SEN. Sherwin Gatchalian yesterday asked the Senate Committee on Banks to exclude the Bangko Sentral ng Pilipinas (BSP) as a funding source for the proposed Maharlika Investment Fund (MIF) amid fears of potential financial shocks similar to the experience of the United States.
Gatchalian made the appeal to Sen. Mark Villar, whose committee is now in the middle of threshing out the technical details of the proposed sovereign wealth fund, which the government and its advocates at the House of Representatives said can be used to invest in key sectors like foreign currencies, domestic and foreign corporate bonds, commercial real estate, and infrastructure projects to help fund the country’s priority programs.
Gatchalian said the BSP’s declared dividends should be removed as a source of funds for the capitalization of both the MIF and the Maharlika Investment Corporation, an independent body envisioned to govern and manage the state fund.
In the proposed measure, the sources of seed money for the MIF include the BSP (100 percent of its declared dividends), Land Bank of the Philippines (P50 billion), and the Development Bank of the Philippines (P25 billion).
The House of Representatives passed on third and final reading its version of the MIF before Congress took a Christmas break last year, while Villar’s committee terminated its panel hearings late last month. A technical working group has created to iron out the fine details of the proposed legislature.
Gatchalian said including the BSP as founds source of the MIF “will be exposing our financial system to uncertainties.”
“We will be hindering the BSP from enabling itself to meet the challenges to the economy since anything can happen in a span of 17 years,” said Gatchalian, adding that it will take 17 years for the BSP to fully realize its capitalization requirements if it is mandated to contribute its dividends to the MIF.
He cited as an example the current liquidity crunch facing the banking sector in the US which was triggered by the collapse of Silicon Valley Bank (SVB) and Signature Bank, shaking investor confidence across the globe.
Reports said SVB’s shutdown was caused by concerns over the bank’s solvency, subsequently triggering a sell-off in stocks and promoting an increase in clients pulling out their deposits.
Concerns over the health of the global financial system were further stoked by Credit Suisse’ largest single-day sell-off on the US and European markets.
Gatchalian said these developments remind him of the 2008 collapse of Lehman Brothers that prompted a market meltdown and global recession, leading central banks worldwide to execute dramatic easing of monetary policy rates.
He said that instead of fortifying and readying the BSP to handle crises facing the banking sector, the proposed MIF bill will weaken the institution that is capable of quickly intervening and taking crucial actions during banking crisis.
He added that it will constrain the BSP’s capability to take extraordinary measures to reduce bank run risks and shore up confidence in the financial system during uncertain times.
Gatchalian also said approving proposals to include the BSP as a source of seed money for the MIF will contradict the Senate’s vote in the 18th Congress when it approved RA 11211 known as the New Central Bank Act.
“With the passage of RA 11211, we have approved the increase in the capitalization of the BSP from P50 billion to P200 billion. We were made to understand the urgency to increase the capitalization of the BSP to ensure the financial strength of the institution given the growth of the banking industry through the years,” Gatchalian said.
He added that mandating the BSP to declare dividends in favor of the MIC will affect its independence and credibility in performing its price and financial stability mandates.
“By declaring dividends to contribute to MIC’s capitalization, BSP will have lesser funds to take full action against inflationary pressures which entail huge costs on the financial markets and can result to output loss and unemployment and eventually affecting the public’s perception on the track record of the BSP in anchoring inflation expectations,” he said.
