GMA restores subsidy on government loans

The Arroyo administration has restored government subsidies on government loans, replacing an earlier directive with a new executive order that sets aside P1.22 billion for a lending program to be funded by government financial institutions.

The reversal of its long-stan-ding policy to avoid direct lending and government subsidies was dealt a deathblow by Executive Order No. 176 which effectively repeals Executive Order 138 that prohibited government interest rates subsidy on livelihood loans.

The new EO restores direct lending to small borrowers, a policy that cost previous administrations huge losses due to widespread default and corruption by the credit retailers.

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

Unde the new EO, the govern-ment ordered the Land Bank of the Philippines, the Development Bank of the Philippines, the Technology and Livelihood Resource Center and the Small Business Guarantee and Finance Corp. to put up funds for the Arroyo program.

Dubbed "Isang Bayan, Isang Produkto, Isang Milyong Piso" program, the facility was intended to provide P1 million loan for every city or municipality in the country, supposedly to allow them to develop a product or service that can help assure its residents of a livelihood.

Landbank was directed to allocate P900 million out of its capital funds for its "Alleviate Poverty Trust Fund" which would be named "National Livelihood Support Fund".

Aside from this seed amount, Landbank was further ordered to put another P600 million fund while the DBP was asked to put in P500 million. The TLRC was asked to set aside P70 million and the SBGFC was to earmark P 50 million for the program.

The EO also pegged a 10-percent cap on the interest rate on the loans for small and medium enterprises under the program. This was lower than the existing market rates which should place the interest rate at around 11 percent per annum.

The EO said the program would be under the direct super-vision of the Office of the Presi-dent, assisted by the trade and industry secretary. The Department of Trade and Industry itself was mandated to coordinate with the local government for the administration of the program.

EO 138 was issued by President Estrada in 2000 when government agencies complained about the low returns on investments from livelihood loans coursed through various government agencies such as DTI, DA and DOLE. The order, however, cut into the business of cooperative banks that deal directly with poor communities seeking access to low-interest loans for livelihood. Cooperative banks said they used to be the beneficiaries of government’s low direct lending programs which were effectively eliminated when government agencies stopped subsidizing loan interest rates.

The revocation of EO 138, how-ever, was not expected to be wel-comed by some government agen-cies that have been advocating market-determined interest rates even for livelihood programs intended for the very poor.