Strengthening institutions that strengthen the economy: The National Development Co

There are government agencies, instrumentalities and entities that are created for the specific purpose of pushing the economic development of the country. By law they are tasked with the mission of planning for, financing, executing and implementing national development projects geared towards modernizing the country and uplifting the quality of life of our people. We have, in this category, the regular government departments such as the Department of Finance, Department of Trade and Industry, Department of Public Works and Highways and the Department of Science and Technology, to name a few. We have agencies such as the National Economic and Development Authority including the various municipal, city, provincial and regional development councils. We have banking institutions such as the Bangko Sentral ng Pilipinas, the Development Bank of the Philippines and even the Land Bank of the Philippines. Not least of all, we have the National Development Co. (NDC).

The NDC was created as early as 1918 through Commonwealth Act No. 182 to precisely serve as a prime-mover and catalyst for governmental development projects and initiatives. The NDC was to serve as an agency of the government in the furtherance of its economic policies. In 1979 Presidential Decree No. 1648 was amended revising the charter of the NDC to make it more responsive to the challenges of the Philippines recognized that: there is an urgent need to accelerate the country’s development; there are important national projects that need to be undertaken for continued growth; taking into account inflationary trends, it is imperative for the government to take an active role in the acceleration of major industrial projects, as well as the other desirable development ventures; the National Development Co., a corporate vehicle of the government, designed to pursue commercial, industrial, agricultural or mining ventures, should be restructured and strengthened in order to give the necessary impetus to national economic development. Hence, the issuance of PD 1648 to revise the charter of the NDC.

Under section 2 of the law, it is the declared policy of the state to promote overall economic development through assistance to commercial, industrial, agricultural or mining ventures. For this purpose, when necessary or when private enterprise is not willing or able to undertake vital projects, it may, on its own or in joint venture with the private sector, undertake such projects. To achieve this, the NDC by law (section 4) is given such powers as may be necessary to enable it to promote and maintain a sufficient level of production by an efficient coordination of the productive forces of the country or otherwise, and to secure a stable market for Philippine products.

Specifically, the NDC is provided with the following powers, among others: engage in or extend loans and guarantees to, or enter into joint ventures with Filipino and foreign investors, whether in the majority or minority position in commercial, industrial, mining, agricultural and other enterprises, which may be necessary or contributory to the economic development of the country, or important to the public interest; contract loans, issue bonds and other obligations as security therefore; guarantee domestic and foreign loans and other evidence of indebtedness issued by duly incorporated companies including its own subsidiaries; and, purchase bonds issued by any incorporated company engaged in desirable development projects.

NDC’s most potent power, however, is re-stated in section 9 of the law which is the authority to issue bonds and other securities which are tax-exempt and guaranteed by the government to finance its operations.

For all the defined mission, authority and powers of the NDC as stated in the law, it has heretofore been generally under-utilized and is performing below its mandated goals owing principally to the lack of support, if not indifference, of the government itself towards the company. While the company is authorized to float bonds and other securities to finance its operations, such power is in truth more imaginary than real as the bonds can only be offered and bought by the private sector who are themselves already cash-strapped by the low level of money supply in current circulation. In a situation where the economy is not robust but is instead sluggish and in a downturn, private business is in no mood as it is timid to invest in business undertakings in such as high-risk economic environment. It is precisely in these instances that the government, consistent with the Keynesian theory of economic development, must do the spending and investing in order to prop-up the economy and business activities. Indeed, this is part of the mandate of the NDC under section 2 of the law (Declaration of Policy) that directs it to do the investments initially especially when the private sector is incapable or is shying away from investments due to their lack of confidence brought about by an unstable economic and political environment.

In order, however, for the NDC to be faithful to its role and mission, government must perforce accord the company with the proper support by seeing to it that this vital public corporation is given the necessary wherewithal to finance and capitalize its projects. This is possible only by making the central bank, and not the private business sector, purchase the bonds of the NDC through the issuance of the corresponding new local money. We must, therefore, cause the amendment of the asphyxiating section 117 of the central bank’s charter that prohibits the bangko sentral from purchasing government bonds such as that of the NDC. Correspondingly amended, the NDC will then be able to raise the needed capital, via purchases of the NDC bonds by the central bank through the issuance of the corresponding new local money, that it can now use to promote overall economic development in keeping with its raison dí etre.

Indeed, if we want someone to clean the house we must provide him with the broom. If we require the NDC to promote the overall economic development of the country, government must support it with the requisite new local money and capital.

Only then can the NDC prove to be equal to its goal.

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