BSP's prevarications

DIE HARD III

Herman Tiu Laurel

7/11/2011

The Bangko Sentral ng Pilipinas (BSP), through one of its officers, issued a letter-to-the-editor last July 6 in response to my “RP wasting $30-billion fund” column of July 1.  That article triggered one of the highest positive feedbacks ever to my e-mail inbox.  Indeed, the response was unanimous: Readers agreed with our position that at least half (or $30 billion) of our international reserves should be freed up and put to good use since not only I but several others, like former National Economic Development Authority (Neda) chief Romulo Neri, believe it to be not just necessary but even legal under IMF rules.  In fact, another supporter of this position with whom we had lengthy consultations on this some years ago is former National Treasurer Norma Lasala.

 

Last Saturday, I went to a Tomas Morato restaurant to attend a briefing with Butch Junia, former Mayor Jun Simon, and law professor Alan Paguia on the latest Energy Regulatory Commission (ERC) dismissal of Commission on Audit (CoA) findings pointing to Meralco (Manila Electric Co.) overcharging in 2004 and 2007 that amount to some P7 billion.  It was there that a Kapihan was also being held, diverting my colleagues into becoming its panelists as well.

 

Among the featured guests was the same BSP official who responded to our column.  He was the first to speak.  After heaping effusive praise for ratings agencies, such as Fitch and Moody’s, in upgrading the Philippines to just below investment grade, which he said is something to crow about, he ended his long-winded self-congratulatory statements with a very aggressive pitch for more taxes, insisting that the Philippines is being left behind by Singapore , Thailand , and Malaysia because of our (ehem!) low taxes.

 

Let’s put these ratings agencies in the proper perspective.  Consider this RJR online business report: “…a US Senate committee examining the reasons behind the crisis… concluded that Moody’s and Standard and Poor’s, the world’s two most prominent ratings agencies… (triggered) the global financial crisis in 2008… (by continuing) to give top ratings to mortgage-backed securities months after the housing market started to collapse…”  It added, “neither company had a financial incentive to assign tougher credit ratings to the very securities that for a short while increased their revenues, boosted their stock prices, and expanded their executive compensation.”

 

From The Huffington Post’s “SEC Threatens Credit Rating Agencies with Fraud Charges” story, we have another confirmation that official moves have begun “against Moody’s Investors Services over its ratings of risky investments that led to the financial crisis.”

 

More recently from Peninsula News, we learn of “European politicians (accusing) credit rating agencies… of anti-European bias after Moody’s downgrade of Portugal ’s debt… (with EU Commission President José Manuel Barroso saying) ‘It seems strange that there is not a single rating agency coming from Europe .  It shows there may be some bias in the markets…’ (joined by) German Finance Minister Wolfgang Schäuble (calling) for limits to be placed on the rating agencies’ ‘oligopoly’.”

 

China also views these western ratings firms with deep trepidation, which is why it set up its own ratings agency, Dagong.  From China.org.cn (July 9, 2011): “ China ’s own sovereign credit rating report… (comes) at a time when many complain (that) Moody’s, Standard and Poor’s and Fitch were partly to blame for the recent global financial crisis.”  It further quoted Dagong chairman Guan Jianzhong as saying “that the current Western-led rating system ‘provides incorrect credit-rating information’.”

 

Back here, the problem with these so-called “upgrades” which the BSP official attending the Kapihan so enthused over is that the sources--the ratings agencies themselves--formulate their assertions on the basis of their own agenda which often is, as in the case of the Philippines , one that is contrary to the interest of the people.  This is a fundamental point.

 

The BSP, in following these ratings agencies’ agenda by trumpeting their claims, is merely taking Filipinos for a ride.  The real agenda of the ratings agencies and the financial mafia they serve is to make the Philippines take on more debt, which is being made much easier by the ratings upgrade.  This is despite the fact that the Philippines actually now has the internal resources (and lots of it) to pay off such debt and/or fund its own development--something that BSP officials such as Diwa Guinigundo are not saying.

 

Coming from Guinigundo himself, our 2011 international reserves of $69 billion already cover 12 months of imports even while the IMF requires only three months, and as Philippine foreign debt stands at P60 billion.  Guinigundo justifies the costly (interest, opportunity costs, dollar depreciation) idling of 75 percent, or $45 billion, of RP’ reserves as a safety measure against finicky financial markets.  Is this sane while the country continues to take on new debt?  Philippine debt rose by $788 million in 2010 and debt stock grew by more than 9.2 percent, or $5 billion, by end of 2010.

 

Meanwhile, despite Guinigundo’s claim in his letter that “…the BSP does not own (the Special Deposit Account or SDA) and therefore, it is hardly a ‘disposable’ fund kept idle,” others, such as Marvin Fausto, president of the Trust Officers Association of the Philippines contend otherwise.  Fausto, in fact, said on Nov. 3, 2010, “(the money parked in SDA facilities) should instead be channeled to funding needs, like in infrastructure projects.  We need investments.  (The money in SDAs) is enough to spur (further) growth.”

 

Victor Abola, senior economist at the University of Asia and the Pacific, whom I seldom agree with but do in this case, has also said that SDAs are a “waste of resources” and the “BSP should lower interest rates for SDAs to free up more funds, from the present 4 percent to 3 percent.”  I was prevented from cross-examining Guinigundo at that Kapihan only because the host probably feared that I would put his guest on the spot.  Well, now he is.

 

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