DEVELOPMENT STUDIES PROGRAM Department of Social Science College of Arts and Sciences University of the Philippines Manila
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study
An Undergraduate Thesis presented to The Department of Social Sciences College of Arts and Sciences
In Partial Fulfillment of the Course Requirements In Development Studies 199.2 for the
Degree of Bachelor of Arts in Development Studies
Professor Roland Simbulan
Thesis Adviser
Presented by
Alyssa G. Fernandez
2008-12940
MARCH 2012 University of the Philippines Manila College of Arts and Sciences Department of Social Sciences
APPROVAL SHEET
In partial fulfillment of the course requirements for the degree of Bachelor of Arts in Development Studies, this undergraduate thesis entitled “The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study”, prepared and submitted by Alyssa G. Fernandez, is hereby recommended for approval.
______Professor Roland G. Simbulan Thesis Adviser Department of Social Sciences College of Arts and Sciences, UP Manila
This thesis is hereby accepted and approved as partial fulfillment of the requirements for the degree of Bachelor of Arts in Development Studies.
______Professor Carl Marc L. Ramota Chairperson Department of Social Sciences College of Arts and Sciences, UP Manila
ACKNOWLEDGEMENT
First and foremost I would like to offer my sincerest gratitude to my thesis adviser, Professor Roland Simbulan, who has supported me and guided me throughout my thesis. With his patience and knowledge I am able to finish this endeavor. I would also like to thank my DevStud professors, Sir John Ponsaran, my mentor from the time I set foot in UP Manila as a development studies major, Sir Allan Mesina, who never failed to encourage me and never hesitates to answer my questions and Dr. Edberto Villegas, who shared his knowledge and interest on my study, Thank you very much.
My thesis would not be possible without the help of the People who contributed their perspectives and knowledge in my endeavor. It’s an honor for me to interview Cong. Walden Bello and Mr. Sonny Africa who accommodated me even in such a short notice and shared their thoughts and expertise to my study, Thank you Congressman Bello and Sir Sonny Africa. To the institutions who shared their data and knowledge and gave me the opportunity to discuss with them my study, the World Bank, the BSP and the DOF, You became a big part of my endeavor, thank you and more power to your good office.
I owe my deepest gratitude to God and to my family who has been my inspiration in everything I do. To God, who’s with me in every step of the way whether in times of difficulties and fulfillment in my endeavor, I can’t thank you enough. To my Mom and Dad, you thought me to always strive hard and put my best foot forward in everything. You never failed to provide me with what I need. It is my aspiration to make you proud and to make your every sacrifice and hard work worth it. I love you mommy and daddy. To my Lola, you became my driving force, you never failed to boost my ego and appreciate my achievements. I love you Nanang Thank you.
I am blessed to have the best set of friends and colleagues who kept me sane during the course of my study. To my two college bffs, George, Ate Ciara, we’ve been through a lot of rendezvous just to relieve the stress and pressure from school and thesis, we became each other’s support and reward system, Thank you, I love you both. To Jebbick, Tin, Pads, Radx, Macky, Ate Melay, and Ate Du, Thank you. To the braso girls and my thesis classmates, Kristine, Caresse, Eunice, Nina and Sheic, thank you. To my practicum groupmates, Team Nueva Ecija, Kim, Dianne, Marian and Jona, Thank you. To DevStud Batch 2012, you welcomed me and my fellow shiftees in your block, Thank you.
To Casey Tan, who provided me with words of encouragement almost every day and became my pseudo thesis partner and accompanied me to every interview and long hours of thesis writing, Thank you. I love you.
To the University of the Philippines Manila, thank you for letting me learn inside the University and letting me experience and put into practice what I learned outside the University. You thought me the importance of principles not just learning. You thought me to be involved and critical in the issues outside the University which influenced me in the writing my thesis. You molded me to always embody Honor and Excellence. Thank you.
And for those who I forgot to mention, I offer my regards and blessings to all of those who supported me in any respect during the completion of my thesis.
To God Be the Glory
ABSTRACT
The World Bank and the Central Bank are both banks but with distinct functions.
They may have diverse roles but in the Philippines’ case they have close ties to each other.
The World Bank facilitates the investment of capital for productive purposes. It has been offering development assistance in the country for decades now but the country still remains in poverty and underdevelopment. The World Bank has intervened in the major sectors of our country, such as economy, agriculture, health, education, infrastructure, environment, and finance among others, one way or another. They started to build their relationship with the country through offering development assistance provided that the country adopts structural adjustments and reforms. They increased their influence in their efforts in giving policy advices and assessments to their member countries. Through the years they developed certain themes and certain areas to focus their support and assistance, their instruments may have evolved but their core remains, neoliberal and free market policies. They increased their influence especially in the financial sector claiming that it will promote more growth and development but it is apparent that it worked for the private interest and failed to work for the marginalized. In the midst of their strong influence in the country, the question on the World Bank still remains. Is the western- inspired neoliberal paradigm and development model brought by the World Bank doing more harm than good? This study looks into the partnership of the World Bank and the
Central Bank beyond technical assistance and policy advises that links them. It highlights the effects of the Structural Adjustments made in the 1980’s and how it resulted in the present condition of the financial and banking system of the Philippines. TABLE OF CONTENTS
Chapter I: Introduction 1
Statement of the Problem 3 Objectives of the Study 4 Hypothesis 4 Review of Related Literature 5 Methodology 13 Research Design Population Research Framework Theoretical Framework Conceptual Framework Definition of Concepts 19 Instruments and Data Gathering Plan 22 Data Analysis Plan 22 Scope and Limitation 23 Significance of the Study 24
Chapter II: Background of the Study 26
The World Bank 26
Behind the Philippine Financial System 31
Never Ending Loans 33
The Start of a Solid and Unrelenting Partnership 34
Bangko Sentral ng Pilipinas 36
The IMF’s Participation 37
The World Bank and the IMF hand in hand 38 The Structural Adjustment Approach 40
Chapter III: Presentation of Data 46
The IMF and the BSP 49
The IMF Today 51
Opening the Economy 55
The World Bank in the Philippines 63
World Bank Intervening in the Public Sector 63
World Bank in cooperation with The Private Sector 64
Linking the World Bank and the Philippines’ Central Bank 69
Reforms in the BSP 72
BSP’s Monetary Policy 73
Inside the BSP 76
The Creation of Apex Development Finance Unit (ADFU) 79
The Role of Technocrats 80
Inflation 80
Exchange Rates, Appreciation and Depreciation of Peso 82
Interest Rates 83
Money Supply 84
Rediscount Rate 85
BSP’s External Debt Management 86 Liberalization of Banking and Finance 95
Commercial Banks, Universal Banks and Foreign Banks 98
In favor of TNCs 110
The World Bank and the BSP on loans 110
The IBRD and the IDA 114
World Bank Lending 116
Neoliberal Agenda of the World Bank-Globalization 120
The World Bank and the Private Sector 122
The IFC 122
Biased Loans 125
Official Development Assistance 127
Technical Assistance 128
Country Assistance Strategy of the World Bank 130
Unequal Alliance 136
Chapter IV: The Different Perspectives 138
The World Bank’s Perspective 138
The Central Bank’s Perspective 142
The Government’s perspective through the Department of Finance 145
Expert’s Perspective 148
Chapter V: Conclusion and Recommendations 153
Conclusion 153
Recommendations 158
BIBLIOGRAPHY
APPENDIX
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 1
Chapter I: Introduction
I. INTRODUCTION
Financial Stability is very essential to a developing country’s growth. It will open doors to further developments. Having a healthy and progressive financial system, which encourages the transformation of savings into investments, will give opportunities to developing countries like the Philippines to flourish. The development of the financial system would not be possible without the participation of the Banking Sector. The country’s banking system continues to be a major source of growth in the resources of the financial system. (The Philippine Banking Sector, 2003)
In Developing Nations the Central Bank is characterized by foreign–owned commercial banks that mostly finance domestic and export industries, an informal and often exploitative credit network serving the bulk of the rural and informal urban economy, a central banking institution that have been inherited from colonial rulers and operates largely as currency board, having a money supply that is difficult to measure and more difficult to regulate, an unskilled and inexperienced work force unfamiliar with the many complexities of domestic and international finance and a degree of political influence and control by the central government over interest rates, foreign exchange rates, etc. Having this nature the Central Bank can only hope to instill confidence to the state and to foreign trading partners in the credibility of local currency. Central Banks in the Third World countries does not possess the flexibility and interdependence to undertake the range of
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 2 macroeconomics and regulatory functions developed by the Central Banks of developed countries. (Todaro, 1989)
In this incapability of the Central Bank and the government having not able to produce its own funds for its development programs the World Bank made it easier to penetrate the financial system. Establishing a relationship with the World Bank became essential to save the ailing financial system of the country. The World Bank saw their partnership with the Central Bank would give them opportunity to further dominate the economic scene of the Philippines.
The continuous partnership of the World Bank with the Central Bank hides its real agenda behind financial programs and structural loans for the development of the country.
With the supervision of the World Bank together with IMF to the Philippine economy finance capital raised by Philippine banks, both domestic and foreign owned through influencing the Central bank the country became more available to US monopoly capitalism.
Through the subordination of the Central Bank to the commands of the World Bank major reforms in the financial system is undertaken. (Villegas, 2000)
It is amazing that a multilateral institution and an IFI preserved a close ties with the
Central Bank. The relationship of the Central Bank and the World Bank became evident in the past decades. The World Bank became involved in the internal and external affairs of the Central Bank. Ever Since the country was declared by the World Bank a “country of concentration” we enjoyed close ties with one of the world’s financial institution. In 1970 and 1982, World Bank became a significant key player in the country’s financial affairs.
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The Philippine Banking sector has gone through several reforms at the command of multilateral institutions and IFIs like the International Monetary Fund and the World Bank that made the financial system adjusted to globalization. (The Philippine Banking Sector,
2003)
A. Statement of the Problem
The country perceives the relationship of the Central Bank and the World
Bank positive in the country’s financial and economic aspect. Not only this financial
institutions works together with the Central Bank, which is a key player to the
Philippines’s financial system, to manage and maintain financial stability in the country
but also they work with a same goal towards the development of a third world country,
the Philippines. But others oppose the two financial institutions’ relationship. The socio-
economic policies resulted by the reforms made by the World Bank together with the
IMF may seem positive theoretically but in reality it brings negative effects that concern
the welfare of the country.
In a closer look this research would come to see the negative implications of
the close ties of our Central Bank to the World Bank with the participation of the IMF.
We will come to see another manifestation of a strategy of the west to gain control over
third world countries like the Philippines. This research critically studies the close
relationship and partnership of the Central Bank, as the main financial institution of the
country and the World Bank and how the structural reforms and adjustments from their
loans affect the financial system of the country today.
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B. Objectives of the Study
This Research has the following Objectives:
1. To know what are the negative implications of the indirect partnership of the
World Bank and the Central Bank
2. To know the current effects brought by the Structural adjustment program and
loans of the IMF and the WB to the Philippines.
3. To know if the criticisms towards the World Bank is still relevant today.
4. To know the trends in the decades of partnership of the Central Bank and the
World Bank.
5. To know how the World Bank loans and instruments evolved through the years.
C. Hypothesis
As long as the Central Bank avails to the financial programs and development
assistance of the World Bank the Central Bank will cater to delivering the needs of
foreign interests.
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D. Review of Related Literature
The following integrated literatures are significant in studying the
relationship of the Central Bank and World Bank in the Philippines:
World Bank has been a significant financial institution in the Philippines since
it was established in the country decades ago. Until now it remains its significant
presence and its close ties with the Philippines’s Central Bank. “Short term Pain and
long term gain” this is the motto of the World Bank but what we do not know is that
they bring us long term Pain rather than gain.
The World Bank was known for enforcing liberalization in the form of
devaluation of peso during Marcos’s regime in 1970. The economy was opened for
foreign investments and imports. The country turned assistance to the World Bank
and the IMF after acquiring huge trade deficits and mounting external debt.
Following the devaluation there became a creation of a joint “Central Bank-IMF
commission” to overhaul the debt management policies of the government and
installation of an IMF resident officer inside the Philippine Central Bank.
Significantly, the “Consultative Group” of “interested nations and agencies” is
created under the joint leadership of the IMF and the World Bank. This is to monitor
the external position of the economy and coordinate foreign assistance to the
government. The World Bank had the primary responsibility for the composition
and appropriateness of development programs and project evaluation including
development priorities in the country. The powers of the World Bank together with
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its sister institution the IMF became a tool to manage the external debt of the
country. (Bello, Kinley, & Elinson, 1982).
The World Bank tends to penetrate our financial system through giving
financial aids to address chronic financial and economic crisis but micro problems
arise that affects the development of our country like budget deficit, greater debt
burden and high interest rates.
The country is known for its heavy borrowing and a debtor to financial
institutions such as the World Bank. As we continue to acquire loan from the World
Bank we also continue to avail to their attached conditionality. This means allowing
them to make such adjustments in the policies of our country. This means allowing
them to cut social services to pay back for the debts and allow multinationals to
assume control.
Philippines’ Lending Summary (2008-2011)
Figures from World Bank Databank (http://data.worldbank.org/)
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Apparently, in the year 2010 the repayment is greater than disbursements
but in the start of the year 2011 there are greater disbursements than repayments.
Despite of the disbursements and repayments our external debt to the World Bank
continues to accumulate every year. This gives authority to the World Bank to be in
control the Central Bank, offering more reforms and conditionalities promising to lift
the debt burden or simply having gains by manipulating interest rates and portfolio
investments.
Total External Debt to IBRD in US million dollars (2008-2011)
2600 2580 2560 2540 2008 2520 2009 2500 2010 2480 2011 2460 2440 IBRD
Figures from Banko Sentral ng Pilipinas (http://www.bsp.gov.ph/statistics/overview.asp)
The World Bank is present in many of the ministries: the reforms in health,
education industry agriculture, transportation, the environment, etc are under its
jurisdiction. The World Bank continues to pursue development projects in the form
of loans granted to our country intermediated by the Central Bank. The World Bank
integrated the financial system of the country through the Structural adjustment
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loans (SAL) and sector adjustment loans (SECAL). This paved the way for the
entrenchment of the World Bank in the country and made their p0olicy
prescriptions. The Structural adjustment loan comes with conditionalities that will
be imposed in favor of the World Bank’s interest. The Structural advancement
includes “Short term” macro-economic stabilization which includes implying
devaluation, price liberalization and budgetary austerity. This will be followed by
implementation of structural reforms that are deemed necessary. These processes
in bringing economic stabilization by the World Bank address both the budget deficit
and the balance of payments. For the World Bank getting the macro-economic
policy right, keeping budget deficits small that helps in controlling inflation, avoiding
balance of payments problems, keeping a realistic exchange rate is required.
(Chossudovsky, 2003)
The World Bank imposed development assistance in the form of policies and
projects that are friendly to foreign corporations. The country applying for the
assistance of IMF and the World Bank must have acceptable foreign exchange
system for the two financial institutions. The country also must apply the two
institutions’ ideology which is to promote free trade and foreign investments. The
World Bank with the IMF opts to re-orient the socio-economic environment of the
states they have close ties with in order to be more hospitable to foreign
investments. This intensifies the exploitation of third world resources. World Bank
became a powerful development institution in the developing world through the
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account of the loans it provides and its influence among global-regional financial
institutions and its governments. (Jose, 1982) These loans are used primary on their
development projects which masks their real agenda in establishing close ties with
the Central Bank and offering financial aid through loans.
Number of Projects by year (2008-2011)
Lending Amounts by year (2008-2011)
Figures from World Bank Databank (http://data.worldbank.org/)
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Using the loans, grants, structural adjustments and reforms brought to us by
the World Bank means taking control of the Central Bank and the Philippines’
financial system. The World Bank together with its sister agency the IMF tightly
monitors and provides resources for the restructuring of the Central Bank. They
required the so-called “Central Bank independence from the political power as a
remedy against the inflationary bias of governments.” This means that foreign
financial institutions like the World Bank and the IMF would have greater control of
the Central Bank and its money creation processes. This results in the country being
dependent on international sources of funding which adds consequence of
increasing the level of external indebtedness. Also along with the Central Bank’s
independence is the appointment of officials that are allegiance is to the IFI’s.
Former staff of the IFI’s and regional development banks becomes senior officials of
the Central Bank. Central Bank Officials often receive “salary supplements” from
multilateral and bilateral sources. (Chossudovsky, 2003)
The emergence of World Bank in the country led it to its massive objectives,
one is to stabilize the deteriorating political situation and to completely open up the
economy to free the flow of foreign capital and commodities. Behind the closed
doors of the Central Bank, transnational banks and corporations were the major
target of criticisms. The World Bank-IMF financial reforms led to the consolidation of
Philippine commercial banks and foreign banks. This will increase the bank’s favor
for big companies and multinational corporations. (Bello, Kinley, & Elinson, 1982).
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Central Bank loses control over the monetary policy. Central Bank becomes
independent and shielded from political influence. This will be in favor of the
financial elites and private commercial creditors. The interest rates are determined
by the commercial banks. Interest rate becomes artificially high because of the
deregulation of the banking system. This results in the further privatization of state
development banks and deregulation of commercial banking system. This puts the
Central Bank under the supervision of the IFI’s and the takeover of foreign financial
interests. (Chossudovsky, 2003)
The Central Bank facilitated the self serving relationship of the World Bank
and the foreign businesses. The bank became controlled by the comprador
bourgeoisie that availed themselves to be universal banks that allowed the merger
of industrial and finance capital in the Philippines. US monopoly capitalism will
continue under the financial programs of the World Bank up to liberalization of
banking, (Villegas, 2000)
The proliferation of the World Bank in the country’s Central Bank and
financial system will lead to the demise of central banking. The country’s national
economic sovereignty will be unclear and the national state will not be able to
control money creation. Monetary policy will be in the hands of private creditors
and speculators. Soon they will have the power to freeze state budgets, paralyze the
payments process and precipitate the collapse of production of social programs just
like what they have did to other developing countries. (Chossudovsky, 2003)
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By the Central Bank independent from the government makes them a
powerful and ideal tool for the World Bank to manipulate and enforce reforms that
would serve their interest and further colonialism for the country. The central bank
no longer exists as a means of state intervention but it exists for serving the interest
of its foreign and private speculators. Central Bank will no longer be able to regulate
the creation of money in the broad interests of the society. The Central Bank
focused in fighting the inflation which is necessary to meet the financier’s demands
for positive real interest rates (Sogge, 2002)
World Bank’s participation will not be possible without the role of Central
Bank. The World Bank‘s supervision of the Philippine financial system is through the
Central Bank. The Central Bank extended numerous incentives to enterprises
engaged in the export-import arena. (Villegas, 2000)
The World Bank and the Central Bank became big actors of aid in the
Philippines. The World became the important creditor while the Central Bank
became actor that facilitates the borrowing of the Philippines who plays the debtor.
World Bank’s presence in the country as a big financial actor and its ties to the
central bank will be able them to manipulate the creation of money, move money
without any impediment, manipulate interest rates and sudden the decline of our
currency. They used the inability of the state to finance government programs
through monetary policy to put our financial system under their influence. They
used the aid system to foster a close relationship with the country but they became
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receivers more than givers in their manipulation of policies and reform in the
financial system.
E. Methodology
a. Research Design
This research having its nature is both explorative and qualitative. In
gathering the data intensive interview of the stakeholders and think thanks
and review of past literatures is conducted and current figures and
conditions of the subjects of the study are maximized.
Historical Materialism is used to critically study the past events from
the establishment of the partnership of World Bank and central bank up to
their present relationship.
b. Population
To be specific this study covers the perspective of the following think tanks:
(1) The World Bank
(2) The Bangko Sentral ng Pilipinas (BSP)
(3) The Department of Finance (DOF)
(4) Think Thanks knowledgeable about the World Bank
a. Cong. Walden Bello- Author of Development Debacle
b. Mr. Sonny Africa- Research Head of IBON Foundation Inc.
c. Dr. Edberto Villegas- Author of Global Finance Capital
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c. Research Framework
1. Theoretical Framework
In order to determine the relationship of the World Bank and the Central
Bank in the Philippines the factors involved in this research is studied.
The two variables focused in this study are the following: The World
Bank as the independent variable and the Central Bank as the dependent
variable. The World Bank will serve as an independent variable because as
an International Financial Institution (IFI) that prescribes policies and
programs. The Central Bank will be the dependent variable because it
continues to adapt the policies and programs that are being imposed by
the IFIs such as the World Bank.
In order to explain the relationship of the factors it is significant to
study theories that are relevant to the variables and in the whole research.
The following theories will explain the behavior of the two significant
variables.
Modernization theory will be used to explain the behavior of the
World Bank as an IFI offering assistance to developing countries. This
theory by looking to the internal factors of the country, assumes that
traditional countries can be brought to development through assistance.
In order to explain the effects of the World Bank to the Central Bank
and the Philippines, Globalization will be incorporated which explains the
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emergence of worldwide financial markets and better access to external
financing for borrowers. The World Bank see loans as a powerful means of
control over indebted countries like the Philippines. They use it to further
consolidate their power to control and manipulate the financial system of
the country. They use loans in order to protect their perverted intentions
to the country. Also this encourages the free market in favor of the foreign
speculators which are members of the World Bank.
Also to explain further the policies and programs by the World Bank,
examining it by the perspective of the dependency theory is needed. The
relationship of the World Bank and the Central Bank is another
manifestation of the core and the periphery. As the dependency theory
says to enrich the core at the expense of the periphery. In opposition to
the modernization theory used in explaining the behavior of the World
Bank, this argues that underdeveloped countries needs to reduce their
relationship with the World market so that they can pursue a path which
will address their own needs and less dictated by external factors like the
World Bank.
Given the nature of the Central Bank Neocolonialism is also significant
for the direction of the study. The neo-colonial nature of the central bank
facilitated the self-serving relationship between the World Bank, the TNC’s
and foreign business. Also neocolonialism will explain the course of the
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structural adjustment loans. Neocolonialism portrays the choice to grant or
refuse granting loans especially by international financial institutions such
as the World Bank as a decisive form of control. The structural adjustments
loans were used by the World Bank as a strategy to manipulate the
financial system and use it for the benefit of itself and integrate US
monopoly capitalism in the country. Neocolonialism argues that in order to
be eligible for loans and other forms of aid, less developed nations are
enforced to take certain steps favorable to the financial interests of the
World Bank even if it’s detrimental to their own economic welfare.
Structural adjustments imposed by the World Bank have the effect of
worsening the condition of poverty rather than alleviating it.
Neocolonialism allows the World Bank, one of the cartels of the states, to
control and exploit LDCs by fostering debt. The LDCs gives special
considerations and monopolies to foreign corporations and institutions in
return for consolidation of power and monetary bribes. Loans became
subsidies to corporations loaning the state. The money borrowed returns
to the favored foreign corporations. Also neocolonialism states that
existing or past international economic arrangements created by former
colonial powers were used to maintain control over them. The Central Bank
being an institution that was formed through the help of the US is up to
now being controlled by them.
