said. The opening of various industries to foreign investors would boost demand for bank loans, he said.

“There is still a long list of industries that need to be liberalized to be able to absorb more foreign investments,” Peiris said

Another measure would be the promotion of the country’s bond market, he added. With a more vibrant bond market, Peiris said, banks could use more of the available liquidity to purchase corporate bonds and support their expansion and investment plans.