Abolition of NCC seen to free P8-B for subsidized lending

The Arroyo administration is planning to abolish the National Credit Council (NCC) to free up P8.1 billion in direct credit programs that could be lent out to borrowers at government-subisidized rates.

Sources privy to the administration’s streamlining efforts revealed that after the uproar over the proposed lifting of Executive Order 138, the government looked into other credit programs that could be used to provide subsidized credit.

EO 138 outlined the government’s policy of requiring all government lending programs to use market-driven interest rates to prevent dole-out programs that have in the past cost billions without leaving any measurable impact.

However, rural banks and cooperatives have been lobbying for the Arroyo administration to abolish the order, saying government programs are competing with private initiatives.

Sources said that since the government met even stronger opposition to the lifting of EO 138, it is instead considering the possibility of abolishing the NCC, an act that will open at least P8.1 billion worth of direct credit programs.

The NCC is a tripartite council that supervises and determines the lending policy for various direct credit programs that remained from the time when government was heavily involved in direct lending.

These direct credit programs were specific programs enacted by Congress that get annual funding either from the general appropriations act or whatever special funding mechanism might be provided by law.

Sources said that once the NCC has been abolished, these direct credit programs could be converted into ostensibly pro-poor lending programs at less than market interest rates.

Burned by its expensive direct lending programs in the past, the government had pulled out of direct lending since the mid 1980s, after billions of pesos worth of loans had to be written off due to defaults.

The Aquino administration at the time decided that rather than doling out subsidized credit to small borrowers, it made more sense to instill borrower discipline and creditworthiness to ensure repayment of loans even at market rates.

According to sources, the Arroyo administration is deadset on resuming not only direct lending but outright subsidy on lending rates especially to small borrowers.

Sources said the proposed lifting of EO 138 had met opposition from finance as well as credit policy officials who said the repeated failure of subsidized lending in the past would negate the gains already made in reorienting the country’s borrowing culture.

According to sources, the abolition of the NCC will come under the auspices of the streamlining efforts being implemented by the Department of Budget and Management which had hoped to initially generate P1.4 billion worth of savings from the merger of its duplicating agencies.

The Department of Finance (DOF) said the reengineering of the bureaucracy was being rushed ahead of the 2004 presidential elections to avoid the political backlash that would make the effort more difficult, if not impossible.

The DBM said it is still calibrating its estimates to make sure that the streamlining will preserve the mandated functions while shedding excess fat from the bureaucracy.

A DOF source told reporters that the streamlining is being rushed to enable the agencies to implement the directive with the least resistance. "The closer we get to the elections, the harder it will be and the agencies recognize this," the source said.