From one reserve asset to another

 Just came across Mr. Bobit S. Avila’s article in PhilSTAR about the $1-billion loan to the IMF. I wrote him more than a week ago but I didn’t get to see him acknowledge my reaction to his columns. This is what I wrote him: “Just to correct some of your impressions: the $1 billion will not be sourced from the national budget. It will be sourced from the BSP’s gross international reserves. This is a very critical distinction.

With or without the $1-billion loan to the Fund, the BSP is prohibited by law from using its reserves to help finance government projects on infra, classrooms, textbooks. Expenditures on these items can be sourced only from the budget which Congress appropriates every year. Reserve assets are claims on non-residents. They can be used only for investment or loans abroad for any contingency in the future.

The BSP is also authorized by law to grant loans to foreign governments or foreign financial institutions like the IMF. With the authority to manage our foreign reserves and lend this out, the plan to extend loans to the Fund may be considered to be a wise, legal move.

First, we are simply shifting from one reserve asset (investment in foreign bonds) to another reserve asset (loan to IMF). Returns are broadly similar but the Fund is a preferred entity over the recently downgraded Euro jurisdictions.

Second, helping Europe is helping those countries which also helped us in the past when we were under the Fund program. Helping Europe is also helping ourselves. Europe accounts for nearly 17% of our overseas remittances and 13% of our exports.

Third, you were wrong to quote Ms. Briones because she herself is wrong to claim that the BSP owes billions of dollars from the World Bonk. The BSP, for the record, does not owe anything to any international financial institutions like the World Bank and the ADB. In fact, we repaid all our remaining loans of less than half a billion dollars from the IMF as early as 2006. It is the National Government that continues to borrow from such entities. But the BSP reserves cannot be used to pay government loans. That will be violative of the law. I was hoping Ms. Briones would know that because she used to be National Treasurer.

Please, let us not confuse the public by giving them the impression that the government or the BSP can simply use its reserves to pay back government debt, finance roads and bridge construction, etc.

I hope you will convey these points to your readers in the interest of truth and fairness.