DOF restructures Municipal Dev’t Fund

The Department of Finance (DOF) has restructured the Municipal Development Fund (MDF), allowing it to assume a larger and more responsive role in local government unit (LGU) credit financing, Finance Secretary Margarito Teves said yesterday.

In a speech before the Philippine Association of Local Treasurers and Assessors (Phaltra), Teves has recognized that LGU financing has become a key policy issue in the Philippines, as well as in many other nations, both emerging and developed.

He said under the new framework in LGU’s credit financing, the incorporated Municipal Finance Corp. (MFC) will eventually assume the role of the MDF, implementing the graduation policy and helping LGUs build a track record of creditworthiness.

The MFC will work more closely with government financial institutions (GFIs), private banks, leagues of local government officials and concerned National Government agencies in order to harmonize lending policies and address the capacity-building needs of LGUs.

Teves said the MFC will also work on strengthening its own technical capacity so that it can better evaluate project proposals, assess credit risk and monitor project implementation.

The finance chief added that to allow LGUs greater access to overseas development assistance (ODA), the MFC will open "windows" for urban, rural and social projects.

Initially, Teves said these windows will group together similar projects, each group having its own selection criteria and operating guidelines.

But Teves said based on DOF’s long-term goal, for each of these windows to have one set of standard rules for LGU availment of resources regardless of the donor.

Each grouping, he said, will reflect the best practices in its respective sector and allow the LGUs to approach the lending windows whenever they want and for whatever priority projects they would like to undertake.

"We look forward to seeing prototype projects, as well as simplified evaluation and streamlined disbursement procedures fast-track the loan application and approval process. Of course, we would need to incorporate the appropriate safeguards to ensure proper accounting and reporting on the use of funds," Teves said.

He said while the interest rate for loans would continue to be market-based, matching government grants could be used to provide transparent subsidies to the poorer LGUs for more socially-oriented initiatives, such as capacity-building and environmental projects.

At the same time, he said the DOF currently funds the LOGOFIND project, a business tax enhancement program that helps LGUs to fully tap the potential of business taxes.

Aside from this, he said the National Government is also currently working to implement the Land Administration and Management Project (LAMP) to pursue reforms in support of these goals.

He also supports the increase in the LGU’s Internal Revenue Allotment (IRA). "While the increased IRA is helpful to many LGUs, this is still not enough to meet the infrastructure requirements and local development needs of a growing population," Teves said, adding that while LGUs could avail of credit to leverage their IRA flows into investment funds, they will still have to pay their loan eventually.