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In line with Neocolonial theory the research will also integrate the
Neocolonial Dependence Model. It attributes the existence and
continuance of underdevelopment primarily to the historical evolution of a
highly unequal international capitalist system of rich country-poor country
relationships, representing this is the relationship of World Bank and
Central Bank. Whether because rich nations are intentionally exploitative
or unintentionally neglectful the coexistence of rich and poor nations in an
international system dominated by unequal power of relationships
between the center and the periphery renders attempts by poor nations to
be self-reliant and independent difficult and sometimes impossible. Certain
groups in the developing countries, in this research case the commercial
banks, foreign banks and universal banks, enjoy gains and reward from the
perpetuation of the international capitalist system of inequality and
conformity. Directly and Indirectly they are dominated by and dependent
on the international special-interest of power groups including
multinational corporations, national bilateral-aid agencies and multilateral
assistance organizations like the World Bank which are tied by allegiance of
funding to the capitalist countries. (Classic Theories of Development: A
comparative Analysis)
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2. Conceptual Framework
The Partnership of
Central Bank and the World Bank in the Philippines
GOVERNMENT
Foreign Banks WORLD BANK DOF
Universal Privatization Banks Fiscal Policies
Commercial Liberalization Banks Deregulation
IMF CENTRAL BANK
Monetary Policies
FOREIGN TRADE AND INVESTMENTS
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3. Definition of Concepts
3.1 The Philippine financial system (PFS)- It consists of banks and non-bank
financial institutions (NBFI’s) like investment houses, finance companies,
insurance firms and pawnshops.
3.2 The Central Bank of the Philippines (now Banko Sentral ng Pilipinas)- The BSP
is vested with authority over the Philippine Financial System, Among its main
functions are to serve as the depository of required reserves of commercial
banks, manager of the country’s international reserves (gold and foreign
currency) and external debts, regulator of interest rates in the economy and sole
currency issuers (creation of money).
3.3 Foreign Bank- encourages foreign buy-ins. mergers and establishment of
banks.
3.4 Commercial Bank- A financial institution that provides a wide range of
services, including accepting deposits and making loans for commercial purposes
it may be privately owned, local or foreign. Functions are accepting deposits,
lending and safekeeping. Can also provide foreign financial services.
3.5 Universal Bank- expanded commercial banking in which the resources of the
commercial banks are combined with those of the investments houses. Have
greater ability to generate long-term investment capital.
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3.6 International Finance Corporation- member of the World Bank Group, is the
largest global development institution focused on the private sector in
developing countries. It is the private sector arm of the World Bank.
3.7 Financial intermediary- any financial institution, public or private, that serves
to channel loannable funds from savers to borrowers.
Eg. Commercial banks, savings banks, development banks, finance
companies.
3.8 Financial liberalization- eliminating various forms of government intervention
in financial markets, thus allowing supply and demand to determine the level of
interest rates.
3.9 Foreign aid- the international transfer of public funds in the form of loans or
grants either directly from one government to another or indirectly through the
vehicle of multilateral assistance agency like the World Bank.
3.9 World Bank- also known as International Bank for Reconstruction and
Development (IBRD). An international financial institution owned by 148
member countries. Its main objectives are to provide “development funds” to
the needy third world nations in the form of interest-bearing loans and technical
assistance. It operates with borrowed funds.
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3.10 Loans- the transfer of funds from one economic entity to another which
must be repaid with interest over a prescribed period of time.
3.11 Structural adjustment loans- loans by the World Bank designed to foster
structural adjustment in the LDCs by supporting measures to remove excessive
governmental controls, getting factor and product prices to better reflect
scarcity values and promoting market competition.
3.12 Conditionalities- use of conditions attached to a loan, debt relief, bilateral
aid or membership of international organizations typically by the International
financial institutions (IFI), regional organizations or donor country. Labeled under
structural adjustments. Implemented to ensure that the money lent will be spent
in accordance with the overall goals of the loan. Through conditionalities SAPs
implement “free market” programs and policy; it may be internal or external.
3.13 Structural Adjustment- policies that are implemented by the IMF and WB in
developing countries. Policy changes that are conditions for getting new loans or
obtaining lower interest rates on existing loans.
3.14. Structural Adjustment Programs (SAPs) - created with the goal of reducing
the borrowing country’s fiscal imbalances. SAPs are supposed to allow the
economies of developing countries become more market oriented.
3.15 Legal Reserve- safety fund in meeting the normal demands of depositors
and also as a tool for monetary policy to regulate money supply.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 22
4. Instruments and Data Gathering Plan
The instruments that are used in this study are the following:
(1) Traditional methods in data gathering will be used such as library work and
internet research.
(2) Visitation of the Central Bank and the office of the World Bank, foreign
banks, commercial banks and universal banks will also be visited depending
on the time constraints.
(3) Interview major stakeholders in the research namely the Central Bank, the
World Bank, commercial banks, foreign banks, investors and its subsidiaries
and the Philippine Government and other important people who are
significant and knowledgeable about the topic.
5. Data Analysis Plan
By using the theories embedded in the research such as the
Modernization, Globalization and dependency theory and neocolonial
theory, the key variables in the research such as the World Bank, the Central
Bank, and the structural adjustments are evaluated including their socio-
economic implications. Also by studying the past studies and literatures the
trend between the relationship of the World Bank and Central Bank in the
Philippines in the past decades and comparing them with the present
condition of the Philippine Financial system. Consultation with experts and
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 23
stakeholders engaged in the research is critical for the whole assessment of
the variables integrated through triangulation.
6. Scope and Limitation
The study is focused on the partnership of World Bank and Central
Bank in the country from the time it was established up to the present.
Studying the World Bank and Central Bank’s partnership is limited from
structural adjustment programs and loans of the World Bank and the IMF
and its effect to the Central Bank and the financial system of the Philippines.
It includes all transactions between the Central Bank and the World Bank like
the management of external debt and approval of loans among others.
Also commercial banks, universal banks and foreign banks that are
directly affected by the structural adjustment programs and its link to the
transactions of the World Bank and the Central Bank are considered. It is
necessary because it is said earlier that private corporations, mostly foreign
are the ones who are the primary borrowers of commercial banks that
dominates the Central Bank. Also the Central Bank came into the role of
delivering the needs of private and foreign business.
Also instruments in creating a stable monetary and fiscal environment
such as interest rates, foreign exchange rates and money supply are studied.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 24
The study is centered on the perspective of the World Bank, the BSP
and the government on their relationship with each other. The opinions of
some experts and private sector who are knowledgeable about the
relationship of the World Bank and the Central Bank are one of the big parts
of the study.
7. Significance of the Study
The financial system is very important in the development of a
country. Through the financial system the country’s money and the growth
of the economy is being engineered. Foreign aid through the form of loans
and financial assistance is also a big part of the country’s development.
Through loans and financial assistance development programs are made
possible.
The World Bank’s presence in the country is very evident but its
agenda remains behind closed doors of the institutions such as the Central
Bank and masked by development projects that are said for the grass roots
development of the poor.
This research is significant to provide a deeper view of the close ties
of the World Bank and the Central Bank in the Philippines. It explains how
strategic it is for the World Bank to keep close ties with the Central Bank.
This shows the impact of the partnership of the World Bank and the Central
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 25
Bank especially to the financial system and to the economy. The critical
assessment of the two institution’s relationship is integrated in the decision
making process of the Central Bank which affects the study’s stakeholders
and the country.
In conducting the study the researcher hopes to make a significant
contribution to the think tanks and to the institutions that are involved
especially to the Central Bank. The study hopes to make the public gain a
deeper understanding about the existence of IFIs particularly the World Bank
and its perpetuation and influence in the Central Bank. This study aims to
gain a deeper view about the Neo-colonial nature of Central Bank and how it
is engineered by the financial programs brought by the World Bank. This
study aims to study how the financial programs of the World Bank affects the
country. Also this study opts to open alternatives for the ailing financial and
banking system handled by the Central Bank.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 26
Chapter II: Background of the Study
In 1945 the International Monetary Fund (IMF) and the World Bank (WB) was created by Western allies after the Bretton Woods Conference in 1944. The World Bank is established as a major source of development funds with long term loans. And the IMF, its partner institution that ensures free trade and investment by influencing the monetary and fiscal system of their member countries. (The Philippine Financial System, 1983)
The World Bank shifted its financing in the form of development programs in the
Third World countries. The World Bank and the IMF became the biggest lenders to developing countries while the Philippines became its active and constant borrower. Today we already paid our obligations to the IMF but our debt to the World Bank remains.
The World Bank
In 1999 the World Bank-IMF announced that it would put poverty reduction the center of their approach towards developing countries. In 2010, Philippines grew by 7.6 percent, highest in 30 years. The country experience continuous and improving growth through the years. It restored its microeconomic stability and proved resilient to recent external shocks in the economy even with of the present challenge of the global financial crisis. Rising and revolving remittances provided strong basis for currency stability and healthy build up of international reserves. Our country enjoys a savings rate that exceeds investment. Our resources are in demand all over the globe. Thanks to our partnership with the World Bank.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 27
But in the midst of growth underdevelopment remains to be a challenge. Higher growth has not translated less poverty. It remained and even increased at some point.
Income inequality remains high. Social Services continue to fail. Weak governance hinders sustained growth and poverty reduction. There is a need to deploy the country’s financial and human resources effectively. The country needs to achieve more inclusive growth.
The World Bank helps the country to achieve inclusive growth by supporting the country to maintain macroeconomic stability and cope with increased macroeconomic uncertainty through a stronger revenue base, improved expenditure efficiency and targeting, and responsive financing, improve the investment climate through an enabling business environment that promotes competitiveness, productivity and employment, especially for sectors of particular importance to the poor, such as agriculture and fisheries, and developing better models of infrastructure finance and management, increase access to better public services for the poor by deepening the reform agendas in key public services sectors and expanding basic service delivery directly to the poor and reduce vulnerabilities by expanding and rationalizing the country's social safety net, improving disaster risk management, piloting climate change adaptation measures and expanding climate change mitigation programs.
The World Bank continues to assist the Philippines in facing its endeavors. In strong partnership with the government the bank adopt strategies based on the development plan under the current administration to address challenges in the country. These include:
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 28
Attaining high and sustained economic growth that provides productive employment
opportunities;
Promoting equal access to development opportunities through: better education,
primary health care and nutrition, and other basic social services; equal access to
infrastructure, credit, land, technology, and other productive inputs; and good
governance and strong institutions to promote competition; and
Establishing effective and responsive social protection to protect and enable those who
do not have the capability to participate in the economic growth process.
It continues to assist the Philippines to pursue macroeconomic stability, better
investment climate, good governance and addressing poverty through their strategies. They
constantly support local government units, government agencies like the BSP and other
sectors of the society. They tend to assist the country in addressing its own developmental
challenges.
The Financial Sector is one of the areas of concentration of the World Bank’s
continuous assistance to the country. The World Bank collaborates with its private financing
arm the International Finance Corporation (IFC) in its integration with the financial sector.
A world without Poverty
“Our dream is a world without Poverty” says the most important development
institution in the world, the World Bank. From little the World Bank grew to be one of the
mighty global institutions in the world. The World Bank conglomerate lends US$ 17billion a
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 29 year to its client countries. Through interventions such as direct loans and setting of policy conditions they penetrate other country’s economies. Together with its loans and grants that flows to the third world countries they set conditions.
Structure
Inside the World Bank are five specialized institutions such as the International Bank for Reconstruction and Development (IBRD), the International Development Association
(IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee
Agency (MIGA) and the International Centre for Settlement of Investment Disputes (ICSID).
Each performs significant role essential in the World Bank. The IBRD and the IDA carries the most important and primary role of the World Bank. IBRD constructs development loans, guarantees them and offers analytical and advisory services. It made $360 billion in loans over the years and currently lends $10.5 billion a year for some 90 new operations in 36 countries. It sells bonds in private capital markets in First World countries and borrows at low interest rates. It then makes near-market interest loans to “creditworthy countries” in the Third World. In the contrary the IDA gives loans to “usually not creditworthy countries” in the international financial markets. Its loans carry no interest but a 0.75 percent administrative charge annually. It averages $ 6 billion a year in lending to the poorest countries funded from the national budget of its member governments. (Peet, 2003)
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 30
The Funds
The World Bank is creation of the US. The US provided its capital and structure.
World Bank’s funds come from mainly selling bonds and from the subscriptions of its member countries. The World Bank has a capital stock subscribed by its member countries and divided into shares.
Purpose
As stated in the Article 1 of the original Bretton Woods Agreement the World Bank’s purpose are:
i. To assist in the reconstruction and development of territories of members by
facilitating the investment of capital for productive purposes.
Including
Restoration on economies destroyed or disrupted by war
Reconversion of productive facilities to peacetime needs
Encouragement of development of productive facilities and resources in less
developed countries.
ii. To promote private foreign investment by means of guarantees and participations in
loans and other investments made by private investors; and when private capital is
not available on reasonable terms, to supplement private investment by providing,
on suitable conditions, finance for productive purposes out of its own capital, fund
raised by it and its other resources.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 31
iii. To promote long-range balanced growth of international trade and the maintenance
of equilibrium in balances of payments by encouraging international investment for
the development of the productive resources of members, thereby assisting in
raising productivity, the standard of living and conditions of labor in their territories.
iv. To arrange the loans made or guaranteed by it I relation to international loans
through other channels so that the more useful and urgent projects, large and small
alike, will be dealt with first.
v. To conduct its operations with due regard to the effect of international investment
on business conditions in the territories of members and, in the immediate postwar
years, to assist in bringing about a smooth transition from a wartime to a peacetime
economy.
(World Bank 1989)
Behind the Philippine Financial System
Today like other third world countries the Philippine’s financial system faces crisis due to external debts. Loans that are intended to aid development were now one of the factors that made underdevelopment worst. Behind the external debt is the country’s partnership with global finance institutions like the International Monetary Fund (IMF), the
World Trade Organization (WTO) and a global development bank the World Bank.
International economic cooperation was seen as a way to address world peace and prosperity. Such cooperation will be based on a world market where capital and goods
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 32
moves freely and regulated by global institutions operating in the general interests of
greater stability and predictability. These regulatory institutions were the IMF, the
International Bank of Reconstruction and Development (IBRD) or later known as the World
Bank and the General Agreement on Tariffs and Trade (GATT) or the World Trade
Organization (WTO). (Peet, 2003)
Figure 1: The Components of the Philippine Financial System
Private Transnational Banks (TNBs) World Bank (WB) IMF
Universal Banks or Expanded External Sector Commercial Banks (EKBs) (Offshore Banking Units, Regional Offices of Foreign Banks)
Commercial Banks (KBs)
(Private Domestic KBs, Private Foreign KBs, Gov’t controlled KBs) Banko Non-Bank Thrift Institutions Sentral ng (Non-Stock Savings & Loan Assoc., Mutual Building & Rural Banks Pilipinas Loan Assoc.)
(BSP)
Thrift Banks Gov’t Non-Bank Financial Intermediaries (Private Dev’t Banks, Savings and Mortgage, Stock Savings (SSS, GSIS) & Loan Assoc.)
Specialized Government Banks Private Non-Bank Financial Intermediaries (DBP, LBP) (Investment Houses, Financing Co’s, Investment Co’s, Securities Dealer, Lending Investors, Insurance Co’s., Pawnshops,32 etc.) | Fernandez
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 33
LEGENDS
-Formal control/supervision
-Interbank Cooperation
-Non-formal control/Supervision
SOURCE: IBON Primer on the Philippine Financial System
This shows that the World Bank and the IMF have a formal control or supervision over the Central Bank, the center or core of the Philippines’ Financial System. Also in this chart the interbank cooperation between the IMF, the WB, TNBs and External Sector of the
Banking System, Also here shows that the TNBs influence the BSP informally.
The World Bank and the Central Bank’s partnership with the Philippines ushered a new era in the Philippine’s financial system. It became inevitable, strengthened by monetary policies and structural adjustments through time. Together with their partnership the Philippine’s banking sector was being dominated by foreign banking institutions.
Never-ending Loans
In November 1957 the country received its first loan from the World Bank. From then on the Bank’s support was seen as essential in financing critical infrastructure and in rural development needs. The World Bank’s assistance was expanded and involved policy advising capacity development.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 34
R.A. 8182 or the Official Development Assistance Act
ODA refers to a loan or a loan and grant facility which contains a grant element of at least 25 percent. In addition, the loan/loan and grant should also meet the following criteria pursuant to Section 2 of the ODA Law: (a) it must be administered with the objective of promoting sustainable social and economic development and welfare of the Philippines; (b) it must be contracted with governments of foreign countries with whom the Philippines has diplomatic, trade relations or bilateral agreements or which are members of the United
Nations, their agencies and international or multilateral lending institutions; and (c) there are no available comparable financial instruments in the capital market. The interest rate on the loan shall in no case exceed 7 percent per annum. ( (APPROVAL AND REGISTRATION OF
FOREIGN LOANS AND OTHER RELATED TRANSACTIONS, 2009)
The ODA aims to provide resources to developing countries through bilateral and multilateral institutions in promoting economic development. Behind the ODA’s altruistic assistance is the World Bank is one of the institutions that provide technical assistance in the country.
The start of a Solid and Unrelenting Partnership
The Philippines was one of the first countries to join the IMF and the WB in 1945.
Since the mid 1950’s, The World Bank started in financing development projects in the Third
World. The World Bank became the world’s largest agency on development together with its partner the International Monetary Fund (IMF). The World Bank was established to
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 35 serve as a major source of development funds with long-term loans. It is in partnership with the International Monetary Fund (IMF), which ensures an international monetary system that supports and encourages free trade and foreign investments.
Philippines’s Central Bank was created by the US when they grant nominal independence in 1946. The Central Bank replaced the Bureau of Banking. It is intended to continue the Bureau of Banking’s role as the facilitator of American trade with the
Philippines. The Central Bank’s operation became the operations of the Foreign Exchange
Department, swapping pesos for dollars and vice versa for trade transactions. Philippines’s financial system became under the US’s influence with the aim to continue American free trade with the country.
The trade relationship between the US and the Philippines continued. The
Philippines became America’s closest client state. Due to the heavy importation of US consumer goods by big corporations in the Philippines, which are controlled by American capital, surplus products are being dumped in the country resulting to a severe balance of payments deficit.
Also in 1946 the International Monetary Fund (IMF) and the World Bank is established by the US. They pushed the Central Bank to adopt foreign exchange and import controls to solve the balance of payment crisis in 1949. The IMF maintained the viability of the trade economy between the Philippines and the US. In spite of exchange control became repatriation of foreign capital from the Philippines. The existence of American firms
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 36 was perceived as necessary by the Philippine government to its economy. They became exempted from Central Bank’s import and exchange control. The Central Banks role was utilized by the US as conduit for their trade and investment in the Philippines.
The World Bank was established as major source of development funds while working hand in hand with its partner institution IMF continues to support free trade and foreign investment through reforming the monetary system. In the mid of the 1950’s the
World Bank shifted its financing for Development projects in the Third World countries.
Bangko Sentral ng Pilipinas
The BSP has the central authority and responsibility in the Philippine Financial system. It acts as a fiscal agent and as a financial adviser. Through the banking system it stabilizes and collects national revenue taxes, customs duties and other taxes.
Under the BSP’s mandate are credit control, monopoly of currency issue and custody of the country’s foreign reserves. The BSP has the power to regulate and supervise banks and other financial institutions in the Philippines’ banking system. Its regulatory powers also extend to nonbank financial institutions. (The Philippine Banking Sector, 2003)
The authority and the power of the Central Bank was seen by the IMF and the World
Bank as vital to their strategy on gaining more control and profits in the country.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 37
The IMF’s Participation
The IMF and the World Bank have been instruments for manipulating the domestic economy, ensuring that it favors foreign monopoly capitalists gain profits. Together the IMF and the World Bank forced “free market reforms” creating an economic environment in the advantage of foreign monopolies and domestic elites.
Through the help of the IMF foreign exchange restrictions were lifted and the country started giving incentives for foreign investors. Tariff rates started to cut back in the
1980s. Export industries and export processing zones are set up. The IMF’s stabilization measures and the World Bank’s structural adjustment programs insisted policy changes and influenced various sector in the economy including the financial sector. The World Bank together with the IMF set policies involving trade and investment liberalization, privatization and deregulation.
In the 1990s market-oriented measures became intense. Again deregulation was heightened and the tariff rates again decreased. In 1991 foreign investments were liberalized and 100% foreign ownership was allowed in most sectors. Foreign exchange controls were dropped in 1993. Foreign investors were given the freedom to repatriate capital from the Philippines.
The World Bank worked parallel with the IMF. World Bank made its loans dependent on the policy changes initiated by the IMF in health, education, agriculture, telecommunications, transportation, power and water sectors and the banking sector. Up
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 38 to this day the IMF conducts reports and assessment of the country’s economic condition and viability. The IMF remains in a powerful position to influence the country’s economic policies as long as we are availing to foreign loans.
The IMF and the WB introduced the concept of aid and converted it into an instrument of imperialism. Developing countries like the Philippines facilitated their own neocolonization through relying in aid in the form of loans and programs. (Lichauco, 1973)
The Central Bank or the BSP is in fact the key instrument because of letting the macroeconomic policies be influenced through adapting the dictates or advise of the IMF-
WB attached to the loans and programs they bring.
The World Bank and the IMF hand in hand
Although the goals of the two sister institutions namely the IMF and the World Bank is different they complement each other in many ways. Their programs reinforce each other. The International Monetary Fund (IMF) directed on fiscal and monetary concerns.
They tend to address problems in the balance of payments by helping making loans and help countries design policy programs. The IMF promotes international monetary cooperation and provides policy advice and technical assistance to help developing countries to build strong economies. The fund’s loans are short and medium term.
The World Bank’s adjustment programs are wider in scope and a long-term development focus. It promotes long term economic development and poverty reduction by providing technical and financial support to a particular sector of third world countries
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 39 and implements specific projects. Through their development programs they promote growth by market liberalization and public sector reforms. Through cross-conditionality the
IMF and the World Bank highlights the connection of the goals between the two institutions. Before qualifying for an adjustment loan from the World Bank the government must be approved first by the IMF. The agenda of the IMF and the World Bank extend beyond the financial sector. The IMF and the World Bank are both market oriented making them complementary to each other.
In lieu of the IMF and the World Bank’s provision of assistance to developing countries comes with the consequences of their neoliberal agenda. As part of their structural adjustments they prescribed liberalizations of the economy and opening the market. Privatization is encouraged and the state’s role is minimized. Devaluation, elimination of subsidies and increase in interest rates are also included in adjustment policies. Lastly for the country to be more attractive to foreign investors, regulations and standards are removed.
The existence of the IMF-WB draws the country into greater dependence on other countries and these multilateral institutions. In order to pay for the debts incurred by the country and to keep the currency stable we are encouraged to export more. Earning foreign exchange means having the capacity to pay off debts. Because of the deregulations resources from developing countries became cheap favoring the West. When exchange rates are in favor of the developed countries it leaves the poor countries poorer.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 40
The Structural Adjustment Approach
Structural adjustments are the answer to the Third World’s ills during the 1980’s up to the 90’s. The Structural Adjustment Programs and Loans, the model of development that has been prescribed by the World Bank and the International Monetary Fund in the Third
World countries was used to gain control and manipulate the economy together with its financial system of third world countries to the advantage of the US. The Philippines together with other third world countries became one of the countries where the approach was tested. The Structural adjustment is designed to restructure the whole economy in order to compete with the global market.
Structural Adjustment Programs comes with long-term structural reforms to deregulate the economy, liberalize trade investment and privatize state enterprises, coupled with short-term stabilization like cutbacks in government expenditures, high interest rates and currency devaluation. The reforms in the Philippine financial system under the supervision of IMF and the World Bank are accustomed to globalization.
The country’s macroeconomic policies are being managed by the IMF and the World
Bank and been under continues adjustment until 1999. Between the 1980 and 1999 the
Philippines became the recipient of 9 structural adjustment loans from the World Bank and
3 standby programs, 2 extended fund programs and 1 precautionary standby agreement with the IMF.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 41
During the time of Marcos the World Bank together with the IMF continued their
Structural Adjustment programs in the financial system of the Philippines. Trade liberalization became the first focus of the adjustments. Restrictions were removed and tariff protection was brought down. Structural adjustments made the crisis worst due to high interest rates and tight government budgets the GNP shrank.
