The claimed intention is laudable, as always. The House passed the so-called GUIDE bill that will supposedly help distressed micro, small, and medium enterprises (MSMEs) recover from the pandemic’s effect.
GUIDE (Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery) will provide state-run banks P10 billion to lend to MSMEs. If also passed by the Senate, assistance will be coursed through the Landbank (P7.5 billion) and the DBP (P2.5 billion).
GUIDE also authorizes Landbank and DBP to invest in or enter a joint venture agreement with a special holding company to rehabilitate strategically important companies (SICs). These are by nature large companies.
If that is the intention, P10 billion is too small, a point raised by Sen. Win Gatchalian. There is probably some justification to help some essential biggies, given that we have at least P1.5 trillion in economic losses since last year. That’s why Sen. Gatchalian wants to raise the funding now or include a provision to increase it later on.
The senator also wants safeguards to ensure that the holding company focuses on companies whose problems are “temporary.”
A seasoned banker observed in one of my Viber groups that GUIDE, as the legislators have framed it, is really a shareholder bailout, which it absolutely should not be.
“I agree that there could be some strategically important companies, but what we should protect are: 1) Their service levels. And, 2) Their employees. Not their shareholders.
“I think any money coming from the government should be maximum dilutive (i.e., painful) to the shareholders so that coming to the well is a last resort.
“Their recommendation is to have GFIs invest in redeemable preferred shares, which means upside to GFIs is limited, no dilution to existing shareholders, and all the value accruing from recovery belongs to the existing shareholders. Ummm... no. Equity risk to GFI and only debt-like returns.
“I would favor more draconian terms like: 1) Government via SHC provides real equity/new money, the price of which is set by the market. Government equity infusion has to be matched one-for-one with new private money, at the same price. 2) All existing creditors have a restructuring first, so no government money pays them out. 3) No dividends while gov’t has equity and cap on executive pay.
“If the arguments are valid that the problem is temporary and the company will recover, the government should share in the upside and the shares can be sold at a profit, via auction to the open market (i.e., not to the majority shareholders). No asymmetry please between risk-taking and rewards.”
The Senate must make sure GUIDE is thoroughly and publicly discussed. That didn’t happen in the House.
This administration has been rather stingy with providing ayuda to our impoverished and hungry citizens. It will be adding insult to injury if the biggies get their large ayudas instead.
Economist Mahar Mangahas described the worrisome and deplorable situation on the ground:
“Economic suffering has hit new records all over the country. Poverty, hunger, and joblessness all reached new levels not seen in 30 years of surveys, inducing SWS to adopt ‘catastrophic’ as a new adjective – a 50+ percentage point excess of those that got worse off over those that got better off. Poverty now afflicts one-half of Filipino families and another one-third feel they are on the poverty borderline.”
The GUIDE bill can be justified any number of ways, but providing government bailout to the cronies of Duterte will simply look and actually be terrible.
Take the example of Davao’s Dennis Uy, who has been on a wild buying spree of companies after Duterte assumed office. Not even a cooking school and a pastry shop escaped his clutches.
Uy’s holding companies have started to suffer some kind of financial indigestion. His Phoenix Petroleum is selling some of its assets so that it can pay its debts, the company disclosed to the stock market.
Uy’s Chelsea Logistics and Infrastructure Corp also sold off its stake in shipping and logistics firm 2GO to the SM Group.
According to bilyonaryo.com, his logistics group has “availed of the ‘DBP RESPONSE (Rehabilitation Support On Severe Events)’ program.”
Bilyonaryo reported that “Chelsea has already invoked the provisions of the two Bayanihan Acts that granted distressed companies 30-day and 60-day moratorium on their loan and interest payments last year…”
Bilyonaryo.com pointed out that DBP accounts for more than a third of Chelsea’s total long-term loans. Almost all of Chelsea’s DBP loans were granted during the Duterte administration.
The optics of all these government bailouts look specially bad in the light of Uy’s Udenna buying Shell’s stake in the Malampaya gas field for $460 million. May pera pa pala naman, bakit bine-bailout? Expect the government, through PNOC-EC, to help Uy by buying some of those shares.
Maybe if GUIDE sticks to helping MSMEs, the optics will be better for the administration. A paper prepared by ADB economists (Shigehiro Shinozaki and Lakshman N. Rao) summarize why the focus of assistance should be on MSMEs:
“MSMEs are the backbone of the national economy, but remain vulnerable to external shocks, such as financial crises, disasters, and forced changes in the business environment – like the COVID-19 pandemic response.
“In the Philippines, MSMEs drive the national economy. They accounted for 99.5 percent of all enterprises and employed 63.2 percent of the labor force as of the end of 2018 (ADB 2020b).
“Their ability to access finance faces constraints even during non-crisis periods. The share of MSME loans in the total outstanding bank loans was 6.1 percent in 2019.
“Bank loans to MSMEs accounted for only 3.2 percent of the GDP during the same period. This suggests that a very small number of MSMEs have access to bank credit.
“A prolonged pandemic will make it more difficult for MSMEs to raise funds from formal financial institutions and to survive the crisis and its aftermath, which could contribute to more potential losses to the Philippine economy and risk the projected economic rebound in 2021.”
The likes of Uy have other sources of credit worldwide. MSMEs only have government financial institutions.
Unless we are careful, GUIDE will simply make it easier for administration cronies to fry the Pinoy taxpayer in his own fat. That’s crony capitalism pure and simple.
Boo Chanco’s e-mail address is bchanco@gmail.com. Follow him on Twitter @boochanco