BSP eyes ‘Jobo bills’ to stem peso slide

In a desperate attempt to curb the continuing depreciation of the peso against the dollar, monetary authorities are considering the possibility of issuing central bank certificates of indebtedness (CBCIs) similar to the high-interest bearing ‘Jobo bills’.

Finance Secretary Jose Pardo said this is one of the options which was raised during a meeting with business groups such as the Philippine Chamber of Commerce and Industry, Employers Confederation of the Philippines, Makati Business Club and Bankers Association of the Philippines.

"We are studying all the options available," he said, while admitting that the general consensus among government and business leaders was "to allow market forces" dictate the foreign exchange rate.

The issuance of the proposed bills – to be called either "Pardo bills or Paeng bills" – he said, would still be decided in a joint meeting today of the Monetary Board and the Cabinet.

"We called on (NEDA Director General Felipe) Medalla so we can meet on a neutral ground," he said, noting that they will have to decide on both monetary and fiscal issues. He said they would probably come up with a concrete decision on how to stem the peso’s freefall by tomorrow.

Pardo, however, emphasized that currency controls would definitely be "out of the question."

Pardo met yesterday with officials of the World Bank while Bangko Sentral ng Pilipinas (BSP) Governor Rafael Buenaventura discussed the current currency issues with the BAP.

Sources said both Pardo and Buenaventura are getting the feel of the market (both from business and donor communities) on the possibility of issuing such bills since these do not normally entail a good response from the public.

"If they are willing to jack up the interest rates to as high as 40 percent, then they can issue such bills," a market analysts said.

The analyst said then Central Bank Governor Jose "Jobo" Fernandez issued the so-called "Jobo Bills" in 1984 when the country was suffering from a debt crisis. "If they will issue the bills, that means we are already in crisis and they are willing to pay the price of increasing the interest rates to as high of about 40 percent. This will run counter to the government’s commitment to keep a low interest rate regime," the analyst said.

Even when the peso was heavily battered by the Asian financial crisis, issuing the ‘Jobo Bills’ "was an option but never done."

"It was always talked about but it was never carried out," the analyst said. If the BSP would borrow at 40 percent plus interest, this would mean that everybody else would not lend below such rate.

Former BSP Governor Gabriel Singson was earlier quoted as saying that issuance of Jobo-type bills would be one of the "ultimate solutions to the currency crisis, "but only if the patient lands in the intensive care unit (ICU)."

The issuance of the CBCIs, which offered interest rates ranging from 35 to 45 percent, was part of the bitter medicine that Fernandez conceived to revive the depressed economy in the martial law years. The ‘Jobo Bills,’ which carried maturities of six months to one year, brought down inflation to a manageable 23.4 percent in 1985 from a high of 60 percent.

The BSP, under Section 92 of the Central Bank Act, has been authorized to issue securities as a liquidity tool to curb speculative attacks against the peso.

Issuance of the CBCIs would save the National Government from the scrutiny of the International Monetary Fund since these debt instruments will not be entered in the books of NG but in the books of the central bank.

"This way, NG would not overshoot its deficit ceiling since these bills would be reflected as borrowings of the central bank," an analyst said.

The peso has been hammered by a lack of confidence in the wake of alleged payoffs to President Estrada by illegal gambling operators.

The gross international reserves of the country has dropped to $14 billion at present, lower by $900 million from $14.9 billion in end-September this year due to the BSP’s active intervention in the foreign exchange market in a bid to stem the peso’s freefall.

The government has committed to a $16.1 billion GIR target by yearend under the IMF program.