SAPs multiplied during the Third World debt crisis. Foreign debt rose to $26 billion due to fiscal austerity and export-oriented production. The debt was carried on to the next administration. To service the debt the Aquino administration was left with no choice but to borrow to domestic financial sources.
In 1992, during the time of Ramos, the focus of the adjustment was brought back to privatization, deregulation and liberalization of trade, investment and finance. A free trade regime was targeted for 2004, tariff rates will be furthered reduced, and restriction on foreign investments will be loosened up.
The World Bank and the IMF put pressure on the governments to restructure their economies and adopt their development paradigm. The objective of SAPs went beyond debt repayment and attainment of economic stability. The structural adjustments were used to dismantle policies that hinder free trade and foreign investment. They want to eliminate obstacles in trade that they believe hinders growth and development. (Bello, Is the Structural Adjustment Approach Really and Trully Dead?, 1999)
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 42
Structural Adjustment Loans (SAL)
Payment Difficulties towards the World Bank grew in developing countries. In response the World Bank introduced the Structural Adjustment Lending. A structural adjustment loans is a type of loan offered to developing countries. It carries policy conditions including the fiscal policy discipline, redirection of public spending from subsidies, tax reform, market determined and positive in real terms interest rates, devaluation of currency to stimulate exports, trade liberalization, liberalization of foreign direct investments and privatization of state enterprises and deregulation. Despite of the promise of these conditions towards growth and development the outcomes reflect otherwise. These policies or also known as austerity measures by the IMF-WB are used as a disguise of the capitalists’ interests and dictated by the world’s most powerful nations further results to underdevelopment.
Republic Act No. 7653 the “New Central Bank Act”
In June 14, 1993 President Fidel V. Ramos Signed the Republic Act No. 7653 or commonly known as the New Central Bank Act. The BSP went into a major reorganization as recommended by the IMF. It provides the Banko Sentral ng Pilipinas (BSP) autonomy. The
Central Bank becomes independent in having monetary authority. Also it gives the BSP fiscal and administrative autonomy while being a government-owned corporation. The Act took effect on July 3 of the same year. The Central Bank shall function and operate as an independent and accountable body of its mandated responsibilities concerning money
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 43 banking and credit. This enticed greater foreign capital. The New Central Bank Act created a independent monetary authority with the a framework of increased capitalization and greater representation of the private sector in its monetary board. (See BSP Charter)
Republic Act No. 8791 "The General Banking Law of 2000”
In May 23, 2000, the R.A. 8791 was signed. It is an act providing for the regulation of the organization and operations of Banks, Quasi-Banks, and Trust Entities and for other purposes. The state recognizes the vital role of banks in providing a good environment in developing the national economy and the banking sector. In this mandate the State shall promote and maintain a stable and efficient banking and financial system that is globally competitive, dynamic and responsive to the demands of a developing economy.
One of the recent key reforms in the financial sector is the passage of the General Banking
Law of 2000 which institutionalized a critical mass of banking reforms. Immediately after its passage, the BSP moved quickly to draft implementing rules and regulations, particularly those relating to the adoption of a risk based capital adequacy ratio, the observance of fit and proper rule on bank management, the acquisition of a domestic bank by foreign banks/nationals and the granting by financial institutions of microfinance loans. (Marcelo,
2012)
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 44
Table 1: Significant Events in the Philippine Financial System
Important Events in the Philippine Financial System
1980 Introduction of universal banking. Lifting of interest rate ceilings for loans with maturities of more than Four years. 1981 Deregulation of all interest rates, except for short-term loans and purchases of short-term Receivables. Initiatives to set up a credit information and rating system. Expansion of the Central Bank’s (CB’s) supervisory power to include the subsidiaries and affiliates of banks and nonbanks with quasi-banking functions 1982 Increase in paid-up capital requirements of thrift and rural banks from P10 million to P20 million. Setting up of a credit information bureau. 1983 Deregulation of interest rate ceilings on short-term loans. CB institution of a prime rate monitoring system for expanded commercial banks (EKBs), commercial banks (KBs) and specialized government banks. Declaration of a 90-day moratorium on foreign debt payments. Adoption of the foreign exchange pooling system and import prioritization scheme. Provision of incentives to rural banks and EKBs that establish branches in areas inadequately served or unoccupied by rural banks. Imposition of requirement for KBs/thrift banks to purchase 5-year central bank certificates of indebtedness (CBCIs) to establish a branch.
1984 Continuation of moratorium on foreign debt payments. International Monetary Fund approval of the stand-by credit facility on 14 December 1984. Issuance of the CB “Jobo” bills. Implementation of blocked peso deposit scheme. Discontinuation of foreign exchange pooling and import prioritization by 15 October 1984. Liberalization of foreign exchange trading and establishment of the Bankers’ Association of the Philippines (BAP) reference rate. Suspension of bank branching in areas classified as heavily overbranched and ideally overbranched.
1985 Release of the tranches of the IMF stand-by facility. Drawdowns from the new money facility for foreign banks. First round of rescheduling of the Paris Club debt; signed with 10 countries. Rationalization and simplification of the rediscount window, e.g., elimination of bank spread.
1986 Approval of the 1986-1988 IMF Program. Implementation of the debt-to-equity program. Initiatives to rehabilitate Philippine National Bank (PNB) and Development Bank of the Philippines (DBP). Continuation of the first round of rescheduling of the Paris Club debt; signed with four countries. Initiatives to gradually phase out the CB bills and the revitalization of the treasury bill auction.
1987 Signing of a new agreement with foreign commercial bank creditors. Second round of rescheduling of the Paris Club debt. Conclusion of the rehabilitation of PNB and DBP and the transfer of accounts to the national Government. Launching of a rural bank rehabilitation program. Introduction of a new modality for open market operations: depositing with the CB the T-bill auction proceeds issued in excess of deficit financing requirement.
1988 Removal of the required investment in CBCIs for bank branching.
1989 Initiatives to enhance competition among banks. Removal of all restrictions on the opening of new branches in priority rural areas. Unification of reserve requirements. Increase in the required minimum capital for EKBs and KBs to P1 billion and P500 million, respectively. IMF approval of the Extended Fund Facility and Contingency and Compensatory Financing. Launching of the Philippine Assistance Program (PAP). A financing program from foreign commercial bank creditors. Third round of restructuring of the Paris Club debt.
1990 Lifting of moratorium on the entry of new domestic banks. Relief under the Brady Plan. Issuance of CB “Jobo”Bills and increased use of reverse Repurchase Agreements (RPs) for open market operations. Increase in the minimum paid-in capital requirement for thrift banks. Establishment of offsite automated teller machines (ATMs).
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 45
1991 Liberalization of bank branching: franchises to establish branches are auctioned off. Nationwide bank branching for rural banks. Increase in minimum capital requirements for EKBs and KBs. Incentives for bank mergers/consolidation. Establishment of ATMs in areas with no existing branch without any CB approval. Magna Carta for Small Enterprises: mandatory allocation. IMF approval of a new 18-month stand-by credit arrangement. Fourth round of rescheduling of Paris Club obligations. Agreement in principle on a comprehensive commercial bank financing package; finalized in 1992. Approval to increase the allowable retention limit of foreign exchange receipts by exporters to 40 percent effective January 1992.
1992 Rural Bank Act of 1992. Incentive for branching: for every three branches established in 5th and lower class municipalities where there are less than four banks, a bank can establish a branch in first class cities or municipalities, without bidding, provided the area is still open to additional branches. Lifting of foreign exchange controls. Establishment of the Philippine Dealing System (PDS). Extension of the IMF 18-month standby arrangement to end in March 1993.
1993 Bank branching only subject to capital adequacy, liquidity, profitability and soundness of management. Further liberalization of foreign exchange transactions. New Central Bank Act. Relaxation of rules Governing the establishment of ATMs. Suspension of the debt-to-equity program. Reserve Requirement imposed on common trust funds.
1994 Liberalization of entry of foreign banks. IMF approval of a three-year Extended Fund Facility. Rediscounting reforms: adoption of market-based rediscount rates and removal of fixed spreads Revision in the minimum paid-in capital requirement for thrift banks. Conclusion of the Paris Club rescheduling negotiations; however, the government decided to set aside the terms of the agreement. Reduction of the required equivalent capital for a thrift bank to establish a branch. Lifting of prohibition to pay interest on demand deposits.
1995 Increase in the required minimum paid-in capital for banks. Thrift Bank Act of 1995. Source: C. Paderanga (1996) and Deutsche Morgan Grenfell (1998).
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 46
Chapter III: Presentation of Data
The following present the data collected from conducting in-depth interviews with the main stakeholders of the study namely the Bangko Sentral ng Pilipinas (BSP) or the
Central Bank of the Philippines, the World Bank and the Government, represented by the
Department of Finance. Also resource persons knowledgeable about the subject of the study are consulted. The resource persons include Dr. Edberto Villegas, author of books about the IMF and the World Bank in the Philippines such as global finance capitalism, Rep.
Walden Bello author of development debacle, and Mr. Sonny Africa, the research head of
IBON Foundation Inc. Latest Data are also from the World Bank, BSP, NSCB and NEDA’s data bank.
The Philippines remains to be semi-feudal and semi-colonial in nature. Our economy remains dependent on the United States and the world capitalist system. Our country is bound by the policies dictated by the International Monetary Fund (IMF) and the World
Bank (WB). These two powerful institutions is controlled by the US and its other influential member countries. The US penetrates the Philippine economy and the bureaucracy through multilateral institutions and in collaboration with economic and political elites.
The Philippines is grouped with the low-middle income countries together with
India, Indonesia and Vietnam that is with partnership with multilateral institutions. The IMF has 187 member countries while the World Bank has 187 member countries in the IBRD and
170 member countries with the IDA. Multilateral Institutions provide loans to developing
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 47 countries to fund capital programs such as infrastructures, health and education. Among the multilateral institutions the World Bank is the largest provider with 52%.
Table 2: The Lower-middle income economies member countries of the World Bank
Source: World Bank
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 48
Figure 2: Multilateral Debt’s percent of the total external debt of the country
Multilateral debt (% of total external debt) 16 Multilateral debt (% of total external … 14 13.3865 12 12.3605 11.9688 11.5106 11.6272 11.8779 11.3788 11.4073 11.5733 10.7365 10.9311 10 8 6 4 2 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: World Bank
Multilateral Institutions partners with the government of their partner countries in granting loans and pursuing their development goals in the case of the Philippines the
World Bank is directly connected with the Department of Finance and the International
Monetary Fund with the Banko Sentral ng Pilipinas (BSP).
For years of the partnership of the Central Bank with the IMF and the World Bank as well the Philippines Financial and Banking sector underwent structural changes. The Central
Bank became attuned to globalization as what the IMF-WB encouraged. We will study the implication of the Multilateral Institution’s intrusion in the country through the Central
Bank.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 49
The IMF and the BSP
The IMF was the one directly influencing the Philippines’ financial system through the BSP. The IMF is the one who watches the Central Bank closely. The Governor of the BSP acts as the Philippine Governor to the IMF while the Secretary of the Department of Finance acts as the Philippine Governor of the World Bank and Alternate Governor of the IMF. The
International Monetary fund pushed for adoption by the Central Bank of policies that involves foreign exchange and import controls and also a framework of the monetary system that is in favor of the transnational corporations and the country’s elites. The IMF makes sure the capability of the Philippines in terms of trade. American firms are exempted on import and exchange controls. These worsened the repatriation of foreign capital in the country.
The Philippines paid its full outstanding obligation from the IMF on December 29,
2006 in the amount of SDR146.3 million or US$219.7 million. The prepayment of the outstanding obligations to the IMF ahead of its 2008 scheduled maturities paved the way for the country’s early exit from its PPM arrangement with the Fund, which was originally scheduled to end in April 2007. The decision to prepay the remaining obligations to the
Fund was due to the strong international reserves position of the Philippines. The prepayment also resulted in interest savings for the BSP. The exit is a defining moment in
49 | Fernandez
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 50 the Philippines’ relationship with the Fund as it marked the end of the country’s use of IMF resources after nearly four and a half decades.1
Today it continues to participate with the programs of the IMF and the IMF still offers advice or technical support for the country. The IMF monitors the country regularly and makes their monitoring reports including their recommendations which remain influential in the making of policies in the BSP.
Table 3: The New Phase of IMF and BSP Relationship
The Philippines has entered a new phase in its relationship with the IMF, in terms of a shift in status from a debtor to a creditor (reserve) position of the Fund.
(a) Exit from the IMF Post-Program Monitoring (PPM). On 29 December 2006, the BSP prepaid in full the outstanding obligations to the IMF in the amount of SDR146.3 million or US$219.7 million. The prepayment of the outstanding obligations to the IMF ahead of its 2008 scheduled maturities paved the way for the country’s early exit from its PPM arrangement with the Fund, which was originally scheduled to end in April 2007. The decision to pre-pay the remaining obligations to the Fund was due to the strong international reserve position of the Philippines. The prepayment also resulted in interest savings for the BSP. The exit is a defining moment in the Philippines’ relationship with the Fund as it marked the end of the country’s use of IMF resources after nearly four and a half decades. The Philippines has been considered a “prolonged user” of IMF resources, with 23 IMF-supported programs consisting mainly of standby arrangements and extended fund facilities since 1962. It was only in recent years that the use of Fund resources started to be reduced.
(b) Philippine Contribution to the Fund’s Concessional Lending Instrument and Financing Framework for Low-Income Countries. On 4 June 2010, the BSP’s Monetary Board approved the Philippines’ subsidy contribution to the IMF’s concessional lending to low-income countries in the amount of SDR1.9 million (approximately US$2.84 million). To be disbursed in five equal annual installments (approximately P25.1 million per year) from 2011 to 2015, the contribution signified the Philippines’ support for developing countries which were seriously affected by the global financial crisis.
(c) Participation in the Financial Transactions Plan (FTP). Meanwhile, in line with its
1 Interview with Mr. Thomas Benjamin Marcelo, Director of International Relations Department, 9 February 2012. 50 | Fernandez
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 51
commitment to help address threats to the international monetary system and given its sufficiently strong balance of payments and reserve position, the Philippines participated in the Fund’s quarterly Financial Transactions Plan (FTP) since October 2010. The FTP is the mechanism through which the Fund finances its lending and repayment operations in the General Resources Account. A member is selected for inclusion in the FTP plan based on a finding by the IMF’s Executive Board that the member’s balance of payments and reserve positions are sufficiently strong.
(d) Participation in the New Arrangements to Borrow (NAB). The country’s continued participation in the FTP will pave the way for the BSP’s admission in the NAB facility of the IMF, a credit (lending) arrangement between the IMF and member countries or institutions which aims to forestall or cope with situations that could impair the international monetary system. In the SEAVG to which the Philippines belongs, only Malaysia, Singapore and Thailand are participants of NAB. The Philippines’ participation in the NAB would be a significant step in strengthening international cooperation and would demonstrate the country’s strong commitment to help address threats to the international monetary system.
(e) Increases in Quota Share. When the 2008 adhoc increase took effect, the Philippines’ quota level increased from SDR879.9 million to SDR 1,019.3 million representing an increase in the country’s quota share from 0.404 percent to 0.428 percent. This implies that the country’s access limit or the amount of financing that can be obtained from the IMF also increased by SDR139.4 million. The country’s increase in quota share essentially enhanced the country’s voice and representation in the Fund in general and the SEAVG in particular. Source: BSP
The IMF Today
As member of the IMF, the Philippines is a participant to its regular bilateral surveillance efforts, which involve conduct of Article IV Consultations, such as that held in
December 2010. The consultations serve as a venue for policy dialogue between government authorities and Fund experts on the country’s economic situation and outlook.
Further, the country, as represented by the BSP as Governor for the Philippines, participates in a number of conferences and meetings organized by the IMF for discussions on its ongoing reforms related to the Fund’s mandate, governance, financing and lending framework. The BSP likewise, provides inputs and comments on IMF staff papers
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 52 elaborating on global economic concerns, reform of the global monetary system, financial stability and capital flows, among others.2
The IMF continuously gives advice to Developing Countries like the Philippines that affect our country’s policy and decision making. The work of the IMF with member countries may be classified into three broad areas: (1) lending; (2) surveillance; and (3) technical assistance. The IMF does not have supervisory powers over the financial system of any member country. The role of the IMF is limited to providing policy advice particularly in the areas of economic and financial policies. The IMF's regular monitoring of economies and associated provision of policy advice is intended to identify weaknesses that are causing or could lead to financial or economic instability.3
Table 4: The Recommendations of the IMF
IMF’s Prescriptions to Third World Economies When the Government Signs the “Structural Adjustment Agreement the IMF agrees to: Monetary Austerity Lend enough itself to prevent - Tighten up the money supply to increase internal default on international loans interest rates to whatever heights needed to stabilize that are about to come due the value of the local currency and otherwise would be Fiscal austerity unpayable -Increase tax collections and reduce government spending dramatically Arrange a restructuring of the Privatization country’s debt among private -Sell off public enterprises to the private sector international lenders that Financial Liberalization includes a pledge of new -Remove restrictions on the inflow and outflow of loans international capital as well as restrictions on what foreign businesses and banks are allowed to buy, own, and operate
2 Interview with Mr.Ramil M. Covar, BSP, 15 February 2012. 3 Ibid 52 | Fernandez
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 53
SOURCE: Robin Hanhel, Panic Rules! (South End Press, 1999) p.52, (Shah, 2010)IMF Today
As member of the IMF, the Philippines is a participant to its regular bilateral surveillance efforts which involved the conduct of the Article IV Consultation Mission held in
December 2010. This served as a venue for policy dialogue between government authorities and Fund experts on the country’s economic situation and outlook. Further, the country was represented by the BSP, as Governor for the Philippines, in a member of conferences and meetings organized by the IMF for discussions on its ongoing reforms related to the
Fund’s mandate, governance, financing and lending framework. The BSP likewise, provided inputs and comments on IMF issue papers elaborating on global economic concerns, reform of the global monetary system, financial stability and capital flows, among others. 4
The BSP and the IMFs strong relationship remains as the IMF continues to hold meetings and conferences and advice countries regarding governance, reforms, financing and lending framework that is actively participated by the BSP. The BSP also give their recommendations with the IMF regarding monetary system and financial stability. Their communication continues making it possible for the IMF to always give recommendations that would be in line with their agendas and check if their past reforms are still effective.
Table 5: Financial Sector Reforms in the Philippines
Financial Sector Reforms in the Philippines Among the early reforms, Presidential Decree Nos. 71 (Amendment to the General Banking Act) and 72 (The Central Bank Act) both dated 29 November 1972 adopted the proposed recommendations by the Joint IMF-Central Bank Banking Survey Commission
4 Interview with Mr. Thomas Benjamin Marcelo, Director of International Relations Department, 9 February 2012. 53 | Fernandez
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 54
designed to ensure the financial system’s soundness and healthy growth. Some of the most important recommendations were related to the objectives of the Central Bank, its policy-making structures and scope of its authority as well as the classification, consolidation, operation and prudential management of banks.
The reforms of the 1980s reflected the recommendations of a joint IMF-World Bank Mission in March 1979 which focused on the revision of the banking structure and administrative regulations. The major aspects of the 1980 reforms on the banking structure, included among others: (i) the introduction of the expanded commercial bank (now known as universal banks); (ii) reduction in differentiation among categories of banks and non-bank financial intermediaries authorized to perform quasi-banking; (iii) elimination of all functional distinctions among thrift banks; and (iv) increase in the powers and functions for non-bank financial intermediaries authorized to perform quasi- banking functions.
While policy changes started since the 70s and 80s, the 1990s brought in economic/financial liberalization and the establishment of the BSP as an independent monetary authority through the New Central Bank Act (Republic Act (R.A.) No. 7653). Moreover, the outbreak of the 1997 financial and currency meltdown in Asia encouraged the need for greater financial strength and the observance of sound banking practices. Meanwhile, the aftermath of the crisis emphasized the pursuit for further reforms to promote greater financial resiliency against financial uncertainties and shocks.
One of the recent key reforms in the financial sector is the passage of the General Banking Law of 2000 which institutionalized a critical mass of banking reforms. Immediately after its passage, the BSP moved quickly to draft implementing rules and regulations, particularly those relating to the adoption of a risk-based capital adequacy ratio, the observance of fit and proper rule on bank management, the acquisition of a domestic bank by foreign banks/nationals and the granting by financial institutions of microfinance loans.
The sustained efforts of the central bank to push forward key initiatives that enhance its supervisorial capability and enforcement powers as well as raise transparency and prudential standards of the financial system were the main factors behind the fundamental strength and soundness of the sector. The exercise of greater prudence in the conduct of operations to protect asset quality at the institution level is also a key factor in the sector’s strength. Altogether, the reform process has made the financial system strong and operationally sound. In turn, these supported the continued economic growth of the country through the years through the sustained, efficient and reliable intermediation of funds, particularly amidst the current volatile global developments.
Source: BSP
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 55
Opening of the Economy
The Philippines adjusted its economic structure in adherence with the advice of the
IMF and the World Bank. Developing countries adjusted their policies towards submitting their economies to international market forces meaning privatization, liberalization and deregulation, and offering more incentives to private foreign investments.
The World Bank is successful in expanding private foreign interests in the Philippine economy with the blessing of the Philippine Government. The government opened up our economy to foreign investors not knowing its consequence for the country. One is capital outflow. Second is the further increase in foreign debt relative to foreign investment due to open door policy towards foreign investment.5 (The Philippine Financial System, 1983)
Table 6: Net Foreign Direct Investments from 2000-2011
Net Foreign Direct Investments 4000 3000 2000 1000 Net Foreign Direct 0 Investments
Source: BSP
5
The Philippine Financial System. (1983). Manila: IBON Databank Phil., Inc.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 56
The IMF and the World Bank is created in the Bretton Woods Conference for the efforts of improving trade especially in third world countries. The creation of these large institutions is accompanied by fixing the exchange rate system and currencies are required to be convertible for trade related and other current account transactions and all countries are required to subscribe in IMF’s capital.
Table7: The Comparison of Net Foreign Investments from 2000-2010
16000 14000 12000 10000
8000 Philippines 6000 Malaysia 4000 Indonesia 2000 Thailand 0 -2000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 -4000 -6000
Source: BSP
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 57
Table 8: Gross Foreign Direct Investments by Country of Source
Source: ACLE on the Role of the Bangko Sentral ng Pilipinas in the Economy and Contemporary Issues in Monetary Policy
Table 9: The Growth Rate of the Net Foreign Direct Investments in the Philippines
Growth Rate of the Net Foreign Direct Investments 800
600
400
200
0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 -200
Growth Rate of the Net Foreign Direct Investments
Source: BSP
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 58
Table 10: The Net Inflows of Foreign Direct Investment
Foreign direct investment, net inflows (BoP, current US$) (millions)
Foreign direct investment, net inflows (BoP, current US$) (millions)
1,905,620 1,623,243 1,345,818 1,331,495 1,211,067
2000 2005 2008 2009 2010
Source: World Bank
According to the World Bank there is no Foreign Dominance because there’s only a little percent of foreign investments on the GDP of the country. This is true according to the figures shown, compared to Malaysia, Indonesia and Thailand the Philippines has low foreign Investments. The country strives to attract more investors to help the growth of the economy through implementing development programs with the help of the World Bank.
