This refers to the editorial “Loan as ‘investment’” (Inquirer, 7/2/12). The Bangko Sentral ng Pilipinas (BSP) would like to clarify some of the issues raised in the editorial.
1. On the use of reserves for government projects. The BSP’s decision to lend to the International Monetary Fund, as well as its decisions on the allocation and appropriation of the country’s gross international reserves (GIR), is part and parcel of its legal mandate to manage reserves. Section 66 of the New Central Bank Act (Republic Act No. 7653) provides for the composition of the country’s GIR holdings, which generally refer to claims on nonresidents. It includes gold and assets in foreign currencies (including documents and instruments customarily employed for the international transfer of funds, demand and time deposits in central banks, treasuries and commercial banks abroad), foreign government securities and foreign notes and coins. The country’s international reserves are invested in accordance with an investment guideline mandating that only investment-grade and highly rated financial instruments of nonresidents should qualify. Therefore, the BSP cannot lend part of its reserves for the projects of the national government.
Also, as a member of the community of nations, it is in the country’s interest to ensure economic and financial stability across the globe. Europe is an important trading and financial partner of the Philippines. If this region deteriorates and its financial markets become dysfunctional, exports, overseas Filipino remittances (16.4 percent of total remittances come from Europe) and investments to the Philippines will be reduced. It may be noted, too, 12.1 percent of total exports go to the same region (for the period January-April 2012). By extending help to crisis-stricken Europe, we are also helping ourselves.
2. On the Philippines lending to the IMF for decades. The editorial made reference to the study of Ibon Foundation which stated that, as proof of the Philippines’ lending to the IMF, the country’s interest-earning reserve position with the IMF increased from $113.4 million in 2000 to $517 million as of May 2012; and that the IMF uses these funds for lending to member-countries needing assistance.
The reserve position with the IMF is the portion of the Philippines’ quota subscription with the IMF in the form of reserve assets (foreign currencies acceptable to the IMF such as US dollar, yen, euro or pound). The reserve position significantly increases whenever the country receives higher quota subscription with the IMF. The IMF uses the reserve assets it already holds and calls on countries that are considered financially strong to exchange the IMF’s holdings of their currency for reserve assets, which are then made available to borrowing countries. The latter is called the Financial Transactions Plan; the Philippines only started participating in this plan in October 2010. Hence, it is not accurate to state that the “Philippines had actually been lending to the IMF for decades now.” We obtained creditor status with the IMF when the BSP participated in the New Arrangements to Borrow facility of the IMF in March 2012 and not with the use of our
reserve position in the IMF.
—DIWA C. GUINIGUNDO,
deputy governor,
Bangko Sentral ng Pilipinas