Lender nation

The government needs to do a better job of explaining the $1 billion contributed by the Philippines to the global crisis fund of the International Monetary Fund (IMF).

More explanation is needed because we’ve been going around the planet with a begging bowl for such a long time that the idea of the Philippines being a creditor – even if only part of an international pool – is so radically novel for many Filipinos, and the nature of the contribution is little understood.

The government must give a clear explanation of what gross international reserves are, since many quarters think such funds are part of the general fund and can be used for development projects, to build schools, for example, or buy ships and aircraft for our pitifully equipped Armed Forces.

The reserves are managed by fiscal and monetary authorities rather than the national government. High international reserves and their prudent management boost a country’s currency and credit ratings.

We became a lender nation as early as 2010, when the Philippines participated in the IMF’s Financial Transaction Plan. As of end-2011, the country had contributed about $125 million to the IMF fund.

The Philippines owes much of its $76 billion in reserves to remittances from overseas workers, but credit should also go to sound fiscal management by the Bangko Sentral ng Pilipinas. And give credit where it is due: it was in December 2006, during the presidency of Gloria Macapagal-Arroyo (who also originally picked Amado Tetangco Jr. as BSP governor), when the country fully paid its debt to the IMF.

Countries with large foreign reserves can still have a lot of poverty in their midst. As of March this year, China had the world’s largest foreign reserves – a whopping $3.3 trillion. Chinese officials acknowledge that they still have too many poor people, and a widening income gap is worrying Beijing.

In terms of foreign reserves, Japan ranked second to China with $1.3 trillion. The eurozone followed with $936 trillion as of February. Others at the top of the list are Saudi Arabia, Russia, Taiwan, Brazil, Switzerland, South Korea, India, Hong Kong and Germany.

* * *

It’s notable that six of the economies on the list are in Asia. Eight Asian countries have so far pledged to boost resources of the IMF to carry out its mandate of promoting global financial stability.

Of the eight, Japan committed $60 billion; China, $43 billion; South Korea, $15 billion; India, $10 billion; and Singapore, $4 billion. Malaysia and Thailand, like the Philippines, pledged $1 billion each. The pledges of the Philippines, Malaysia, Thailand and China were made during the G-20 Leaders’ Summit in Los Cabos, Mexico last June 18-19.

The pledges from an additional 12 countries at the summit brought to $456 billion (from 37 IMF member states) the total committed to the IMF’s global financial firewall.

Half of that amount, or about $240 billion, came from the European Union, which noted in a statement that the IMF resources are not earmarked for any particular region. Within the EU, its strongest economy, Germany, contributed the largest to the IMF fund – 41.5 billion euros (about $52 billion) – followed by France with 31.4 billion euros and Italy, 23.48 billion euros. Spain, with its own financial woes, committed 14.86 billion euros. The UK pledged $15 billion.

Greece, the most troubled of the EU economies, has made no pledge. Neither has the United States, which still has not recovered from its financial woes. US officials have been cool to giving additional contributions to the IMF, this being an election year, with US economic growth still sluggish and the debt level at 103 percent of GDP. (The EU’s debt level is 82 percent of GDP; it’s 49 percent for the Philippines.)

In the Middle East, Saudi Arabia contributed $15 billion. Of the other members of the BRICS apart from China and India, Brazil gave $10 billion, Russia another $10 billion, and South Africa $2 billion.

In a statement at the G-20 summit, IMF Managing Director Christine Lagarde said the funds “are being made available for crisis prevention and resolution and to meet the potential financing needs of all IMF members.”

“They will be drawn only if they are needed as a second line of defense after resources already available from quota and the existing New Arrangements to Borrow are substantially used,” Lagarde declared. “If drawn, they will be repaid with interest. The IMF is committed to assuring our members’ interests and resources are safeguarded.”

Lagarde lauded the response of “countries large and small” to the IMF’s “call for action,” adding, “I salute them and their commitment to multilateralism.”

For its part, the EU, which is grappling with the financial crisis in the eurozone, said it “strongly welcomes” the additional pledges.

The effort to boost the financial firewall was agreed upon by the International Monetary and Financial Committee and the G-20 last April.

* * *

Even with that information, there will be Filipinos who will grouse about the country’s $1-billion contribution. It’s too bad that the government has to emphasize that the loan, if tapped, will earn interest, because the explanation makes the country look mercenary. But I guess such moves must be defended in the context of national interest, or enlightened self-interest.

Every country in fact stands to gain from a more stable global economy. In a globalized environment, problems in the eurozone affect Asia including its largest economy, China. An economic flu in China will infect its trading partners including those in Southeast Asia.

Overseas Filipino workers are particularly vulnerable to a global economic slowdown, for obvious reasons. The sooner the global economy improves, the better the job prospects for OFWs, and the greater their remittances, which increase our foreign reserves.

Actions in solidarity with troubled nations also tend to generate international goodwill, whose value cannot be quantified.

The idea of being a creditor nation may take some getting used to for Filipinos. But if the Philippines can contribute to global financial stability, we should see it in the same light as when we send contingents to international peacekeeping operations in the world’s conflict zones.

In the pledge to the IMF, we are helping put out a fire that can also engulf us.