Also the IMF-WB influence trade policies of the Philippines as part of opening the economy. They promoted free trade policies and one is bringing down trade barriers. The
Philippines offers one of the lowest tariff rates in the Southeast Asian region. Tariffs are seen as barriers in trade; high tariff means high trade barriers and lower trade means
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 59 opening up of trade favoring investors mainly TNCs.6 The past and current trend of tariff rates caused for more opening of the economy and more openness in international trade.
Table 11: Average Tariffs in Southeast Asia
Source: PIDS Policy Paper
6PIDS. (1998, August). The Downward Drift in ASEAN Tariffs: Implications on Philippine Trade.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 60
Table 12: Inward Foreign Direct Investment in 2010
Table 13: Average Weighted and Nominal Tariffs of the Philippines
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 61
Source: Tariff Commission
Parts of the Structural Adjustments adopted by developing countries were the trade policy reforms. It relied completely on market forces and private enterprise. The World
Bank reasons that tariff structures in developing countries require a massive restructuring to remove anti-export bias. Trade policies became a big part of the liberalization policies brought by the World Bank.
Table 14: Objectives of trade and Industrial Policy Reforms
General Trade Objectives of the Trade and Industrial Policy Reforms as Outlined in the Policy Framework Papers Areas of Reform Policy Objectives Tariff Structure Improvement of efficiency in trade and enhancement of gains from trade Reduction of disparities of effective protection to enhance efficiency in domestic production Import Restrictions Facilitation of Import of raw materials, intermediate goods and capital goods to stimulate domestic industrial production Export Promotion Stimulation of growth and diversification of non- traditional exports
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 62
Improvement in export finance Promotion of backward linkages Exchange Rate Strengthening of the balance of payments position Management Unification of dual exchange markets to reduce distortions Investment Sanctioning Liberalization and simplification of investment procedures to encourage greater flow of foreign investments Source: SAPRIN. (2004). Structural Adjustment: The Policy Roots of Economic Crisis, Poverty and Inequality. Manila: IBON Foundation.
In the Policy design of the World Bank and the IMF as part of reforms there were elimination of quotas and reduction of the level of protection of developing countries which is rationalized by the World Bank that it is intended to make domestic industries competitive. Important instrument in the financial sector are liberalized to fit the objectives of the World Bank that is to promote free market.
Table 15: Trade Liberalization in the Philippines
Trade Liberalization Scenario in the Philippines Period Instruments In the 1980s the Philippine government Phased abolition of quantitative restrictions embarked on structural adjustment on import items and reduction of tariffs, A five year Tariff reform program (TRP1) from 100% to 50% began in 1981 Another Trade Liberalization program was Abolition of export tax implemented (1986-9) Tariff Reform Program (TRP2) was launched Reduction of import restrictions, removal of in 1991 for five years import licensing requirements or outright import bans The third phase of Tariff reform program Introduction of anti-dumping and began in 1996 countervailing duty mechanisms Source: SAPRIN
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 63
The World Bank in the Philippines
World Bank Intervening in the Public Sector
The World Bank and the IMF paved their way in establishing a strong foundation in manipulating the country by intervening in the Public Sector of the Philippines. It is in the country assistance strategy of the World Bank to help the national government agencies, local government units and other sectors of society to improve the economic outcomes of the country.
Source: ©World Bank
In this picture the World Bank President Robert B. Zoellick shaking hands with
Philippines President Benigno S. Aquino III. Looking on are (from left) Philippines Finance
Secretary Cesar Purisima, Philippines Central Bank Governor Amando Tetangco Jr., and
World Bank Managing Director Sri Mulyani Indrawati. There are annual meetings between the World Bank, the IMF and the Philippines, represented by the DOF Secretary and the
Central Bank governor.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 64
World Bank became one of the most influential international aid agency in the world. The Philippines has been availing on the development programs of the World Bank for many years. From Structural Adjustment Loans to Development Policy Loans today the
Philippines remain under the support of the World Bank.
The need for public sector reform, good governance and state capacity building is emphasized in Globalization being pushed by the World Bank. The Public institution is believed to have a key developmental role in creating an enabling environment for economic growth, improved welfare and sustainable development.
World Bank in cooperation with the Private Sector
The World Bank works with the Private Sector throughout the years. The Bank sees the cooperation of the Private Sector necessary in their development projects. Together with the Philippine government they avail of the services of the Private Sector.
Figure 3: Development Projects by the World Bank
Source: World Bank
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 65
Figure 4: The Number of Development Projects of the World Bank in the Philippines from 1990-2011
9 Development Projects by the World Bank 8 8 8 8 8 7 7 7 7 6 6 6 6 6 6 6 5 5 5 5 5 5 4 4 4 3
2 2 1 1 0
Source: World Bank
As we can see the Projects of the World Bank in the country averages in 4-5 per year except for the year 1997. For the past three years, 2009-2011 the World Bank projects became consistent on implementing 8 projects per year.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 66
Figure 5: The World Bank Projects in the Philippines
Dropped, 14 Pipeline, 8
Active, 45
Closed, 196
Source: World Bank
From 1957 up to the present the World Bank has 263 projects in the Philippines.
Today there are 45 active projects assisted by the World Bank in the country, it is primarily on Government Administration, infrastructure, rural development and environment and social development.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 67
Figure 6: World Bank Projects per Sector
Renewable Central Government energy, 12 Power, 14 administration, 44 Water Supply, 15
Health, 15
Sub-national General Water Government sanitation and flood Roads and administration, 34 protection, 17 highways, 23
Other Social Services, 22 Irrigation and Drainage, 26
Source: World Bank
This shows that most of the Projects of the World Bank goes into the administration of the Central Government, Sub-national government and building of infrastructures like roads, highways, irrigation and drainage.
Table 16: Some Active Projects of the World Bank as of 2012
PROJECT NAME Sector Borrower Implementing IBRD/IDA Approval Closing Agency Amount Date Date of Loan in US $ million PH-Regional Finance Republic of DBP 50 Dec 1, Nov, 30, Infrastructure for the Phil. 2011 2016 Growth Developing A Public League of League of Cities .22 Oct April 30, Knowledge Administration, Cities of the of the 19,2011 2013 Management and Law and Justice Philippines Philippines Exchange System for City Managers Developing a Public Housing and Housing and .46 June Dec National Slum Administration, Urban Urban 6,2011 31,2012 upgrading Strategy of Law and Justice Development Development the Philippines Coordinating Coordinating Council Council
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 68
Improving Livelihood Water DSWD DSWD 3 May Dec Opportunities for Sanitation and 25,2011 31,2013 Vulnerable Urban Flood Communities Protection Public Administration, Law and Justice Health and other Social Services Laguna de Bay Water Republic of LLDA 12.56 April N/A Institutional Sanitation and the Phil. 12,2011 Strengthening and Flood Community Protection Participation Project - Additional Financing
PH-Social Welfare Health and Government. DSWD 512.6 Nov June and Development other Social of the 17,2009 30,2014 Reform Services Philippines Education Public Administration, Law and Justice National Roads Transportation DOF DPWH 576.02 May Dec Improvement and Public 13,2008 31,2012 Management (APL) Administration, Phase 2 Law and Justice Manila Water Supply Water Manila Water Manila Water 1 Oct May Sanitation and 19,2007 31,2013 Flood Protection Support for Strategic Public LBP LBP 109 June June Local Development Administration, 29,2006 30,2012 and Investment Law and Justice Project Water Sanitation and Flood Protection Transportation PHRD Grant-PH Finance Government. Government. of .71 Nov N/A Private Sector of the the Philippines 21.1996 Infrastructure Philippines PH Judicial Reform Public Republic of Supreme Court 24.4 Aug June 30, Support Project Administration, the of the 19.2003 2012 Law and Justice Philippines Philippines Source: World Bank
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 69
Here are some of the existing projects of the World Bank. The Philippines acts as the borrower of the loans and certain departments as implementing agencies of these projects.
This shows the role of the implementing agencies of the projects of the World Bank. They are the ones who monitors and supervise these projects. Most projects are into finance and public administration.
Linking the World Bank and the Philippines’ Central Bank
Table 17: The Main Points of the Relationship of the WB and BSP
THE MAIN RELATIONSHIP OF THE WORLD BANK AND THE CENTRAL BANK 1. The Central Bank provides technical assistance to the World Bank. It approves the loans from the World Bank. The BSP is involved in the processing and approval of the Loans. The loans from the World Bank have monetary impacts. 2. The Central Bank is the core of the Philippine Financial System; it is responsible for monetary policies that involved the opening up of the economy, Export, imports, Foreign Reserves, stabilization of money, etc. Policies are manipulated by the IMF and the WB to foster a good economy for foreign trade and investments by pushing for Liberalization, Privatization and Deregulation. 3. All the money/ capital of the Philippines circulates in the Central Bank, gaining control over the BSP and over its monetary policies makes it easier for the World Bank together with its foreign allies to repatriate capital and profits from the country. The CB is the financial advisor of the Government making it very good strategy for the World Bank and the IMF to influence it. 4. One of the primary roles of the Central Bank is debt management. They address the debt of the country that comes from the World Bank. 5. The BSP remains a tool of Imperialism in the Philippines. The BSP favors the interest of multilateral institutions, the IMF and the WB, TNCs and domestic elites in the
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 70
country. 6. The World Bank pushes for Globalization that is followed by the BSP and the Philippine Government. The way of thinking of the World Bank and the IMD is adopted and accepted by the BSP, the DOF and the Philippine government. Their strategies are consistent and side by side with each other.
The Philippines remains to be Americas most reliable Third World allies. This was strengthened with the establishment of the IMF and the World Bank in the Philippines, Our country is chosen by the World Bank as a site to exercise or experiment with their
“authoritarian” or technocratic” modernization model. The BSP and the World Bank partnership is more than what they show to the people.
Table 18: The Similar Themes of the World Bank and the BSP
The Cross-cutting themes of the World Bank and the BSP Good Governance and Accountability
Inclusive Growth and Development
Making the country competitive to global markets
Alleviating Poverty
The BSP and the World Bank has little direct relationship. The BSP does not borrow from the World Bank and neither does it lend money to the World Bank. It has no direct control over the monetary policies of the World Bank unlike the IMF. The IMF is directed to
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 71 the BSP because the lend money to the BSP in time of Balance of Payments deficit. They give advice to the BSPs policies.
Figure 7: Excerpt from the World Bank Charter
The World Bank grant loans to the government. The Banko Sentral ng Pilipinas serves as a technical assistance committee in the government’s loan grants from the World
Bank conglomerate. BSP’s monetary board approves and reviews foreign currency dominated loans. It monitors the impact of foreign currency inflows on the health of the
Philippines’ economy. The World Bank’s financial sector reviews the loan grants of its member countries.
Their partnership is more than just approving loans and serving as a technical assistance committee. The BSP is used by the World Bank and the IMF to push for further
Globalization and foreign investments. The World Bank continues to create a favorable climate for foreign investments in the Philippines with the help of the IMF who initiated structural reforms in the financial sector of the country.
From the time the Central Bank is created until now that it is an independent institution having monetary and fiscal autonomy it continued its role as a facilitator of trade. While the government is busy in reforming and restructuring the financial system of
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 72 the Philippines the World Bank continues to push for globalization, granting loans and pursuing development programs in the country. The development projects of the World
Bank are introduced to the Philippines as projects that would benefit and contributes to the country’s growth. The World Bank aims to make the country attractive to foreign investors.
It pursues projects concerning infrastructures and energy. The World Bank keeps promoting foreign investments because they know greater foreign investments means greater profit for them. The development programs of the World Bank were supported by TNCs. The TNCs knows that they will be benefited by these development programs.
Reforms in the BSP
The reforms of the 1980s reflected the recommendations of a joint IMF-World Bank
Mission in March 1979 which focused on the revision of the banking structure and administrative regulations. The major aspects of the 1980 reforms on the banking structure include among others:
(i) the introduction of the expanded commercial bank (now known as universal
banks)
(ii) reduction in differentiation among categories of banks and non-bank
financial intermediaries authorized to perform quasi-banking
(iii) elimination of all functional distinctions among thrift banks; and
(iv) Increase in the powers and functions for non-bank financial intermediaries
authorized to perform quasi-banking functions.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 73
· While policy changes started since the 70s and 80s, the 1990s brought in economic/financial liberalization and the establishment of the BSP as an independent monetary authority through the New Central Bank Act (Republic Act (R.A.) No. 7653).
Moreover, the outbreak of the 1997 financial and currency meltdown in Asia encouraged the need for greater financial strength and the observance of sound banking practices.
Meanwhile, the aftermath of the crisis emphasized the pursuit for further reforms to promote greater financial resiliency against financial uncertainties and shocks.7
In pushing for globalization, the IMF helps the World Bank by dictating monetary policies of the BSP that will create a good environment for foreign investments. The
Inflation rate, interest rates, foreign direct investments, Foreign exchange and the money reserves of the Philippines are affected by these policies. They are manipulated in favor of the IMF, the WB and its partner elites and corporations.
We shall now look at these indicators that are being manipulated to foster a good environment for foreign trade and investments.
BSP’s Monetary Policy
The IMF and WB have been fundamental in ensuring that Philippine economic policies cater to the needs of foreign monopoly capital through the BSP. Through the tight fiscal and monetary policies of the Banko Sentral the economic activity of the Philippines is
7 Marcelo, T. B. (2012, February 9). Interview with the BSP. (A. Fernandez, Interviewer)
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 74 controlled and influenced to create an environment conducive to the operations of foreign capital. The BSP continues its role for the sake of stabilizing prices, fiscal discipline and repayment of debts leaving the social services compromised.
Figure 8: The BSP’s Monetary Board
Source: BSP
The Monetary Board of the BSP has the power over the monetary policies and supervision of the financial system. The Monetary Board is composed of the BSP’s Governor together with five full-time members from the private sector and one member from the
Cabinet. Under the Monetary Board are four main sectors, the monetary stability sector, supervision and examination sector, resource management sector and the security plant sector.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 75
Figure 9: BSP’s Monetary Board Members As of 2012
Source: ACLE on the Role of the Bangko Sentral ng Pilipinas in the Economy and Contemporary Issues in Monetary Policy
The BSPs structure is designed to effectively perform its role and mandates.
Monetary stability is the important role of the BSP. The monetary stability sector takes charge of the formulation and implementation of the BSP’s monetary policies. Inside the sector there is the International Sub-sector. Under the International Sub-sector is the
International Operations Department and International Relations Department that coordinates with the IMF.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 76
Figure 10: The Monetary Stability Sector
Source: BSP
Inside the BSP
In lieu of the formation of monetary policies and the structure of the BSP, it is significant to take a look on the past governors of the BSP. Governors of the BSP have a big
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 77 influence in the formulation, adoption and implementation of monetary policies in the country.
Here are the past governors of the BSP from 1981, the time of the height of
Structural reforms by the IMF-WB, up to the present.
Table 19: The Governors of the BSP from 1981-Present
Governors Year as Career Their Link with the Governor (Before and After their term as Governor) IMF-WB Jaime Laya 1981-1984 Executive Officer of The Philippine Rating Services (Marcos- Corp. Dr. Laya serves as Treasurer of Opera Guild of Aquino) the Philippines. Minister of Education, Culture and Sports from 1984 to 1986. He served as Deputy Director General of the National Economic Development Authority. He is the founder and serves as Chairman Emeritus of KPMG/Laya Mananghaya & Co. He serves as the Chairman of Philtrust Bank (formerly Philippine Trust Co.). Dr. Laya serves as the Chairman of Dynawinds Inc. and Don Norberto Ty Foundation, Inc. He served as the Chairman of Monetary Board, Director of Ayala Land, Inc. since April 2010. He also served as Chairman of National Commission for Culture and Arts, from 1996 to 2001, Chairman of University of the Philippines and other state universities and colleges, Funds for Assistance to Private Education, Instructional Materials Corporation from 1984 to 1986. Jose B. Fernandez Jr. 1984-1990 President of Far East Bank and Trust Company Acknowledged (Aquino- (FEBTC). leader in the Ramos) President of the Bankers Association of the Philippines Commercial (BAP) Banking sector regularly invited to attend annual meetings of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development of the World Bank. Jose L. Cuisia Jr. 1990-1993 He has held several key positions in leading Philippine (Aquino- banks and financial institutions. Ramos) Served as the President and Chief Executive Officer of
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 78
The Philippine American Life and General Insurance Company until July 31, 2009. Administrator of the Social Security System from 1986 to 1990. Chairman of the Board of Directors of Far East bank and Trust Company. He has been Vice Chairman and Independent Director of SM Prime Holdings Inc. since 1994. He has been Vice Chairman of The Philippine American Life and General Insurance Company since July 31, 2009. He serves as Vice Chairman and Director of PhilPlans Inc. (also known as Philam Plans Inc.). He has been a Director of Bacnotan Consolidated Industries Inc. since 1994. Mr. Cuisia has been a Director of Holcim Philippines, Inc. since October 21, 1993. Mr. Cuisia serves as a Director of several PHINMA-managed companies. He served as a Director of Investment & Capital Corporation of the Philippines. He serves as Trustee of Asian Institute of Management. He served as a Director of Manila Water Co Inc. since April 12, 2010. He served as a Director of San Miguel Corporation, Philippine Airlines and Philippine National Bank. Gabriel C. Singson 1993-1999 President of JG Summit Capital Markets Corporation. Served as the (Ramos- President of the Philippine National Bank from 1992 to Governor of the Estrada) 1993 IMF during his term Director of Multinational Finance Group Ltd., Summit First governor Forex Brokers Corporation, Summit Point Corporation, under the New and a trustee of the Gokongwei Brothers Foundation, Central Bank Act Inc., and of Tan Yan Kee Foundation. Rafael 1999-2005 president and chief executive officer, PCI Bank He had close ties Buenaventura (Estrada- chairman, ASEAN Banking Council (1996-1997) with the President Arroyo) president, Bankers Association of the Philippines Estrada who (1994-1997) appointed him Amando M. 2005- Present Philippine International Convention Center (PICC); He is the Governor Tetangco Jr. (Arroyo- Vice-Chairman of the Agriculture Credit Policy Council for the Philippines Aquino (ACPC); Member of the Capital Market Development in the International Regime) Council (CMDC), Export Development Council (EDC), Monetary Fund PhilExport Board of Trustees (PHILEXPORT), Philippine (IMF) and the Export-Import Credit Agency (PHILEXIM); and Director Alternate Governor of Philippine Deposit Insurance Corporation (PDIC), in the World Bank National Development Council (NDC) and National (WB) and in the Home Mortgage Finance Corporation (NHMFC). Asian Development Bank (ADB). He also represents the country in various international and regional organizations, including the Executive Meeting of East Asia and Pacific (EMEAP) Central Banks; ASEAN and ASEAN+3; South East Asia Central Banks (SEACEN); South East Asia, New Zealand and Australia (SEANZA); Center for Latin American Monetary Studies (CEMLA); and Asia-Pacific Economic
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 79
Cooperation (APEC)
SOURCE: BSP, Bloomberg
The Past governors of the Central Bank have a good background in macroeconomic planning, they have close ties with the government, the private sector and the IMF and the
WB. Today they belong to the technocrats/ oligarchs in banking, clearly their post in the BSP as the Governor and Chairman of the monetary board opened opportunities for them in big corporations and the government sector.
The Creation of Apex Development Finance Unit (ADFU)
The World Bank created the Apex Development Finance Unit (ADFU), an institution inside the Central Bank. It insisted its own autonomy but opts to work closely with the government and the central bank. It has its own unique functions. It accredited financial institutions and facilitated resource transfer. The ADFU was used to catalyze the implementation of development projects of the World Bank and the IMF. It was created to hold World Bank loans and to shape the growth of the universal banks. Through the creation of the ADFU transnationalists outside the Central Bank gained access and voice inside the Central Bank. It became one of the strategic moves of the World Bank that time aside from using technocrats in order to pursue their interests and establish a strong foundation in the Philippines. The loans brought by the APEX and the Structural Adjustment
Loans reinforce each other. They provided leverage that enabled the World Bank and the
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 80
IMF to reshape the Philippine economy. 8 Today APEX loans exists and continues to channel funds and helps in development projects especially in the field of microfinance.
The Role of the Technocrats
Technocrats are always present in IMF and World Bank conferences and meetings.
The technocrats are one of the instruments of the IMF and the World Bank in pursuing their goals of imperialism in the Philippines. Technocrats have a big role in policy formation and implementation and in international negotiations making them a good medium for the IMF-
WB’s intentions. The technocrats are responsible for the government’s acceptance of the policies being advised by the IMF-WB. The IMF-WB share their views and neoliberal framework to their supporters like the technocrats. The views of the technocrats influence the economic policies of government agencies because they are involved in designing these policies. Technocrats are present in the government offices that have interaction with the
World Bank and the IMF like the BSP and the DOF. 9
Inflation
The BSP is grounded on stabilizing the money and currency of the country. The BSP has a well-planned monetary program precisely geared to regulating money and resisting factors that affects the stability of the financial system like the Inflation. The BSP’s monetary policy’s primary objective is to promote a low and stable inflation rate.
8 Jones, A. M. (n.d.). Aid trends in a middle-income country: The Philippine Case.
9 Lichaucho 1973 80 | Fernandez
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 81
Figure 11: The Philippines’ Inflation Rate from 1995-2011
Inflation Rate
Inflation Rate
9.3 9.3 7.5 7.6 6.7 6.8 6.2 5.6 5.9 6 4.5 4 3.5 3.8 3 2.8 3.2
Source: BSP, NSO
The BSP constantly watches the inflation because it tends to be a danger on macroeconomic stability. Through monetary policies the BSP controls inflation. The BSP adopted the inflation targeting as their framework for their monetary policies in 2002. It is the prime role of the BSP to ensure price stability.
The BSP implements monetary policy using various instruments to influence the level of liquidity in the market and thereby steer inflation towards the target level.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 82
Table 20: The instruments of the BSP in controlling inflation
Direct Instruments Indirect Instruments Enable the BSP to control directly certain Work through the market to influence the items in banks’ balance sheets which may be behavior of financial institutions, usually in the form of financial prices or quantities. through the pricing of central bank facilities. Direct instruments have a strong coercive Indirect instruments include adjustments in element as in the case of reserve short-term policy interest rates and the requirements and directed lending conduct of open market operations (OMO). requirements.
Source: BSP
Under the role of the BSP in maintaining price stability comes controlling the
Interest, Rates, Exchange rates, Rediscount rates, devaluation of peso, regulating the country’s money supply. The BSP has the power to manipulate monetary policy together with its indicators and instruments making it a good partner of the IMF, the WB, foreign investors, and borrowers like banks and TNCs in gaining more profits.
Exchange Rates, Appreciation and Depreciation of Peso
The BSP ensures good condition in the foreign exchange market. To keep the exchange rate stable the BSP intervenes in the foreign exchange market. The BSP manages the exchange rate towards market-oriented and outward-looking strategies to achieve competitiveness though price stability and efficiency. Monetary policy has been used to defend the exchange rate. In the past Philippines’ central bank has limited foreign exchange reserves which constrained its ability to directly intervene in the foreign exchange rate.
Exchange rates serve as a basic link between the domestic and global market. It directly affects the domestic prices of imported goods and services. It has a significant
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 83 impact on foreign trade in the country. An appreciation of the peso, for instance, could lower the price competitiveness of our exports versus the products of those competitor countries whose currencies have not changed in value. On the other hand depreciation can increase inflation but it can improve the competitiveness of the country in the global market. It would increase the peso equivalent of foreign remittances and means more pesos in exchange of foreign currencies. Investment will also increase because it is less costly and desirable to invest in the country.10
In the Philippines exchange controls are biased to the US and other powerful countries. Foreign exchange is freely bought and sold in the Philippines. The BSP regulates it by authorized banks and other BSP supervised institutions, their foreign subsidiaries and independent exchange dealers. The BSP’s purchases of foreign exchange are greatly influenced by the IMF.
