BSP reputation seen on the line over fresh P540-B request from gov't
MANILA, Philippines (UPDATE 1 12:20 p.m. Oct. 1) — The Duterte administration is seeking to borrow P540 billion from the Bangko Sentral ng Pilipinas (BSP) to augment funding for public programs during the coronavirus health crisis.
BSP Governor Benjamin Diokno said Thursday the Monetary Board (MB), the seven-member policymaking body of the central bank, would be deliberating the request for funding, the second of its kind during the pandemic.
Investors would want to keep an eye on BSP’s decision on the matter, something analysts fear would set a dangerous precedent of a central bank printing cash to fund state operations. But Diokno was unperturbed.
"By exercising its mandate, epsecially under these extraordinary times, BSP's image is not tarnished, its independence is based on distinct characteristics such as, first, its budget is not subject to approval by Congress and the Executive....," he said in a Viber message.
For National Treasurer Rosalia de Leon, any lending arrangement with BSP would only come as a result of “uncertain times.” “Like any other governments, this is because of the pandemic,” she said in a phone interview.
As per official request, Diokno said government is asking direct cash from BSP provided for under the central bank’s charter at zero interest and payable until December 29. This is a different mode of lending from the P300 billion invested in Treasury bonds last March and paid up in full last September 29.
Once granted, funds would add to the government’s ballooning debt pile that amounted to a record P9.6 trillion as of August. But the impact is not expected to be long-lasting because the government intends to settle by yearend.
The “real danger” for Nicholas Antonio Mapa, senior economist at ING Bank in Manila, rests on possibility that investors may view BSP's fresh lending as something that would be persistently repeated. “If they’ve done it before, what is there to stop them from doing it again?” he said in an e-mail.
While the central bank's charter, direct cash support should be limited to 20% of average yearly income of government. But the Bayanihan to Recover As One Act, signed early September, provided another 10% on top of the original limit, albeit should be repaid within a year.
“We’ve noted also how legislation can be hastily changed to extend and upsize the budget for such transactions, which would in all practicality, result in de facto debt monetization,” Mapa said.
Ruben Carlo Asuncion, chief economist at UnionBank of the Philippines, has the same concern, but was more pragmatic on his views. “This may harp on the BSP’s independence, if they eventually relent to the request,” he said in an online exchange.
“(But) as long as it’s transparent and within reason, I believe the credibility can remain intact,” he added.
When sought for comment, Diokno responded: "In the extreme, what will it benefit BSP to keep its independence yet cause the collapse of the economy?"
Messed up fiscal plans
The pandemic messed with the government’s budget plans this year, and now faces a record budget deficit because programs to counter the virus’ impact were not foreseen last year. With revenues on persistent decline, borrowings went to the roof and apart from foreign loans and grants, BSP’s lending would help bridge the revenue gap.
Local investors are also tapped through bond issuances made more frequently now than before the pandemic struck. While indeed there is a choice to issue more debt instead of running to BSP for cash, De Leon said this is not ideal “because it may increase rates and we do not want that to happen.”
Mapa agreed. “A sizable issuance will have the tendency to siphon off liquidity very quickly,” he said.
Editor's note: Added details on P300 billion BSP Treasury bond purchases
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