Interest Rates
The BSP followed a market-oriented interest rate policy since 1983. It allowed the market to set its own rates. The Monetary Board only sets rates for the BSP’s overnight borrowing and lending facility to influence the timing, cost and availability of money and credit, for the purpose of stabilizing the price level.11
10 BSP FAQs. “The Exchange Rate,” < http://www.bsp.gov.ph/downloads/publications/faqs/exchange.pdf > (17 February 2012). 11 BSP FAQs. “What are Interest Rates,”
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 84
Monetary ceilings are set by the IMF and implemented by the BSP. When there is a high demand for foreign exchange there is a high interest rate to show peso-dominated assets. Domestic economies are affected negatively by high interest rates imposed to them by the BSP encouraging more capital inflows while the foreign investors are being benefited by given low interest rates in borrowing in the BSP.
Low interest rates encourage borrowing to finance economic activity. This speeds up economic growth, improving the borrowers’ ability to repay loans, which, in turn, should affect favorably the bank’s earnings. Thus, banks gain from low interest rates in two ways: the increased demand for bank loans, and the reduction in non-performing loans. The stock market similarly prospers due to prospects of high corporate profits. The experience of many countries shows that high interest rates tend to reduce borrowing for investment activity, ultimately leading to slower economic growth. Slower economic growth, in turn, reduces corporate profits and, hence, the ability to repay loans, which impacts negatively on banks’ balance sheets. High interest rates also tend to encourage investors to pull out their funds from the stock market and invest them instead in fixed-income securities. 12
Low interest rate is encouraged by the BSP because it contributes to economic growth and attracts foreign investments.
Money Supply
Money supply is one of the monetary policy instrument used by the BSP. It Increases if there is a trade surplus, where exports are greater than imports and the availing of peso-
12 Ibid 84 | Fernandez
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 85 generating foreign loans. It decreases when there is a trade deficit. It has significant effects on price level, inflation and the business cycle. Increase in Foreign Investments would increase money supply. Also an increase in money supply causes a fall in interest rates making the consumers to borrow on banks favorably.
The BSP manipulates moneys supply to control the inflation. Using expansionary monetary policy the BSP increases money supply that results to higher inflation. Interest rates and reserve requirements are lowered. It tends to encourage economic activity because more funds are made available for lending by banks. Using contractionary monetary policy the BSP decreases money supply to lower inflation. Interest rates and reserve requirements are increased. It limits economic activity. The BSP prefers to use expansionary monetary policy even if it pressures domestic economy because it encourages economic activity. It has a negative implication because it causes the value of dollars to decrease making foreign goods more expensive and the domestic goods cheaper. This will attract more foreign investors to import their goods on the country because they know they will gain more profits.
Rediscount Rate
The BSP has been very liberal in extending rediscount rate to exporters and big corporations. They offer lower interest rates than the market. The dominant class in the banking sector is supported by the policies of the BSP and the state. Again the monetary
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 86 policy instruments are used to manipulate the economy to maintain favorable conditions for foreign trade and investments. 13
BSP’s External Debt Management
One of the roles of the BSP is managing the growing debt of the country. Big parts of the country’s cash operations are paying for our external debt obligations. For years we’ve been subscribing to short term loans and medium and long-term loans.
Table 21: National Government’s Cash Operation
In Up to Nov 2005 2006 2007 2008 2009 2010 2011 Billion PHP
Revenues 816.16 979.64 1,136.56 1,202.91 1,123.21 1,207.93 1,249.77
Expenditures 962.94 1,044.43 1,149.00 1,271.02 1,421.74 1,522.38 1,346.03
Surplus/ (146.78) (64.79) (12.44) (68.12) (298.53) (314.46) (96.25) Deficit
Source: www.btr.gov.ph, BSP
13 Villegas, E. M. (2000). Global Finance Capital and the Philippine Financial System. Manila, Philippines: Institute of Political Economy.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 87
Table 22: National Government’s Current Outstanding Debt
In As of 2005 2006 2007 2008 2009 2010 Oct 2011 Billion PHP
Total 3,888.23 3,851.51 3,712.49 4,220.90 4,396.64 4,718.17 4,898.34
2,164.29 2,154.08 2,201.17 2,414.43 2,470.04 2,718.20 2,835.38 Domestic 55.66% 55.93% 59.29% 57.20% 56.18% 57.61% 57.88%
1,723.94 1,697.43 1,511.32 1,806.47 1,926.60 1,999.97 2,062.96 Foreign 44.34% 44.07% 40.71% 42.80% 43.82% 42.39% 42.12%
Source: www.btr.gov.ph, BSP
External debt management aims to keep the external debt stock and the external debt service burden at manageable levels while also influencing the utilization of loan proceeds towards areas that support the country’s development priorities (Gonzales, 2005).
In the Philippines, the BSP is solely responsible for managing private sector external debt but shares the responsibility of managing public sector external debt with a number of government agencies and regulatory bodies, primarily the Department of Finance, the
Development Budget Coordinating Committee, and the Investment Coordination
Committee.
Outstanding Philippine external debt approved/registered by the BSP stood at
US$62.4 billion as of end-September 2011, reflecting an increase of US$1.0 billion (1.6 percent) from the US$61.4 billion level as of end-June 2011. While loan transactions for the quarter resulted in net outflows (as loan repayments exceeded loan availments by US$211 million), external debt grew due to the weakening of the US Dollar (the reporting currency
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 88 for outstanding debt) against the Japanese Yen, thereby increasing the debt figure in US dollar terms by a net amount of US$735 million. The transfer of Philippine debt papers from resident to non-resident investors amounting to US$504 million further increased the debt level.14
Figure 12: External Debt of the Philippines by Type of Debt (in million US dollars)
Chart Title
Medium and Long-Term Short-Term 53,753 55,284 51,389 49,981 50,853 46,046 48,244 47,958 48,888 48,387 47,327
6,001 5,559 6,179 5,046 6,395 5,009 7,084 7,001 4,002 6,295 7,147
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: BSP
Figure 13: Philippines’ Total External Debt by Maturity
65 60 TOTAL PHILIPPINE EXTERNAL DEBT BY MATURITY 55 1990 to September 2011 50 Short-Term 45 40 35 30 25 Medium & Long-Term In US$ BillionUS$In 20 15 10 5 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Mar. Jun. Sep. 2011 2011 2011
14 Marcelo, T. B. (2012, February 9). Interview with the BSP. (A. Fernandez, Interviewer) 88 | Fernandez
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 89
Source: BSP, Acle on External Debt by Mr. Robert B. Quintos
Figure 14: External Debt by Maturity and its Average Maturity
Source: ACLE on the Role of the Bangko Sentral ng Pilipinas in the Economy and Contemporary Issues in Monetary Policy
The big part of the country’s Total External Debt comes from medium and long term loans provided to us by the World Bank. We continue to borrow from external creditors like the World Bank despite of our heavy debt burden because the country’s constraint in financial resources. According to the DOF we continue to borrow from the World Bank because they offer low interest rates compared to other financial creditors. The BSP helps to manage and maintain our external debt sustainable.
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Table 23: Total External Debt of the Philippine by Maturity
For % Distribution 2007 2008 2009 201 0 Oct 2011
Short-Term 16.5% 18.3% 14.1% 11.2% 6.2%
Medium-Term 23.3% 19.2% 17.3% 15.2% 11.7%
Long-Term 60.2% 62.6% 68.6% 73.6% 82.1%
Total 100.0% 100.0% 100.0% 100.0% 100.0%
Source: www.btr.gov.ph, BSP
The Philippines continues to borrow because we continue to have constraints in our budget, or budget deficit and the only solution seen by the government is to borrow from local sources to finance or increase the budget of the country. The budget deficits became constant through the years that resulted to a accumulation of debts especially to foreign institutions. The Department of Finance and the BSP coordinates with each other when it comes to managing the debts. The BSP is very concerned with the debt management because debts have effect on the monetary policies under them.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 91
Table 24: Philippines’ Debt Profile as % of GDP
For % of GDP 2007 2008 2009 2010 Sept 2011
Total NG Debt 53.9% 54.7% 54.8% 52.4% 51.1%
Domestic 31.9% 31.3% 30.8% 30.2% 29.2%
Foreign 21.9% 23.4% 24.0% 22.2% 21.9%
Source: www.btr.gov.ph, BSP
Year-on-year, external liabilities grew by US$2.7 billion (or 4.4 percent) since availments were bigger than repayments by US$2.4 billion, and foreign exchange revaluation adjustments were positive at US$1.6 billion attributed mainly to the stronger
Japanese Yen vis-à-vis the US Dollar. On the other hand, a US$1.4 billion increase in residents’ holdings of Philippine bonds and notes issued abroad during the last 12 months reduced the debt level accordingly. 15
Through the BSP’s management of external debt they can also help in channeling borrowed funds to the government’s priority areas of development. Also the BSP can provide advisory assistance to borrowers like the DOF.
15 Marcelo, T. B. (2012, February 9). Interview with the BSP. (A. Fernandez, Interviewer) 91 | Fernandez
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 92
Figure 15: Philippines’ Total External Debt by Borrower
65 60 TOTAL PHILIPPINE EXTERNAL DEBT BY BORROWER 55 1990 to September 2011 50 45 40 35 Public Sector 30 25
In US$ BillionUS$In 20 15 10 Private Sector 5 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Mar. Jun. Sep. 2011 2011 2011
Source: BSP
Figure 16: Philippines’ Total External Debt by Creditor
65 60 TOTAL PHILIPPINE EXTERNAL DEBT BY CREDITOR 55 1990 to September 2011 50 Others 45 Bondholders/Noteholders 40 35 30 Banks/FIs 25 In US$ BillionUS$In 20 15 Bilateral 10 5 Multilateral 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Mar. Jun. Sep. 2011 2011 2011
Source: BSP
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 93
The World Bank is the main source of external development funds. They used loans for the Philippines to adhere to their terms and conditions.
Figure 17: Philippines’ Total External Debt by Currency
65 60 TOTAL PHILIPPINE EXTERNAL DEBT BY CURRENCY 55 1990 to September 2011 Others 50 45 40 35 30 Multicurrency Loans 25 In US$ BillionUS$In 20 15 U.S. Dollar 10 5 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Mar. Jun. Sep. 2011 2011 2011
Source: BSP
Table 25: Philippines’ Total External Debt Ratio
Ratios 2000 2010 End-Sept 2011
Debt ratio using GNI 54.1% 22.6% 21.6%
PED to GNI 36.1% 17.4% 16.5%
Debt Service Ratio 13.0% 8.6% 8.9% International benchmark (20%-25%)
GIR to STOM 274.1% 990.8% 1,051.9%
Source: BSP
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 94
Table 26: Legal Basis on the BSPs Role on Foreign Loans
Legal Basis on Foreign Loans 1987 Philippine “Foreign loans may only be incurred in accordance with law Constitution and the regulation of the monetary authority.” Article XII, Section 21 Republic Act No. 7653 “In order to maintain the international stability and (The New Central Bank Act) convertibility of the Philippine Peso, the BSP shall maintain 10 June 1993 international reserves adequate to meet any foreseeable net Section 65 demands on the BSP for foreign currencies. In judging the adequacy of the international reserves, the Monetary Board shall be guided by the prospective receipts and payments of foreign exchange by the Philippines. The Board shall give special attention to the volume and maturity of the Bangko Sentral’s own liabilities in foreign currencies, to the volume and maturity of the foreign exchange assets and liabilities of other banks operating in the Philippines and, insofar as they are known or can be estimated, the volume and maturity of the foreign exchange assets and liabilities of all other persons and entities in the Philippines.” Manual of Regulations on The BSP shall regulate foreign/foreign currency loans to Foreign Exchange ensure that principal and interest owed to creditors can be Transactions serviced in an orderly manner and with due regard to the Section 22. economy’s overall debt servicing capacity. All public and private sector publicly- guaranteed obligations from foreign creditors, Offshore Banking Units (OBUs) and Foreign Currency Deposit units (FCDUs)/Expanded Foreign Currency Deposit Units (EFCDUs) of banks shall be referred to the BSP for prior approval, unless otherwise indicated therein. Other private sector loans from these creditors and other financing schemes/arrangements shall require prior approval and/or registration by the BSP if these will ultimately involve foreign exchange purchased from Authorized Agent Banks (AABs)/AAB forex corps. The required BSP approval shall be obtained as follows: a. Public sector loans – applications shall be filed with the BSP before commencement of actual negotiations or before issuing a mandate of commitment to foreign funders/arrangers b. Private sector loans – applications shall be filed with the BSP at least 30 banking days before the target signing date of the loan documents and/or initial
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 95
drawdown date, whichever is earlier 1987 Philippine “The President may contract or guarantee foreign loans on Constitution behalf of the Republic of the Philippines with the prior Article VII, Section 20 concurrence of the Monetary Board and subject to such limitations as may be provided by law.”
Republic Act No. 7653 Financial advice on official credit operations. Before (The New Central Bank Act) undertaking any credit operation abroad, the Government, 10 June 1993 through the Secretary of Finance, shall request the opinion in Section 123 writing, of the Monetary Board, on the monetary implications of the contemplated action. Such opinions must similarly be requested by all political subdivisions and instrumentalities of the Government before any credit operation abroad are undertaken by them.”
Letter of Instructions No. “All foreign borrowing proposals of the Government, 158 government agencies and government financial institutions 21 January 1974 shall be submitted to the Central Bank for approval-in- principle by the Monetary Board as to purpose and credit terms, among others, before commencement of actual negotiations.”
Administrative Order No. “All government agencies, instrumentalities, political 99 subdivisions, financial institutions and corporations, as well 28 November 1993 as local governments, shall submit to the Bangko Sentral ng Pilipinas their request for approval-in-principle by the Monetary Board of their foreign borrowings proposal even before issuing a mandate or commitment to foreign funders/arrangers.”
Source: BSP, Acle on External Debt
Liberalization of Banking and Finance
Among the Services in the country, banking is the most liberalized sector.
Liberalization in banking and finance is brought about by the Policy conditions by the IMF.
The Liberalization benefits the World Bank, transnational banks and transnational corporations. Liberalization in banking paved the way for the deregulation of interest rates,
95 | Fernandez
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 96 deregulation of entry restrictions by foreign banks allowing the foreign banks to enter the country.
Liberalization is one of the reforms that was introduced by the IMF for macroeconomic stability and long term industrial restructuring but is used by the IMF to cut interest rates and improved the access of foreign entities to Philippines’ capital.
Transnational Banks and financial institutions were able to allow 100% equity. Also foreign investments grew in the banking and financial sector. 16
The liberalization of the financial sector is part of the package of the economic stabilization and adjustment measures in the SAP. All the country programs who adapted structural adjustments were characterized by a shift from state control towards a market driven system. The interest rates were liberalized, entry barriers and credit ceilings were removed and measures to improve the supervision were partially adopted. The liberalization of the financial sector has led to negative and long term consequences that still affects developing countries today.17
For the BSP the liberalization also ushered in expansion opportunities and new markets for Philippine banks as the reciprocity agreement embedded in the entry of foreign
16 The Philippine Banking Sector. (2003). Manila, Philippines: IBON BOOKS. 17 SAPRIN. (2004). Structural Adjustment: The Policy Roots of Economic Crisis, Poverty and Inequality. Manila: IBON Foundation. 96 | Fernandez
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 97 banks in the country enabled the former to establish branches, subsidiaries and/or representative offices abroad. 18
Table 29: Effects of Financial Sector Liberalization
The Outcomes of Financial Sector Liberalization
Liberalization has not improved the level of economic efficiency within the financial sector Financial sector liberalization, in practice, has promoted short-term speculation and investment in non-productive activities, as well as borrowing for the purpose of consumption The weakening of the state and its regulatory role has left it incapable of addressing inefficiencies, abuses and exclusionary practices in the sector. Reforms have allowed financial assets to become more concentrated in fewer private hands, rather than fostering broad-based productive investment that would stimulate national economies. Important sectors of the economy and population groups have been unable to access affordable credit. Source: The SAPRIN Report (Structural Adjustment: The Roots of Economic Crisis, Poverty and
Inequality
Table 30: Number of Universal Banks and Commercial Banks in the Country
Financial Institutions under BSP’s Supervision and Regulation Type of Financial Institution Number of Offices (As of 2011) A. Universal Banks 4,176 Private Domestic Banks 3,712 Government Banks 446 Branches of Foreign Banks 18 B. Commercial Banks 637 Private Domestic Banks 550 Subsidiaries of Foreign Banks 74
Branches of Foreign Banks 13
Source: BSP
18 Marcelo, T. B. (2012, February 9). Interview with the BSP. (A. Fernandez, Interviewer) 97 | Fernandez
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 98
The IMF through the Central Bank set up Banks owned by the comprador bourgeoisie. These banks strengthened the role of the comprador bourgeoisie as facilitator of Philippine trade with the US. The major portion of the profits of the financial capitalists comes from the interests they charge on loans to industrial and commercial capitalists.
Commercial Banks, Universal Banks and Foreign Banks
Figure 18: The Number of Operating Banks and Asset Shares of Bank Category as of 2011 and 2010 accordingly
Source: ACLE on the Role of the Bangko Sentral ng Pilipinas in the Economy and Contemporary Issues in Monetary Policy by Arnel Adrian C. Salva
Also under BSP’s mandate is the supervision of financial institutions including
Commercial Banks, Universal Banks and Foreign banks.BSP conducts examination and regular investigation to determine compliance with laws and regulations and whether an institution has safe and sound business practices as well as to assess the general
98 | Fernandez
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 99 performance and condition of financial institutions. Bank examinations are made with emphasis on asset quality, solvency, liquidity, profitability, governance and risk management. 19
The BSPs powers are also utilized by the IMF and the World Bank like its supervisory and regulatory powers towards Commercial Banks, Universal Banks and Foreign Banks.
Through banking liberalization new banks are created. These banks are another mechanism of US monopoly capitalism.
The concentration of capital by the leading banks owned by the banking oligarchs is long been the characteristic of the financial system of the country. Through the merges and consolidation of banks the financial capital of the Philippines was centralized. The World
Bank advised the Central Bank to allow the entry of new banks including foreign banks into the Philippines’ financial system and liberalize policies in the establishment of new branches. US TNCs and foreign banks are close business partners.
Commercial Banks
Commercial Banks are the largest group of institutions among the institutions under the BSP. It is privately owned and may be local or foreign. It has its policies regarding rate charges on loans, provides trust services and providing foreign financial services. It is the commercial banks that provide foreign financial services, correspondent banking
19 Ibid 99 | Fernandez
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 100 relationship, financing of foreign trade, foreign drafts and facilities for foreign currency deposits.
Due to liberalization Commercial Banks, which is owned by the country’s prime elites, were allowed to invest in equities of non-financial allied undertakings. Loans of the commercial banks are extended to corporations. Foreign Equity was officially encouraged to participate in commercial banks and non-bank financial institutions due to liberalization.20
Table 27: Leading Commercial and Universal Banks and their Owners
Commercial Bank/ Owner Business Interest Present CEO/President Universal Bank Metro Bank George S.K. Ty Toyota Motor Mr. Arthur V. Ty Philippines Corporation President Pan Philippines Insurance Corp. Solid State Multi Product Corp. Philippine Savings Bank Orix Metro Leasing and Finance Corporation SMBC Metro Investment Corporation BPI Ayala Family Ayala Life Assurance Jaime Augusto Zobel Land, Inc. Inc. de Ayala II Ayala Plans Inc. Chairman CityTrust Securities Mr. Aurelio R. Corp. Montinola III Filinvest Algo Financial President Corp. Equitable PCI Go Family EBC Investments, Inc. Eugenio Lopez Jr. EBC Insurance Chairman PCI Bank Brokerage Rafael Buenaventura Equitable Exchange, President and CEO PCI Inc. Bank Equitable
20 The Philippine Banking Sector. (2003). Manila, Philippines: IBON BOOKS. 100 | Fernandez
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 101
Cardnetwork, Inc. SM Investments Corporation RCBC Yuchengco Family Matsushita Electric Mr. Lorenzo V. Tan Phil. President and Chief Standard Fruits Phil., Executive Officer Inc. Dole Phil., Inc.
UCPB Cojuanco Family San Miguel Brewery, Mr. Ramon Y. Sy Ltd President and Chief United Cocoa Executive Officer Plantations Int’l Hardwood and Veneer Co. Floro & Sons Knitting Mills, Inc. Commonwealth Foods, Inc. Northern Cement Corp. Legaspi Oil Co. Allied Bank, PNB Lucio Tan Lucio Tan Group of Mr. Anthony Q. Chua Companies President AirPhilExpress Asia Brewery Century Park Hotel Eton Properties Philippines Inc. Fortune Tobacco Corp. Grandspan Drevelopment Corporation Himmel Industries, Inc. Philippine Airlines Philippine National Bank Tanduay Distillers, Inc. Allied Bankers Insurance Corp. Allied Capital Resources Ltd. Allied Leasing & Finance Corp. BDO Henry Sy Equitable PCI Mr. Nestor V. Tan SM Group of President Companies SM Prime Holdings
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China Banking Corporation SM Development Corporation Highlands Prime, Inc. Source: The Philippine Banking Sector, IBON Industry Primer Series, BSP
Universal Banks
The liberalization of banking and finance, in accordance with commitments to the
World Trade Organization (WTO) General Agreement on Trade in Services (GATS), only intensifies foreign dominance in the banking sector. The BSPs enthusiasm for mergers and acquisitions made this possible. 21
The establishment of Universal Banks allowed the merger of industrial and foreign capital in the Philippines. Universal banks are controlled by the Comprador bourgeoisie.
22(Villegas, Global Finance Capital and the Philippine Financial System, 2000) The comprador bourgeoisie is one of the trading partners of foreign corporations in the Philippines. They are reliable financial intermediaries when it comes to foreign trade and investments.
Table 28: Leading Privately Owned Universal Banks in the Philippines
Universal Bank Owner Sister Companies/ Business Interests Allied Bank Lucio Tan Group of AirPhilexpress Philippine National Bank Companies Asia Brewery (PNB) Century Park Hotel Eton Properties Philippines, Inc. Fortune Tobacco Corporation Philippine National Bank Philippine Airlines
21 Ibid 22 Villegas, E. M. (2000). Global Finance Capital and the Philippine Financial System. Manila, Philippines: Institute of Political Economy.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 103
PAN Asia Securities Banco de Oro Unibank Henry Sy SM Group of Companies Inc. (BDO) SM Investments Corp China Banking Shoemart Corporation SM Development Corporation United Overseas Bank Primebridge Holdings BPI Ayala family Real Estate and Hotels Ayala Subsidiaries (16) Land, Inc. Affiliates (3) Ayala Hotels, Inc. Program Realty and Dev’t Corp. Food, manufacturing and agribusiness Pure Foods Corp & subsidiaries Electronics & Information Technology & subsidiaries ASTI Ayala Insurance Holdings Corp. & subsidiary Ayala Life Assurance Co. Universal Reinsurance Corp. (Phils) Ayala Aviation Corp. Metropolitan Bank and George S. K. Ty Car Distribution (Toyota) Trust Company Solid State Multi Product Corp. Philippine Savings Bank Pan Philippines Insurance Corp. (PS Bank) Philtrust Bank Philtrusts Realty Corporation Seabreeze Enterprises Rizal Commercial Banking Yuchengco Family Matsushita Electric Phil. Corporation (RCBC) Dole Phil. Inc. Zamboanga Wood Products Seafront Resources Corp. Menzi Agricultural Corp. Security Bank Dy Family PCD Nominee Corporation AsiaSec Equities ASI Equities SB Equities United Coconut Planters Cojuangco Family San Miguel Brewery, Ltd. HK Bank (UCPB) United Coconut Chemicals Philippine Cement Corp. Agricultural Ent., Inc. Int’l Hardwood and Veneer Co. Commonwealth Foods, Inc. Source: the Philippine Banking Sector, IBON Industry Primer Series, Official Websites of the cited Universal Banks
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 104
It is evident that the Universal Bank in the country is dominated by the country’s elites pursuing their business interest together with their subsidiaries and affiliates. This became bigger when banking and finance was liberalized allowing the consolidation and mergers of banks.
Table 29: Top 20 Banks in the Philippines Based on total Assets as of March 2011
Rank Universal or Commercial Bank Assets in Billion Pesos 1 Banco de Oro Unibank Inc. 938.323 2 Metropolitan Bank and Trust Co. 778.273 3 Bank of the Philippine Islands 622.947 4 Land Bank of the Philippines 604.128 5 Philippine National Bank 304.701 6 Development Bank of the Philippines 296.297 7 Rizal Commercial Banking Corp. 262.193 8 Union Bank of the Philippines 244.879 9 China Banking Corp 232.363 10 Citibank NA CITIBANK 202.624 11 Security Bank Corp. 183.550 12 United Coconut Planters Bank 174.867 13 Allied Banking Corp 160.775 14 Hongkong & Shanghai Banking Corp 138.978 15 Bank of Commerce 102.265 16 Philippine Trust Co 96.383 17 East West Banking Corp 75.652 18 Standard Chartered Bank 75.644 19 Philippine Veterans Bank 54.878 20 Asia United Bank Corp. 48.941 Source: http://www.banksphilippines.com/2011/08/top-20-banks-in-philippines-by-assets.html, BSP
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 105
Foreign Banks and Transnational Banks
The World Bank advised the Central Bank to allow the entry of foreign banks and liberalize policies for the establishment of new branches. 23Foreign Banks was given critical role by the BSP in consolidating the banking sector by encouraging foreign buy-ins .Foreign loans to the country generate more business for foreign interests than foreign direct investments. The Philippines becomes a market for transnational banks who are handling big percent of our debts. We are able to but Western technology, machinery and equipment for by globalization and modernization. Foreign owned industries based in the
Philippines are benefited from these loans. Export oriented and import dependent nature of the markets is encouraged and favors foreign markets.
According to the BSP, they undertake regulatory and supervisory functions over the banking system in Foreign Banks as with the same with other financial institutions. The BSP sees the entry of foreign banks good for the banking industry. Foreign banks as one of the best training ground in the banking industry because they follow in strict compliance the international best practices, up-to-date knowledge, technology and processes. Increased competition and the introduction of financial innovations through the entry of foreign banks have resulted to a more dynamic banking industry.
23 Ibid 105 | Fernandez
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 106
Table 30: List of Foreign Banks in the Philippines
Branches of Foreign Universal Banks
ANZ Banking Group Ltd. Internationale Nederlanden Groep Bank NV Mizuho Corporate Bank Ltd. Standard Chartered Bank Hongkong and Shanghai Banking Corporation Branches of Foreign Commercial Banks
Bangkok Bank Public Co. Ltd. Bank of America NA Bank of China Limited The Bank of Tokyo-Mitsubishi UFJ, Ltd. Citibank, N.A. JP Morgan Chase Bank NA Korea Exchange Bank Mega International Commercial Bank Co. Ltd. Source: http://www.banksphilippines.com/search?q=foreign+banks
In May 1994 R.A. No. 7721 or the “Act Liberalizing the Entry and Scope of Operations of Foreign Banks in the Philippines” is passed. It encouraged greater foreign participation in the domestic banking system by allowing foreign banks to operate in the Philippines through the establishment of foreign bank branches and subsidiaries and through investing in majority of the voting stock of an existing domestic bank. This is in addition to the establishment of representative offices of foreign banks which are engaged mainly in promoting and giving information about the services offered by the parent bank.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 107
Table 31: Top Foreign Banks in the Global Setting that are present in the Philippines and their Assets As of 2011
Rank in the Name of Foreign Bank Country Total Assets in Global Market million dollars 2 Deutsche Bank Germany 2,546,272 3 HSBC Holdings United Kingdom 2,454,689 6 Bank of America United States 2,268,347 8 JPMorgan Chase United States 2,117,605 10 Citigroup United States 1,913,902 11 Mizuho Financial Group Japan 1,890,220 12 Bank of Tokyo-Mitsubishi UFJ Japan 1,687,313 13 ING Group Netherlands 1,666,368 16 Bank of China China 1,568,722 44 Standard Chartered United Kingdom 516,542 45 Australia & New Zealand Banking Australia 514,857 Group (ANZ) Source: http://www.gfmag.com/tools/best-banks/11382-worlds-50-biggest-banks- 2011.html#axzz1pU4k8fvJ
In May 18, 1994 R.A. No. 7721 was passed into law to encourage greater foreign participation in the domestic banking system to create a more competitive environment, which could help deepen and improve the financial system as well as bring in new technology and products. According to R.A. No. 7721, foreign banks may be allowed in the
Philippines through the following modes of entry:
1. by acquiring, purchasing or owning up to sixty percent (60%) of the voting stock of
an existing bank
2. by investing in up to sixty percent (60%) of the voting stock of a new banking
subsidiary incorporated under the laws of the Philippines
3. by establishing branches with full banking authority,
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 108
To date, the only form of foreign entry available for foreign investment in the banking sector is through the investment or acquisition of up to 60 percent of the voting stock of an existing domestic bank. However, with regard to the investment of up to 60 percent of the voting stock of a new banking subsidiary, it has to be noted that the three- year moratorium on the establishment of new commercial banks regardless of ownership imposed from 2000-2003 pursuant to the General Banking Law (R.A. 8791 of 2000) has technically expired, but as a matter of policy, continues to be observed. This policy is currently under review in the light of the move towards a financially integrated ASEAN region.24
Table 32: The Foreign Banks in the Philippines
Foreign Banks Key People Representative in Profit as of Asset as of the Country 2010/2011 2010/2011 UBs ANZ Banking Group Michael Smith CEO Ms. Panadda $4.51 billion $531.739 Ltd. Manoleehakul billion Country Chief Executive Officer ING- Internationale Jan Hommen-CEO Ms. Consuelo D. €3.220 billion €1.247 trillion Nederlanden Group Patrick Flynn-CFO Garcia Bank N.V. Country Manager Mizuho Corporate Hiroshi Saito-President Mr. Ichiro Tada Revenue: ¥160,812,006 Bank, Ltd. and CEO General Manager ¥2,716,791 million million Standard Chartered Peter A. Sands Mr. Mahendra Revenue: US$ Bank Gursahani US$ 517 billion (20 Chief Executive 16.06 billion ( 10) Officer 2010) The Hongkong and Douglas Flint Mr. Anthony US$ 17.944 b US$ 2.555 trilli Shanghai Banking Chairman William Cripps illion (2011) on Corporation Stuart Gulliver President & Chief Chief Executive Executive Officer
24 Marcelo, T. B. (2012, February 9). Interview with the BSP. (A. Fernandez, Interviewer)
108 | Fernandez
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 109
KBs Bangkok Bank Chin Sophonpanich Mr. Phisit Public Co. Ltd. President Charoenphan Senior Vice President & Branch Manager Bank of America, Brian Moynihan Mr. Henry T. Pelaez Revenue: US$ 2.129 trill (President & CEO) Senior Vice US$ ion Charles Holliday President and 115.074 billio (Chairman) Country Manager n Bank of China Xiao Gang Mr. Du Qiang Revenue: US$ 1.723 Limited- Chairman General Manager US$ 69.1 trillion Li Lihui billion President The Bank of Tokyo- Katsunori Nagayasu Mr. Masakazu ¥213.9 ¥160.8 Mitsubishi UFJ, Ltd. President Mizutani billion (2009) trillion (as of General Manager March 31, 2009) Citibank, N.A./ Vikram Pandit (CEO) Mr. Sanjiv Vohra Revenue: US$ 1.873 trill Citigroup Michael O'Neill Country Officer US$ 65.814 b ion (2011) (Chairman) illion (2011) Deutsche Bank AG Josef Ackermann Mr. Enrico S. Cruz €4.3 €2.164 CEO and chairman of the Chief Country billion (2011) trillion (end management board Officer and 2011) Clemens Börsig Managing Director, Chairman of Global Markets the supervisory board JP Morgan Chase Jamie Dimon Mr. Roberto L. Revenue: US$ 2.265 trilli Bank, N.A. Chairman, President & Panlilio US$ on (2011) CEO Senior Country 89.660 billion Officer (2011) Korea Exchange Larry A. Klane Chairman Mr. Jeong Sik Park Bank and CEO General Manager Mega International Rongzhou Wang, Mr. Roger Rong- Income: US$ 439.449 Commercial Bank Chairman of the Board Hwa Lin US$ 60.994 million Co., Ltd. Guangxi Xu, General Vice President and billion Manager, Director General Manager Subsidiaries
Chinatrust (Phils.) Mr. Jeffrey Koo Sr. Mr. Mark Chen Commercial Bank Governor President Corporation Mr. Mike DeNoma Chairman Maybank Abdul Wahid Omar, Mr. Amos Ong Revenue: RM336.67 Philippines, Inc. Seet-Joon RM12.87 billion President and CEO President billion (FY2010) Khairussaleh Ramli, (FY2010)
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 110
Deputy President and CFO
Source: BSP and Bank’s respective official websites
In favor of TNCs
In foreign direct investments 75% of world flows comes from the TNCs. Big corporations are given priority when it comes to availing of capital when in fact most of the deposits of the Philippine Banks come from ordinary citizens. Transnational Corporations and domestic businesses are the ones who benefits from the capital and savings from the banks. TNCs dominate trade and investments.
Also through the development projects of the World Bank the private corporations who participate are also benefited. World Banks attuned Globalization projects are in favor of TNCs. TNCs are the World Bank’s corporate allies. The World Bank wants the country to be competitive in the global capitalist market. The country continues to expand export promotion schemes and free trade zones assuring TNCs will have a low cost production and can extract cheap raw materials from the country freely. 25
The World Bank and the BSP on loans
The DOF serves as the chief negotiator in Foreign Loan negotiations with Multilateral and Bilateral donors. In financial transactions, it represents the Philippines either as a borrower or guarantor. The Central Bank monitors the impact of foreign currency inflows on
25 Broad, R. (1981, November 21). New Directions at World Bank: Philippines as Guinea Pig. Economic and Political Weekly , 16 (47), pp. 1919-1922.
110 | Fernandez
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 111 the health of the domestic economy. The BSP has the role to stabilize the economy and monitor foreign exchange and currency. Therefore it’s the BSPs responsibility to approve foreign currency dominated loans.
The Central Bank does not only accept deposits and lends money like a typical bank but it is the center of the Philippine Financial System. It is vested with authority over the
Philippine Financial System. BSP is given the title The Banks of Banks. It acts as a banker and a fiscal agent for the government. It manages the country’s international reserves and external debts. It is responsible for the depository of required reserves of commercial banks. It is known as the sole currency issuer and controller of domestic credit.26
The Philippine government continues to avail of the World Bank’s assistance to the country. The World Bank continues to encourage developing countries to seek assistance from foreign institutions. The monetary board of the BSP approves the loans of the World
Bank in coordination with the International Bank for Reconstruction and Development
(IBRD).
26 The Philippine Financial System. (1983). Manila: IBON Databank Phil., Inc.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 112
Table 33: Some Recently Approved loans by the BSP
Name of Loan Amount of Loan Date Approved Calamity Loan $500 million June 2011 Development Policy Lending program loan $250 million May 2011 Loan for the Laguna de Bay Institutional $10-million June 2011 Strengthening and Community Participation Project of the Laguna Lake Development Authority (LLDA). Food Crisis Response Development Policy Loan $250-million March 2010 additional financing for the ARMM regional $30 million March 2010 government Source: Inquirer, Manila Bulletin
When the Philippines avail of World Bank loans it goes through a process subjects to its approval and implementation. The Central Bank’s monetary authority approves and reviews the loans from the World Bank. While the Philippines through the Department of
Finance serves as the guarantor for the loan.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 113
Figure 19: Procedure for Processing of NG and Guaranteed Loans (DOF)
DOF BSP
Determines compliance with applicable foreign borrowing law
Requests for Monetary Board Facilitates Monetary Board Approval-in-Principle Approval-in-Principle
Requests for Presidential Special Authority
Reviews the Loan Agreement as Reviews the Loan Agreement as part of the IAC- part of the IAC-RFLD or RFLD/Negotiation Committee Negotiation Committee
Signs the Loan Agreement
Requests for Monetary Board Facilitates MB Final Approval Final Approval
Requests for DOJ Legal Opinion
Loans Become Effective
Submits other Conditions for (Prior to other process it undergoes from the OP, DOJ and Effectiveness NEDA)
Source: Department of Finance (DOF)
113 | Fernandez
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 114
The IBRD and the IDA
The IBRD is the main branch of the World Bank who handles the financing of its member countries. It provides loans to governments and public enterprises with a guarantee of repayment subject to general conditions of the Bank. They provide $12-15 billion per year loans. It has low credit rating and it provides relatively low interest rates attracting the low income or third world countries.
The IDA on the other hand compliments the IBRD. It serves middle-income countries with capital investment and advisory services. It provides providing long-term, interest free loans to the world’s poorest countries. They provided loans averaging from $7-9 billion per year. It is funded by its rich member countries. The loans provided by the IDA address education, health services, clean water supply and sanitation, environmental safeguards, business-climate improvements, infrastructure and institutional reforms. These projects are intended to pave the way toward economic growth, job creation, higher incomes and better living conditions.
Figure 20: IBRD Loans in US Million dollars from 1983-2006
IBRD Loans in Million US dollars 6,000 4,000 2,000
0
2001 2006 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2002 2003 2004 2005
Source: BSP
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 115
The World Bank along with other multilateral institution like the ADB continues to lend to the country. They continue to be a source of major development funds. Although the World Bank and the ADB grants lower than market interest rates the charges on debt servicing continues to rise. The Philippines approached the World Bank and the ADB for co financing. In return the Philippine Government, to reduce external debt, encouraged foreign direct investments in the country.
Figure 21: External Debt of the Philippines to IBRD and ADB
External Debt to Multilateral Institutions (In Million US Dollars) 8,000 6,000 4,000 World Bank (IBRD) 2,000 ADB 0
Source: BSP
Today the Philippine government borrows from multilateral institutions to fund and operate programs such as Public-Private Partnership (PPP). Some of the PPP projects on process are P70-billion Metro Rail Transit (MRT)-Light Rail Transit expansion; the P11.29- billion MRT Line 2 extension; P7.54-billion new Bohol airport; P4.36-billion Puerto Princesa
Airport; P21-billion North Luzon Expressway- South Luzon Expressway link; P10.5-billion
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 116
Cavite-Laguna Expressway-Manila side section and the P3.07-billion Daraga International
Airport.27
World Bank Lending
The World Bank funds development projects to borrowing countries. These development projects are implemented with certain rules and procedures to guarantee that the money reaches its intended target. 28Structural Adjustment Loans became the World
Bank’s instruments in the early 80’s and 90’s, which garnered many criticisms in the past, evolved eventually to a different instrument. Today the World Bank lends to us through two types of loans the development policy loans and the investment loans.
Table 34: The Difference between SAL and Development Policy Loans
The Difference of SAP and DPL Structural Adjustment Loans (SAP) Development Policy Loans (DPL) The World Bank tell the government what to do Today the government is the one who comes to before giving the money or the conditions the World Bank and state the reforms they want to do and asks for help in helping them achieve their reform through providing technical assistance The member countries have no choice to adapt meant to support policy reforms as long as the or conform with their prescriptions in able to policy reforms have been achieved and triggers avail their loans have been met Started Liberalization, Privatization and Instead of the WB saying that our country wants Deregulation to do this they say that that if you do this subject to what we have agreed upon we will provide you a development policy lending. Contains conditionalities The World Bank calls it “triggers” today
27 Govt to tap foreign funding agencies for PPP center operations. (n.d.). Retrieved February 2012, from The Manila Times: http://www.manilatimes.net/index.php/business/848-govt-to-tap-foreign-funding-agencies- for-ppp-center-operations
28 (n.d.). Retrieved February 17, 2012, from http://www.worldbank.org.ph/WBSITE/EXTERNAL/COUNTRIES/EASTASIAPACIFICEXT/PHILIPPINESEXTN/0,,me nuPK:333022~pagePK:64084923~piPK:64084936~theSitePK:332982,00.html 116 | Fernandez
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 117
Source: Interview with the World Bank
Development Policy Loans
Development Policy Loans replaced the Structural adjustment loans in 2004 to show that the World Bank evolved from the controversial aspects of policy-based lending like the conditionalities attached on the past loans. Development Policy loans provides us quick- disbursing external financing to support a government’s policy and institutional reforms. It supports Structural reforms in an economic sector or in the economy. It supports the government. It accounts for 20-25% of the total lending of the World Bank. It was originally designed to provide support for macroeconomic policy reforms and adjustment to economic crises but it evolved in focusing on long-term structural, financial sector and social policy reforms. It seeks to improve the health services of a country, improving the investment climate, good governance, public expenditure management and public financial accountability.
In the Philippines we availed of the development policy programs f the World Bank recently in May 19, 2011 amounting to $250 million dollars with the maturity of 25.5 years.
It is said to help achieve sustained inclusive growth through:
i. better fiscal management, an improved investment climate and better
governance for faster growth, and
117 | Fernandez
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 118
ii. investments in human capital to enable the poor to take better advantage of
emerging growth opportunities29
Table 35: The Development Policy Loans
Eligibility Disbursement/ Instruments Payment Development policy Funds are disbursed The policy OP/BP 8.60, loans are available to in one or more adopted in 2004, applies IBRD and IDA borrowers stages (tranches). uniformly to all Development who are not in arrears Tranches are development policy Policy Loans to the Bank Group. released when the lending, replacing the Eligibility for a borrower complies previous different types development policy loan with stipulated of lending (Rehabilitation also requires agreement release conditions, Loans, Structural on policy and such as the passage Adjustment Loans, Sector institutional reform of reform Adjustment Loans, etc.). actions that can be legislation, the Development policy monitored and achievement of operations in low-income satisfactory certain performance borrowing countries may macroeconomic benchmarks, or continue to be called management. other evidence of "PRSCs" (Poverty Coordination with the progress toward a Reduction Strategy International Monetary satisfactory Credits) because the term Fund (IMF) is an macroeconomic has become a well- essential part of the framework established "brand preparation of a name." development policy loan. Source: World Bank
29 Philippines - First Development Policy Loan to Foster More Inclusive Growth. (n.d.). Retrieved February 17, 2012, from The World Bank: http://www.worldbank.org.ph/WBSITE/EXTERNAL/COUNTRIES/EASTASIAPACIFICEXT/PHILIPPINESE XTN/0,,contentMDK:22919738~pagePK:2865066~piPK:2865079~theSitePK:332982,00.html 118 | Fernandez
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 119
Investment Loans
While the Investment loans provide long term loans for infrastructures, approximately 5 to ten years, and financing good, works and services in support to economic and social development projects in different sectors. It accounts for the 75-80% of the total lending of the World Bank. It aims to create the physical and social investment lending has come to focus more on institution building, social development and improving the public policy infrastructure needed to strengthen the private sector’s activity.
Table 36: The Investment Loans
Eligibility Disbursement/Payment Instruments Investment Funds are disbursed against The large majority of loans are specific foreign or local investment loans are available to expenditures related to the either Specific Investment International investment project, including Loans or Sector Investment Bank for pre-identified equipment, Investment and Loans Reconstruction materials, civil works, Maintenance Loans. and technical and consulting Adaptable Program Loans Development services, studies, and and Learning and (IBRD) and incremental recurrent costs. Innovation Loans were International Procurement of these goods, recently introduced to Development works, and services is an provide more innovation Association important aspect of project and flexibility in how (IDA) borrowers implementation. To ensure funds can be used. Other who are not in satisfactory performance, the instruments tailored to amount loan agreement may include borrowers' specific needs outstanding conditions of disbursement for are Technical Assistance with the Bank specific project component Loans, Financial Group Intermediary Loans, and Emergency Recovery Loans. Source: World Bank
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 120
Neoliberal Agenda of the World Bank-Globalization
Globalization is pushed by multilateral institutions making developing countries believe that it’s an effective model for growth and development. It is adapted by the
Philippine Government and bureaucracies through the years because of policy advice and agreements that came from the IMF and the World Bank. Multilateral institutions like the
IMF and the WB crafted economic policies that is said to accelerate growth investment and
Liberalization, Privatization and Deregulation.
The financial system became attuned to globalization having policies favorable for foreign trade and investments in the country. The implementation of “free market” policies has affected the protection of the Philippine economy.
Philippines have economic policies designed to serve the interest of TNCs, foreign monopoly capital and domestic elites. The World Bank together with the IMD, WTO, TNCs,
TNBs and their domestic partners are relentless in pushing policies that intensify the capitalization of the US and other developed countries to third world countries in the
Philippines.
As the World Bank pushes for greater Globalization so is the IMF. The IMF made it favorable to the World Bank to continue its goal on gaining more foreign investments for the country. The IMF intervened with the monetary policies of the country. It initiated exemptions and deregulation of the BSP on foreign investments. The World Bank made the country attractive to foreign investors by their development programs so as the IMF made it
120 | Fernandez
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 121 favorable for the World Bank to easily attract foreign investments by liberalizing the banking system making it easy for foreign banks, investors and trade to enter the country easily.`
To create a more stable banking system the IMF brought liberalization to the country. The liberalization brought new trends in the banking system like mergers and consolidations. Through mergers the role of the Oligarchy in the banking system was strengthened. Also liberalization encouraged the entry of foreign banks.
The World Bank continues to offer their assistance through their country strategies and development policies. For the World Bank globalization is the growing integration of economies and societies around the world. The IMF monitors the country and gives their recommendations to the BSP. IMF remains influential with the BSP, commercials banks and the global capital markets.
Because of the neoliberal policies recommended by the World Bank and the IMF allowed the country to have few barriers, controls and regulations giving opportunity to foreign monopoly capitalism. The World Bank and the IMF’s neoliberal policies are designed to give private profit-seeking interests. 30
The Philippines adopted the thinking of the World Bank. Today the World Bank and the IMF does not longer need to impose policies that the Philippines have no choice but to adopt. They were successful in making the necessary adjustments decades ago from structural adjustment programs and loans. Our system adapted it well and made policies
30 IBON. (2007, March). Philippine Poverty and Underdevelopment in the 21st Century. 121 | Fernandez
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 122 based on it. It continues to benefit the World Bank, the IMF and other foreign capitalists in the country.
The World Bank misinterpreted the country’s underdevelopment. Together with the
IMF they insisted free market. Instead of reducing poverty it avoided the redistributing of the country’s resources and helped profit-seeking as justification to the diversion of public resources for the gain of the private sector. Neoliberal policies of globalization became destructive for the country.
The World Bank and the Private Sector
The IFC
The International Finance Corporation (IFC) is one of the branches of the World Bank
Group that caters with the private sector in the developing countries. It provides the private sector loans, advice and technical assistance. The World Bank collaborates with the Private sector and the Philippine government in implementing development projects in infrastructure and the financial sector. This in turn would give the World Bank opportunity for privatization and greater gains for the private sector.
In the financial sector the World Bank aims to have increased access to financial services, banking sector competitiveness and greater financial literacy. Improving the financial sector creates a good investment climate for TNCs and big corporations and also strengthening trade and investment the country.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 123
Trade integrates the developing countries into the global market. The World Bank partners with the private sector in driving economic growth, tapping initiative and investment.
Table 37: The World Bank Projects and its Private Partners World Bank with its Partners in the Private Sector (2000-2010)
Primary Sector Subsector Financial Sponsor No. of
Year Projects
Energy Electricity 2000 British Gas (BG Group) 1 First Philippine Holdings Corporation (FPHC) 1 Korea Electric Power Company (KEPCO) 1 Mitsubishi 1 2001 J-POWER 1 Suritomo 1 2003 Aboitiz Equity Ventures 2 Cagayan Electric Power & Light Co. 1 RAG Beteiligungs-Group 1 2004 Aboitiz Equity Ventures 1 Ayala Corp 1 Bronze Oak Group 1 Lopez Group 1 Mirant 1 Northwind 1 Sorsogon II Electric Cooperative 1 Sta. Clara International Corp. 1 Zabaleta & Co. 1 2006 Coastal Power Corporation 1 First Philippine Holdings Corporation (FPHC) 2 2007 Aboitiz Equity Ventures 1 DM Consunji Inc. 1 SN Power 1 2008 Aboitiz Equity Ventures 2 AES Corporation 1 SN Power 1 2009 Aboitiz Equity Ventures 3 Coyiuto Group 1 DM Consunji Inc. 1
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 124
First Philippine Holdings Corporation (FPHC) 1 Formosa Plastics Group 1 ICS Renewables 1 Metrobank Group 1 Monte Oro Grid Resources Corp 1 San Miguel Corporation (SMC) 1 SPC Power Corp 2 State Grid Xin Yuan Company limited 1 2010 Energy Development Co (EDC) 1 GN Power 1 Korea Electric Power Company (KEPCO) 1 Salcon Bhd 1 Natural Gas 2000 Shell 1 Texaco 1 Telecom Telecom 2007 First Pacific 1 Transport Airports 2001 Fraport AG 1 2009 Caticlan International Airport Development Corp (CIADC) 1
Transport Roads 2001 Leighton Holdings Limited 1 Metro Pacific Investments Corporation (MPIC) 1 2006 Hopewell Holdings 1 MTD Capital Bhd Group 1 Northeast Development and Acquisitions Corp. 1 2009 Leighton Holdings Limited 1 Metro Pacific Investments Corporation (MPIC) 1 Seaports 2000 International Container Terminal Services Inc. (ICTSI) 1 2001 Mega Equipment International Corp. 1 2002 Asian Terminal, Inc. 1 2008 International Container Terminal Services Inc. (ICTSI) 2 2010 Asian Terminal, Inc. 1 Harbour Centre Port Terminals 1 San Miguel Corporation (SMC) 1 Water and Sewage Utility 2006 DM Consunji Inc. 1 First Pacific 1 SUEZ 1 2009 Manila Water Company 1 Source: World Bank and PPIAF, PPI Project Database. (http://ppi.worldbank.org)
Money lending became very lucrative because of enhancing trade and easy way to acquire land.-through the set up of foreign banks, big corporations engage in money lending 124 | Fernandez
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 125 and borrowing. The private sector became one of the biggest borrowers from multilateral institutions aside from the government. Also they participated in the development projects of the World Bank. The services of the TNCs are availed by the Philippine government. They gain from these big development projects.
Biased Loans
The World Bank used the Central Bank for the supervision and connection of the
Philippine Financial system using its loans. World Bank Loans are the primary means of the institution to assist the country. Together with its programs implemented in the country’s financial sector which it subordinates to serve the interest of US TNCs in the country and to support trade. It is to further strengthen the economic influence of the US. The Philippines has its role as a trade entreport of US monopoly capitalism.
Banks has the role of providing capital and mediates between lenders and borrowers. Loans should be accessible to both large and small firms. In the country banks prefer to lend big capital in big companies. The Philippine Banking system serves the elites owning leading banks. They are benefited through the grant of big loans leaving the small firms nothing. Commercial Banks are owned by big and wealthy families. This is the reason why the loans provided by Commercial Banks mostly go to corporations. This also favors the transnational countries because they are linked or merged in the companies of the elites.
The private sector especially big corporations borrow from the BSP and the World
Bank through the IFC to finance a business expansion project and to support its operations.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 126
In the approval of loans there occurs bias. When the public sector borrows it requires the approval of the monetary board. When the Private sector borrows under the liberalized rules of the BSP they have an option not to undergo BSP loan approval and registration process as long as their loans are not guaranteed by the private sector. In this sense the government or the BSP doesn’t know what lies under their loans.
TNCs have their transnational bank counterparts. Banks give priority to their subsidiaries and associated corporations. TNBs view the Philippines as a market for lending and as a venue where they can participate anpd dominate the Philippine Financial System.
The World Bank and the IMF opened opportunities for TNBs and TNCs to dominate the country’s financial resources. The major borrowers of TNBs are the government, Philippine banks including the BSP and subsidiaries of TNCs and corporations. The IMF and the WB gave the TNCs guarantee even if there is poor credit risk in the country because they were able to impose a development model advantageous to TNCs and TNBs. 31
Transnational monopoly finance capital abused the removal of restrictions on its entry and operations in the country. The Philippines is desperate to attract foreign capital because the IMF and the World Bank made it believed that it will be for the growth of the economy. TNBs keep facilitating the operations of the TNCs in the country through the continuous lending to the indebted Philippines government.32
31 The Philippine Financial System. (1983). Manila: IBON Databank Phil., Inc.
32 IBON. (2011, June 21). The Philippine Development Plan (PDP) 2011‐2016: Social Contract With Whom? 126 | Fernandez
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Official Development Assistance
Figure 22: Total Grants by Source as of 2009
Source: ACLE on the Role of the Bangko Sentral ng Pilipinas in the Economy and Contemporary Issues in Monetary Policy
The World Bank has acted as creditors or bank to the country and not donors. They lend money for non-concessional interest rates. They used aid to gain profits from developing countries like the Philippines. The level of the welfare of the country increased and decreased dramatically over the past years. Foreign aid and investments increases and drops. Official Development Assistance prepared the country for further interaction with the global market and more capitalization. Multilateral and Bilateral donors fluctuated. They all have different policies in line with the aid they offer. There is a strong link with development assistance and capitalization in the free market. Official
Development assistance provided development capital to the Philippines at time when the market refuses to because of the contradictions in our budget. ODA became our main source of funding development projects. ODA led the country towards liberal market
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 128 reform and away from import substitution industrialization or nationalist policies.
Development assistance or aid prepared the Philippine economy fir privatization and other neoliberal development policies brought by our donor institutions like the World Bank. In order for the country to continue to avail of foreign development capital we must adhere and continue to facilitate free market norms. Addressing poverty through development aid centered in the economy became their disguise to pursue their interest. ODA is often tied to its partnership with large foreign corporations or TNCs therefore they are bound to legally generate high profits from aid projects. Foreign businesses and investors will thrive in the expense of our local industries. 33
Technical Assistance
The World Bank provides the BSP and the Philippines technical assistance. It is an important aspect of development cooperation because it complements development assistance and services. It includes support for policy and economic reform of the recipient countries, preparation, implementation and monitoring of infrastructure projects and other development programs and direct provision to social services. Technical assistance also advices recipient countries through technical advisers, consultants, researchers and trainers that operate in the bureaucrat and on the ground level. They come from the aid packages brought by donors. Through them donor institutions were able to penetrate the bureaucracy and participate in the decision making of policies and distribution of aids and
33 Jones, A. M. (n.d.). Aid trends in a middle-income country: The Philippine Case.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 129 loans. They also facilitate the identification, creation and operation of development projects. In line with this Technical assistance tends to affect our countries ownership and power to direct our own political and economic policies. The technical assistance is dominated with the private sector. This creates exploitative relationship between the bureaucracies that will turn development aid into a profitable industry by engineering policies towards their interests.
Figure 23: The Breakdown of Multilateral Financial Flows into the Philippines
Source: Aid Trends in a middle-income country: The Philippine Case by Alexander Miles Jones
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 130
Figure 24: Multilateral financial flows to the ASEAN founding Nations
Source: Aid Trends in a middle-income country: The Philippine Case by Alexander Miles Jones
Country Assistance Strategy of the World Bank
Table 38: The Positive and Negative Effects of the World Bank
The Implications of the World Bank to the country Positive Negative Provides technical and financial support in Developing nations are in debt and poverty the form of loans and grants partly due to the policies of international institutions such as the International Monetary Fund (IMF) and the World Bank. Provides the country with low interest increased dependency on the richer nations rate loans, interest-free credits, and grants to developing countries. Serves as a knowledge bank and facilitates Required poor countries to reduce spending on knowledge transfer things like health, education and development, while debt repayment and other economic policies have been made the priority.
Biggest source of official development The role of the state is minimized assistance in the country Promotes inclusive growth Privatization is encouraged as well as reduced protection of domestic industries
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 131
Capacity building for government agencies “liberalization” of the economy and resource extraction/export-oriented open markets as part of their structural adjustment To be attractive to foreign investors various regulations and standards are reduced or removed.
The World Bank’s assistance strategy includes fiscal consolidation, macroeconomic stability and making the country competitive in the global market by improving the investment climate for business in the country which is similar to the BSPs strategies.
Through the years poverty does not to seem alleviated and income inequality remains. The
World Bank recognizes that there is a need for good governance to come with their strategies. The World Bank will help government agencies. The present administration like the past administrations is in full support to World Bank projects and very opens to their policy advices.
The Programs of the World Bank and the Philippine government is continued to be criticized due to their flawed policy advices and globalization model. They believed that the
World Bank weakened the economy because of the structural adjustment programs they brought to the country.
Table 39: The Purpose of the World Bank
The Purpose of the Bank (i) To assist in the reconstruction and development of territories of members by facilitating the investment of capital for productive purposes, including the restoration of economies destroyed or disrupted by war, the reconversion of productive facilities to peacetime needs and the encouragement of the development of productive facilities and resources in less developed
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 132 countries.
(ii) To promote private foreign investment by means of guarantees or participations in loans and other investments made by private investors; and when private capital is not available on reasonable terms, to supplement private investment by providing, on suitable conditions, finance for productive purposes out of its own capital, funds raised by it and its other resources.
(iii) To promote the long-range balanced growth of international trade and the maintenance of equilibrium in balances of payments by encouraging international investment for the development of the productive resources of members, thereby assisting in raising productivity, the standard of living and conditions of labor in their territories.
(iv) To arrange the loans made or guaranteed by it in relation to international loans through other channels so that the more useful and urgent projects, large and small alike, will be dealt with first.
(v) To conduct its operations with due regard to the effect of international investment on business conditions in the territories of members and, in the immediate postwar years, to assist in bringing about a smooth transition from a wartime to a peacetime economy.
Source: IBRD Articles of Agreement
Liberalization
The liberalization of the financial sector paved the way for speculative capital to grow. Also one of the strategies of the World Bank is opening up the economy. Trade and investment liberalization policies create good conditions for foreign monopoly capitalists to gain profits. The economy is opened to goods from abroad, to foreign direct investments that exploits the cheap labor of the Filipinos and the extraction of our natural resource as
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 133 raw materials and to foreign portfolio investments that gains from speculation. The World
Bank says it can do good for the economy in the short term but the people is directly affected and suffer from the damage to the economy in the long term.
Also trade and investment liberalization affects the domestic market of the country.
They became uncompetitive compared to foreign producers. They suffer from the free market policies from the IMF and the World Bank. TNCs increased their domination of our local industry resulting to the shrinking of the domestic producers. 34
Conditional Cash Transfer (CCT)
Is one of the programs that is influenced by the economic liberalization of the World
Bank. It is part of the country assistance project of the World Bank since 2009. CCT is a multibillion peso project that will be a temporary solution to poverty. The US$405-million
World Bank loan for the CCT program is its second largest out of some 250 development loans to the Philippines since 1957. IBON estimates that the Philippines will be repaying
US$500 million on the World Bank CCT loan. The CCT pushes for higher taxes, lower government spending and further privatization accompanied by PPPs. 35
34 IBON. (2011, June 21). The Philippine Development Plan (PDP) 2011‐2016: Social Contract With Whom? 35 As World Bank president visits country: Think-tank says world bank policies,loans worsen poverty in the Philippines. (2011, October 27). Retrieved February 18, 2012, from Bulatlat: http://bulatlat.com/main/2011/10/27/as-world-bank-president-visits-country-think-tank-says-world-bank- policiesloans-worsen-poverty-in-the-philippines/ 133 | Fernandez
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 134
Privatization
In line with globalization the World Bank continues to make their projects in great participation with the private sector. Privatization benefited the elites of the country. The
PPP project will surely be attuned to privatization of government owned corporations.
Privatization is said to be a solution to fiscal problems of the country by the private sector buying out and shouldering the services of the government. Among the notable examples of and biggest PPP projects in the Philippines are the privatization of the National Power Corp.
(Napocor) and the Metropolitan Waterworks and Sewerage System (MWSS). 36
Public Private Partnership (PPP)
PPP is criticized to be another failed project by the World Bank. It causes increase in public debt of the country and corporate takeover of the government’s role. People who are against globalization argue that the PPP will benefit corporations and banks. The Private sector is said to shoulder the burden of financing infrastructure projects making the government save its budget and allocate it to other sectors. But knowing the TNCs and the private sector, they will not invest on something without ensuring their gains. TNCs and the country’s elites are very supportive of the PPP.
The BSP supports the Public-Private Partnership program and will continue to endeavor to promote a macroeconomic environment that would make it gainful for the
36 With More Privatization, Aquino Uses Same Old Policies by Predecessors. (2010, July 29). Retrieved February 2012, from Bulatlat: http://bulatlat.com/main/2010/07/29/with-more-privatization-aquino-uses-same-old- policies-by-predecessors/2/
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 135 domestic private sector (on their own or through strategic foreign partnerships) to participate in much-needed domestic infrastructure projects. Related to this, the BSP issued
Circular No. 712 in February 2011 amending the Regulations on Single Borrowers’ Limit allowing the increase in the total amount of loans, credit accommodations and guarantees for the purpose of undertaking infrastructure and/or development projects under the PPP program of the government duly certified by the Secretary of Socioeconomic Planning (also
Director General of NEDA). 37
Deregulation
Deregulation policies of the World Bank include pushing for opening the economy. It paved the way for the entry of foreign products and services in the country. In the financial system deregulation brought the entry of foreign banks. Also the deregulation of interest rate in the financial system and the removing of barriers of the entry of new institutions to the financial system is brought about by liberalization. The Central Bank continues to support deregulation. The government allows the market greater freedom by following globalization and free market measures by the World Bank.
Since the World Bank and the IMF proposed deregulation policies, foreign exchange restrictions are removed and incentives to foreign investors increased. This is to promote trade and investment in the country. Deregulation allows private elites, foreign and
37 Marcelo, T. B. (2012, February 9). Interview with the BSP. (A. Fernandez, Interviewer)
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 136 domestic, to financial assets and the banking system and encourages profit seeking and monopoly of capital.
Unequal Alliance
Structural Adjustments became the solution to the third world’s problems as what the World Bank prescribed. The economies of the developing countries were reformed in order to compete with the world economy. The economy of the Philippines, being one of the prime candidates for adjustments of the World Bank and the IMF, submitted itself to the global market believing that it would provide the growth needed by the country that would cure its backwardness.
In the 1980’s the Philippines had no choice but to adhere with the World
Bank and the IMF’s reforms but today we are more than willing and even initiate ourselves the opening up of the economy, providing incentives and exemptions, liberalization, privatization and deregulation. Free trade and investment became strong factors of policies to bring economic growth and development. This was the neoliberal approach we adopted from the World Bank and the IMF. This made the financial and economic domination of first world countries to the third world countries greater and stronger. World Economies became more integrated with each other benefiting western countries than developing countries. Not only are their economies being affected but also their sovereignty and power to direct their own policies.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 137
The Structural reforms and adjustments in the Philippines benefited the transnational corporations and hurt small scale industries and the marginalized. The
Unequal distribution of wealth was worsened. The welfare of the people was compromised in the Third World. Cutbacks in social services occurred while more investments for infrastructures thrived. Development became for the elites and powerful institutions and not for the marginalized.
The World Bank and the IMF used the pressure brought by debt and their aid to continue to impose their model of reforms and adjustments. They were successful and effective, Successful in a sense that they were able to expand the private sector’s economic interests. They were able to diminish nationalist policies and transformed it into neoliberal ones. They made the Philippines adapt best practices in policy decision making that they thought will work in the country because it worked for others. Instead of cooperating with our neighbor developing countries we competed with them in the global market. 38
The Philippines became receptive of reforms and adjustment because of the
World Bank and the IMF’s influence on the Department of Finance and the Philippines’
Central Bank. They aligned the country’s monetary and fiscal policies to the approach thought by the two giant institutions. The power of multilateral institutions over the
Philippines’ economy and financial sector still exists and continuous through the years.
38 Broad, R. (1988). Unequal Alliance: The World Bank, The International Monetary Fund, and the Philippines. London, England: University of California Press, Ltd. 137 | Fernandez
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 138
Chapter IV: The Different Perspectives
To further clear and give depth to this study I interviewed the major stakeholders such as the World Bank, the Central Bank, the government and some experts to present their sides and perspectives towards the subject of my study.
In this study the World Bank and the Central Banks partnership, direct and indirect is evaluated. Their positive and negative impacts are weighted. The impact of their actions to the public and the private sector is evaluated. The World Bank’s influence on the foreign trade and investment is highlighted.
The World Bank and the Central Bank both said that their only connection is technical assistance and does not have an influence of each other. In this study their indirect connection is exposed.
It is important in this analysis to look into the perspectives of the World Bank, the
Central Bank, the Government and other think thanks that contributed to the outcome of this study.
The World Bank’s Perspective
The World Bank does not impose and cannot dictate to the Central Bank’s policies.
According to the World Bank the BSP is an autonomous agency not even the congress can dictate on the policies and activities of the BSP. But then they admitted that World Bank’s
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 139 country economists share and exchange views with the officials of the Central Bank on monetary policies from time to time.
The instruments of the World Bank evolved through the years. They don’t do
Structural Adjustment Loans (SAL) anymore. Since 2000 they provide assistance to the country in the form of Development Policy loans. In the past they tell the government what to do before giving the money or the conditions. Today the government is the one who comes to the World Bank and state the reforms they want to do and asks for help in helping them achieve their reform through providing technical assistance. For the World Bank they have a more client-owner relationship with the BSP. Even the conditionalities were evolved and now called as triggers by the World Bank. Instead of the WB saying that our country wants to do this they say that that if you do this subject to what we have agreed upon we will provide you a development policy lending. They do not impose anymore policies they rather give their advice with the government. For the World Bank Development policy loans is good for reform oriented government as a good source of financing. Development policy reforms are meant to support policy reforms as long as the policy reforms have been achieved and triggers have been met. The World Bank when it comes to lending is focused on the areas of development priorities like health, education and infrastructures.
The World Bank having neoliberal policies and a model that pushes for Globalization including trade and investments. The World Bank teaches the country good practice that works in some countries that they think could work with the Philippines. Most of these good practices are embedded in foreign investments. They think that there are a lot of good
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 140 that comes with foreign investments especially for a country that is not able to create jobs faster than it is producing people. Foreign investments are not such as a bad thing it enables the government to have a source of revenue to finance projects for the country. Foreign investments bring financing and technology. For the World Bank the Philippines need the expertise of the other countries and transnational corporations that comes with foreign investments. The World Bank said that they only help the country achieve its development objectives that does not oppose to foreign investments but they are not the one who is promoting it but the Philippine government.
“I guess the World Bank to the extent that it will help the Philippines achieve its development objectives would not be opposed to foreign investments but to say that we promote it I think it’s not accurate because it’s not us who is selling the Philippines, it’s the
Philippine government that’s selling the Philippines to lenders, investors whatever source of financing, resources and technology they want to avail.” (Azarcon, Chua, & Llorito, 2012)
The World Bank does not have a direct say on monetary policies unlike fiscal policies. They endorse tax measures and expenditure management advice. They only provide quarterly economic update of their assessment of the monetary policy. For them so far the BSP has been very good in managing the inflation. As a Bank, the World Bank also has strong requirements for countries borrowing from them. Also the World Bank says that it is irrelevant to link them with TNCs because they are owned by their member countries so it serve these member countries. They do not serve the interest of the TNCs or private companies.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 141
Contrary to the criticisms towards the World Bank there’s no way they can gain control on the country’s financial system. They only provide only 6% of the total borrowing requirements of the Philippine government. The influence of the World Bank on the financial system is overestimated. They are not in the position to influence the country’s financial system and that it is not in their interest to have policies that will work against the interest of the countries. They do not impose policies because they are a bank and it won’t help them. The World Bank states that they are pressured by their own board to show that they are helping their third world member country, who borrows from them, rather than hurting them. For the World Bank any policy or decision one makes there is always a trade off.
“There’s always be losers and winners so you can always be criticized for raising taxes because you hurt some people but more people gain, the key is how do you balance and compensate the losers.” (Azarcon, Chua, & Llorito, 2012)
There are many misunderstanding on how the people perceive the World Bank. The
World Bank is criticized for pushing globalization. For the World Bank they push for globalization because for most countries it has proven to be an effective tool in growing faster and reducing poverty. The World Bank admits that there are a lot of losers along the way but the gainers were far more than the losers. There will always be that kind of criticisms the important thing is how a country, with or without assistance from the World
Bank does manages it.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 142
The Government must take the ownership of policy decision making. It is so convenient to blame the World Bank and the dictates of the conditions if it is imposed by international organizations.
“If we were in the 80’s maybe because the Filipinos have no choice, we have no dollars we have no pesos so we had no choice except to go with the reforms that were proposed by lenders but now Philippine government is far more has moved on and in far better control of its finances and because of that they must take more responsibility in the policy decisions that it makes, it’s no longer credible to blame it on TNCs, we have only very small foreign investments, you cannot blame the International Financial Institutions, Philippine government has no loans on the IMF and has only 6% of the World Bank of its financing requirements. There’s no one else to take responsibility but the government.” (Azarcon,
Chua, & Llorito, 2012)
The World Bank will be supporting and providing the country financial and technical support as long as the country needs it. There are countries that have graduated from the support of the World Bank. If the Philippine government decides to no longer borrow from the World Bank the World Bank can allocate their assistance to other countries.
The Central Bank’s Perspective
The Central Bank agrees with the World Bank that the World Bank does not impose or influence the financial system of the country. Financial system reforms are initiated and implemented by the Philippine government and the BSP. Multilateral institutions such as
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 143 the IMF and the World Bank could make studies, proposals and recommendations and as well as provide technical assistance but they do not have the power to implement reforms.
The multilateral institutions encouraged/helped the reform process but the improvements in the Philippine financial system are attributed to the efforts of the BSP and the Philippine government. The BSP claims that they have never been supervised by the IMF and the IMF does not propose any amendments to the BSP.
The Philippines remain participant to the IMF and the World Bank. The BSP represents the country as the governor of the IMF and alternate governor of the World
Bank in the past conferences and meetings organized by the IMF in discussing its reforms related to the IMF’s mandate, governance, financing and leading framework. The BSP also provides inputs and comments just like the IMF, in the IMF’s issues and country reports elaborating on global and economic concerns, reform of the global monetary system, financial stability and capital flows, among others.
The BSP has a positive outlook towards conditionality. Conditionality covers both the design of the IMF-supported programs, which are the macroeconomic and structural policies and the specific tool used to monitor progress toward the goals outlined by the country in cooperation with the IMF. Conditionalities are beneficial in the sense that they help solve balance of payments problems without resorting to actions that are detrimental to national and international wealth. These measures are meant to safeguard the IMF resources by ensuring that we can repay the loan by strengthening the balance of payments of the country.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 144
“The aim for appropriate conditionalities is to enhance the ownership of the adjustment program and improve governance. While conditionalities serve to protect the Fund's lending and ensure the needed adjustment processes, conditionalities should by no means be so restrictive and extensive that the national authorities would refuse to own the program and therefore, the chance of its success will likely be very low. More technical assistance has been deployed to the member countries for capacity building and, in the process, ensures more effective implementation of the program.”(Covar and Marcelo 2012)
The BSP and the Philippine government recognize the essential role of the private sector as the main engine for national growth and development. Incentives are provided to stimulate private resources for the purpose of financing development projects. The government provides an enabling environment for the private sector investments and further increase the country’s competitiveness. The Private sector provides most of the output in the national income accounts. The government through the BSP provides a helpful environment for the private sector by providing low inflation, stable financial system and proper regulation.
For the BSP the liberalization of the financial system ushered expansion opportunities and new market for the Philippine banks. Also it allowed the entry of foreign banks which serves as one of the best training grounds in the banking industry due to their strict compliance to international best practices and up-to-date knowledge, technology and processes. The entry of foreign banks resulted to a more dynamic banking industry through the increased competition and introduction of innovations in the financial system.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 145
For the BSP sound fiscal policies should compliment monetary policies. BSP is willing to adjust the monetary policies in order it maintain inflation and keep it track with the target of the BSP together with the government. The BSP make sure that the monetary policies will favor global competitiveness. They exert their full efforts in improving the monetary and fiscal policy, together with the DOF, of the country.
“BSP is ready to make any necessary changes to ensure that inflation expectations remain well-anchored and inflation is kept within target” should there be changes in the current environment shift” (Tetangco, 2011)
For the BSP they are able to strike an effective policy between supporting economic growth and maintaining stable inflation. The BSP recognizes the role of the IMF in helping countries like the Philippines. The BSP appreciates the knowledge transfer in the IMF’s role as a provider of technical assistance and as an instrument for capacity building. The BSP recognize the need of the country to have collaborative efforts from the government, multilateral institutions, the private sector and the major key players in the economy of the country to move together for economic growth.
The Government’s perspective through the Department of Finance
The Government is influenced by the Central Bank through capacity building. The
World Bank offers seminars and workshops that facilitate knowledge transfer. The DOF serves as the main counterpart of the World Bank in the country. They have more direct relationship with the World Bank rather than the BSP. They coordinate with the World Bank
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 146 especially towards negotiating loans. The DOF claims that their loans have monetary impacts so it undergoes approval and review of the Central Bank’s monetary board.
According to the DOF the projects of the World Bank are consistent with the priorities of the Philippine government and it is very important for the country. The continuous support of the World Bank is important because they provide us with very cheap loans, knowledge transfer, technical assistance, grants and capacity building. It helps the government to be more efficient in carrying its responsibilities. The country assistance strategy of the World Bank is complimentary to the strategies of the Philippine government.
It is developed with the consultation with the government.
The government supports the claims of the BSP and the World Bank that the World
Bank cannot dictate policies. The World Bank only gives advice about best practices, when the government thinks it’s good then they adopt it. The World Bank and the IMF cannot dictate anything. The government has a high level of acceptance when it comes to policies because they agree and with it and well accept it.
The Philippines borrow from multilateral institutions, like the World Bank because it does not only offer low interest rates but also because it comes with technical assistance that helps improve the capacity of the government. The World Bank offers the best deal when it comes to loans. Also when it comes to development policy loans the government takes full responsibility in the effectiveness of these loans. The World Bank only provided budgetary support thru development policy loans.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 147
The Government support and agrees with the World Bank’s support on
Globalization. It is obvious in the Philippine Development Plan. The Government is very keen in attracting foreign investments. The government is also very enthusiastic in supporting and adopting World Bank projects like the CCT and PPP.
In the criticisms that the World Bank gains through loans the DOF admits that they gain a little, at least breakeven to support or serve as a spread for admin costs and operational cause but it is not seen as significant. Whatever the market gives the World
Bank it is provided to us by the World Bank. Another criticism is the gain of TNCs through development policies and projects of the World Bank. According to the DOF yes the TNCs gain because we are purchasing their services. Regarding policies that helps the TNCs, the
World Bank’s advice are generally policies that are liberalized and come with market oriented reforms. The government is the one to implement these reforms if they agree with it, with or without the World Bank they pursue these reforms. The World Bank in return supports the government’s effort in pursuing reforms through loans and technical assistance. In that sense the TNCs will benefit because the World Bank supports the governments drive to more open markets.
For the government they see the World Bank as very interested in supporting the development of the Philippine economy. The government sees the hidden agenda of the
World Bank irrelevant. What is important for the government is that we are able to have access to loans that will give us financial and technical support. What is important for them is the result of the projects. Also they argued that we can survive without the World Bank’s
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 148 assistance. The government is not reliant on the World Bank like critics always say. The country wants to use the World Bank’s facilities primarily because of their cheap loans.
Expert’s Perspective
The relationship of the Central Bank with the IMF-WB has definitely shaped the
Philippine monetary policies says Cong. Walden Bello. The driving doctrine of the IMF and the WB is neoliberalism. The monetary policies of the central bank have something to do with the growth of the Philippines.
According to Mr. Sonny Africa the framework of the criticisms towards the World Bank is not anymore applicable today. The point of influence of the World Bank and the IMF shifted through the years especially in the financial system. The World Bank’s structural adjustment loans evolved and is not that powerful compared to the 1980’s. Today we have foreign exchange buffer that is not present in the critical period of structural adjustments.
The IMF and the World Bank have less to reform because the Philippine government does it by themselves because they have already adopted the way of thinking of the World Bank and the IMF. The technocratic form of government was internalized by the country. The
Philippine government became intellectually debilitated. The government buys in with the whole neoliberal agenda brought by the World Bank and the IMF.
The Philippines among other countries in the region have the best track record in implementing IMF and WB policies since the 1960s. If we were to look at Philippine economic policies we will see that we are following the neoliberal framework imparted by
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 149 the IMF and WB. The Philippines is very eager to adopt and implement reforms that are advised by the IMF and WB.
The World Bank has different themes incorporated in their development framework in their country assistance strategies. For the IBON foundation, whatever they change from the rhetoric of the World Bank their intention remains the same. Until now the World Bank promoted neoliberal policies and free market economics. It is always in the frame of sugarcoating and facilitating the core of neoliberalization through their loans and assistance. 39
The opening up of the economy was synthesized by anti-development policies,
Liberalization, Privatization and Deregulation. The policies prescribed by the IMF and the
WB have been heavily guided by the Philippines’ obligations to its creditors.
Macroeconomic strategies are created for the Philippines to be able to pay their outstanding debts.40
“They were able to institutionalize by legislation what was basically a policy of making sure that the Philippines would procreate every year that the government would pay the international institutions what was due to them in terms of interest and principle payments each year. Since the late 80s the Philippines has been paying 30-35% of its budget to the payments of its loans. This is a big drag, tremendous resources is taken away from infrastructure and developmental activities.” (Bello, 2012)
39 (Africa, 2012) 40 Bello, 2012 149 | Fernandez
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 150
In regards to conditionalities there occurred an overall accumulation of loan conditions. In the measure of creating a free market based structure for the development of the economy conditionalities became a tool to enable it. Trade liberalization, investment liberalization and privatization are facilitated through conditionalities.
The World Bank used its annual meetings and conference to influence the thinking of the Philippine government. In the 80’s and 90’s although there is still a little resistance the government started to internalize the neoliberal thinking of the World Bank. Today it is the Philippine government who lead the way in making neoliberal policies and reforms. The
World Bank knows that today even without their conditionalities the Philippine government would engineer reforms in their favor.
On the subject of foreign trade and investments the experts agree that it can contribute to the development of our economy but engaging in foreign trade and investment will only help the country if the process is lead by an activist developmental state. Foreign trade and investments should not be under the control of the free market our country will not benefit from it.
Cong. Bello agrees with Mr. Africa, he said that foreign trade and foreign investments is not bad. He recognizes that foreign trade and investments are supplementary factors for development. However in the case of the country the World Bank and the IMF promoted and geared the industries to serve international markets.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 151
“As for foreign investments the problem with the World Bank approach is that it sees foreign investments as the strategic factor in development rather than a complementary factor. We had the creation of backward economic policies that have been built with these assumptions towards foreign investments. “(Bello, 2012)
It is clear that the Philippines did not benefit from the World Bank’s development assistance. The country remains to be backward. The financial system is deregulated.
Finance is the hard blood of the economy. It keeps the economy running. Every nation needs finance to prosper whether it is capitalist or socialist. The country’s financial system is very problematic because it is encouraged and designed by the IMF and the WB. It is pro- business and anti-development. In the spirit of the market the capital is channeled to short- term profit oriented economic activities as supposed to what the country really needs.
The way the Central Bank works and the way the IMF teaches the Central Bank its best practices reduced the role of the BSP. The actions of the Central Bank became determined by the free market. The tightness and looseness of the monetary and fiscal policies is in favor of the market.
The removal of controls is part of the free market policies. It brought adverse effects to the country. In the past controls did not result to development. It was used not for the protection of the country but it was used in cronyism and patronage that made the problem of the country worst. The controls were not used responsibly.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 152
The WB and the IMD have a big impact on the operations of the Central Bank. It is obvious in the time when there are stand by agreements, fund facilities among others.
Loans are only released if we comply to the conditions that are set with it. These conditions involved monetary financial terms, manipulating the exchange rate and limiting the budget deficit. There are also some influences that are not visible to the public. It has something to do with the annual meetings and conferences between the Philippine government and the
World Bank. A system of influence is created through technocrats. The path of development of the Philippines became towards the interest of the IMF and WB.
The Philippines is afraid to be an outcast from the development assistance offered by multilateral and bilateral institutions. We’d rather be in the club favored upon by the IMF and the WB even if it means underdevelopment and control. We remain to be an avid follower of the World Bank’s policies and practices.
In contrast for Cong. Walden Bello we should maintain our relationship with the IMF and the World Bank provided that we should exercise our sovereignty and independence from them. 41
“If they make good recommendations why not follow it. If they make bad recommendations we should tell it to their face that we don’t want their recommendations.
We should not lead the fate of the country to market forces.” (Bello, 2012)
41 Bello, 2012 152 | Fernandez
The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 153
Chapter V: Conclusion and Recommendations
Conclusion
In a market where goods and services are bought and sold, money represents exchange values. In a business money represents the profits generated. In banks, money serves as a commodity that the bank buys, sells and makes profit on. It became the start and facilitates the close ties of the Central Bank with two giant global institutions the IMF and the World Bank. In the partnership of the Central Bank and the World Bank money paved the way for capital inflows and foreign investments.
With the supervision of the IMF and the WB, third world nations like the Philippines is obliged to take part on the economy. The fiscal and monetary sector, the DOF and the
BSP, are remained to be controlled by the IMF and the World Bank.
The Philippines opened the economy and promoted free market attracting foreign trade and investments with the help of the World Bank. The World Bank promoted industrialization and globalization in Third World countries, following and complementing the model used by first world countries but this kind of model requires a specific source of capital that the Third World nations like the Philippines were not able to accumulate so they resort into borrowing to multilateral, bilateral and other lending institutions in the form of foreign loans, grants and investments to sustain the requirements of the World Bank’s paradigm. Many of the existing policies of the Philippines today are one way or another contribution and influence of the World Bank.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 154
The World Bank is successful in influencing the policy making and development goals of the country with the help of the IMF. They are successful in fostering a development based on the free market. They made developing countries believed that trade is the main stimulus to development. They are successful not only influencing the BSP but also with other government agencies. The monetary and fiscal policies are altered and molded through the prescriptions and reforms advised by the World Bank and the IMF. Clearly the
World Bank engineered policies, Liberalization, Privatization and Deregulation, that will favor first world countries making rich countries richer through trade and investments and having access to the capital of the country. The WTO with the World Bank and the IMF aims to reformulate the economic systems of developing countries. In order to do this they must tap the fiscal and monetary policies.
The Philippines continues to be a victim of neocolonialism and globalization. The intervention of first world countries over the third world countries are facilitated by multilateral institutions like the IMF and the WB. In the Philippines the World Bank is successful in influencing every aspect of the society and political economy. The World Bank is successful in indoctrinating their Neoliberal agendas and way of thinking to the Philippine government with the help of the reforms of the IMF. We became a reform oriented government just like other developing nations seeking assistance from the World Bank.
The Financial system was one of the aspects of the society that was greatly reformed and molded towards neoliberal framework. The financial system was liberalized caused by the reform of the IMF and the World Bank as part of their globalization framework. They
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 155 transformed the financial structure of the Philippines by battering down controls and hindrance in trade. This transformation serves the needs of US corporations and banks.
The free flow of capital across borders is believed to benefit the countries. Higher savings, enhancement of efficiency of financial intermediation by removing distortions created by controls, greater competition in the financial market and improvement on monetary control, the benefits brought by liberalizing the financial system is what enticed financial systems to undergo reforms. The policies and amendment proposed by the IMF to the BSP supports the activities of the World Bank.
The World Bank the Central Bank may have little direct relationship but they maintained a very close relationship because of their indirect connection. The BSPs sole authority or sovereignty over the financial system of the country is not fully exercised because of the influences of higher institutions that controls and intervene in its activities.
Financial globalization aimed to separate the financial system with the intervention of the government. In the Philippines the Bangko Sentral ng Pilipinas (BSP) was given the central authority of handling the financial system of the country. Foreign Policies play a big role in the partnership of the Central Bank and the World Bank and also the IMF. Foreign Policies facilitate the solicitation of aid, lifting of international obligations, accepting economic adjustment programs and restructuring of foreign debt.
The World Bank’s actions paved the way for foreign trade and investments in the country. Money facilitates the exchange in commodity. What better strategy to control
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 156 foreign trade than to take control of the financial system of a country. And that was exactly what the IMF and the World Bank did. They help and work together to manipulate the financial system to gain and pursue foreign dominance in the country and further facilitate foreign trade.
The World Bank imparted Tradeoffs as a big framework for policy and decision making in the country. There are losers and winners, someone gains and someone loses. In the country instead of the majority, the poor, gaining they are the one who’s welfare is sacrificed and being traded for the benefit and interest of the country’s elite, Transnational corporations, foreign banks, IFIs and first world countries.
The Philippines and its financial system are integrated into US monopoly capitalism.
Its policies and the organization of its whole system is rigged by the two giant institutions namely the IMF and the World Bank. Through manipulating the BSPs monetary policies and the fiscal policy under the Department of Finance the country becomes a great source of profits of the western countries especially US. The BSP was used as a strong instrument of trade, having its powers in regulating and granting exemptions and changing policies towards foreign exchange.
The partnership of the World Bank and the Central Bank supported the free market ideology of the World Bank, the IMF and the WTO. The World Bank and the IMF brought obsolete free market policies. The BSP became the facilitator of the mandates of the IMF-
WB. Through the BSP policies are enacted in lieu of their interest and its effect to their
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 157 investments. Through the major structural reforms the aim of the IMF-WB to centralize financial capital of the Philippines was made possible.
The BSP has a big role to the Capitalism of Rich countries. Because of the neocolonial framework of the Central Bank’s system it continues to serve the IMF-WB, western countries and the Philippines’ oligarchy. As long as the Philippines pursue the financial programs by the IMF and the World Bank the government serves as a conduit of the banking oligarchs in delivering the needs of TNCs in the country.
Money facilitates the exchange in commodity. What better strategy to control foreign trade than to take control of the financial system of a country. And that was exactly what the IMF and the World Bank did. They help and work together to manipulate the financial system to gain and pursue foreign dominance in the country and further facilitate foreign trade.
Through the intervention of the IMF-and the World Bank in the financial sector of the country the Philippines became more dependent to multilateral institutions and the world market. The government supports the World Bank and the IMF. They are very enthusiastic with their advices. The intentions of the World Bank on the country is irrelevant for them as long as they think the country is gaining they are strengthening their relationship with big IFIs. The World Bank in return keeps on sugarcoating their development policies to maintain a good position in third world countries.
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 158
Recommendations
The reforms of the World Bank and the IMF failed to generate benefit for the people. It benefitted the few. The Philippine Financial System, headed by the BSP must be freed from the neoliberal agenda of the World Bank and other IFI’s. It must be freed from the notion of global finance capitalism. It must be reoriented towards a pro-development agenda ensuring that the country, our economy and the people will benefit.
The state adopted the neoliberal thinking of the World Bank. Before addressing the issues regarding the World Bank the state should be reformed first. The state’s orientation must be changed. It must change from an anti-development and market oriented mind set into a nationalist activist state that will pursue pro development policies. The State must take action in regulating and intervening with its sectors. It must be responsible in making policies and implementing it.
The free market policies brought by the IMF and the WB should be reviewed and discarded. Accepting loans and grants for the country is not bad. We need it to sustain our budget deficits and to support the economic activities of the country provided that we should maintain our borrowings to a sustainable and manageable level and also we must be selective on the advice and assistance by the World Bank and the IMF.
The State should support and promote the development of country’s local industries. The BSP should use their instruments in controlling prices and inflation that will result to positive growth for local industries. The BSP must be brave to manipulate their
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 159 monetary instruments to help our local industries rather than manipulating it for foreign corporations and the elites. Also the BSP should remove the bias towards managing of the exchange rate of the country just to favor investors and foreign exchange. The BSP should be cautious and wise in implementing controls over finance and enhance their foreign trade investment strategies. The BSP and the state should work together not only to control and stabilize the economy but to use strategic monetary and fiscal policies to promote national development.
The BSP should ensure the development of capital markets. The BSP should not only be too focused on inflation and stabilizing the money of the country. They should exert more effort in contributing to the development of the country, not just microfinance and ensuring a stable banking system. The BSP should use monetary policies for development of the country and not for the gains of the public sector.
The IMF on the other hand must rethink their neoliberal development paradigms. In the past years of indoctrinating it with their member countries they should learn that it is not good for a country’s development. Financial sector policies should promote investment in production favorably of the domestic market and small and medium scale enterprises instead of catering to foreign market. The reforms not only in the financial sector but the whole government must promote equity and real development beyond figures.
The State should stand on its own in order to escape from the World Bank and the western agendas. The State must learn to exercise and appreciate its capabilities and
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The Partnership of the Central Bank and the World Bank in the Philippines: A Critical Study| 160 resources; they should learn to interact with other countries on their own instead of always following and eager to please the IMF and the WB. They should be firm in implementing policies and should develop our own development model that ensures our country’s growth and gains. The state should use its fiscal policies to compliment monetary policies and contribute to development. The WB and the IMF’s influence will continue even if the country graduated from the assistance of the World Bank and other international organizations. It will still depend on the type of government that we have.
The country can still continue their partnership with the World Bank provided that they need to be reformed first. The government should will our policies towards local economies. We should bring back controls that will regulate the market. For the IBON, there is no need to ease out foreign investments and TNCs. According to IBON we should let the entry of TNCs and foreign investments provided that we ensure the country will benefit.
The World Bank, the Philippine government, the DOF and the Central Bank should maintain its constant dialogue with each other provided that they will be forthright with each other’s needs and constraints. We must clear the limitations to the World Bank in to what extent should the areas they should touch in giving advice and technical assistance.
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BIBLIOGRAPHY
BOOKS
Bello, W., Kinley, D., & Elinson, E. (1982). Development Debacle: The World Bank in the Philippines. San Francisco: Institute for Food and Development Policy.
Broad, R. (1988). Unequal Alliance: The World Bank, The International Monetary Fund, and the Philippines. London, England: University of California Press, Ltd.
Castillo, A. V. (1948). Central Banking in the Philippines. Pacific Affairs , 360-371.
Castillo, A. V. (1979). Monetary, Banking and Economic Problems of the Philippines. Manila: The Central Bank of the Philippines.
Chossudovsky, M. (2003). The Globalization of Poverty and the New World Order. Philippines: IBON BOOKS.
Gochoco-Bautista, M. S. (n.d.). The Past Performance of the Philippine Banking Sector and Challenges in the Postcrisis Period.
Jose, V. R. (Ed.). (1982). Mortgaging the Future The World Bank and IMF in the Philippines. Quezon City, Philippines: Foundation for Nationalist Studies.
Lamberte, M. B. (2003). Central Banking in the Philippines: Then, Now and the Future.
Lamberte, M. B. (Ed.). (2002). Economic crisis once more. Philippine Institte for Development Studies (PIDS).
Peet, R. (2003). Unholy Trinity: The IMF, World Bank and WTO. Manila: IBON Books.
SAPRIN. (2004). Structural Adjustment: The Policy Roots of Economic Crisis, Poverty and Inequality. Manila: IBON Foundation.
Singh, K. (2004). Questioning Globalization. Sta. Mesa: IBON Foundation Inc.
Sogge, D. (2002). Give and Take What's the Matter with Foreign Aid? Manila: IBON BOOKS.
The Philippine Banking Sector. (2003). Manila, Philippines: IBON BOOKS.
The Philippine Financial System. (1983). Manila: IBON Databank Phil., Inc.
Todaro, M. P. (1989). Economic Development in the Third World (Fourth Edition ed.). New York: Longman Group Ltd., London. Villegas, E. M. (2000). Global Finance Capital and the Philippine Financial System. Manila, Philippines: Institute of Political Economy.
Villegas, E. M. (1983). Studies in Philippine Political Economy. Manila: Silangan Publishers.
Villegas, E. M. (n.d.). The Philippines and the IMF-WB Conglomerate. UP Third World Studies Center.
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Broad, R. (1981, November 21). New Directions at World Bank: Philippines as Guinea Pig. Economic and Political Weekly , 16 (47), pp. 1919-1922.
IBON Foundation. (2011, October). On the Nationalist Economic Provisions of the 1987 Constitution.
IBON. (2007, March). Philippine Poverty and Underdevelopment in the 21st Century.
IBON. (2011, June 21). The Philippine Development Plan (PDP) 2011‐2016: Social Contract With Whom?
Jones, A. M. (n.d.). Aid trends in a middle-income country: The Philippine Case.
PIDS. (1998, August). The Downward Drift in ASEAN Tariffs: Implications on Philippine Trade.
Interviews and Forums
Africa, S. (2012, February 4). Interview with Mr. Sonny Africa regarding the relationship of the World Bank and the BSP. (A. Fernandez, Interviewer)
Azarcon, L. J., Chua, K. K., & Llorito, D. (2012, January 12). Interview with the World Bank. (A. G. Fernandez, Interviewer)
Marcelo, T. B. (2012, February 9). Interview with the BSP. (A. Fernandez, Interviewer)
Quintos, R. B. (2012, February 9). Forum on External Debt Management of the BSP.
Quintos, R. B. (2012, February 13). Interview with Mr. Quintos on BSPs debt management. (A. Fernandez, Interviewer) Salva, A. A. (2012, February 22). ACLE on the Role of the Bangko Sentral ng Pilipinas in the Economy and Contemporary Issues in Monetary Policy.
Official Documents
BSP. (n.d.). The New Central Bank Act.
APPROVAL AND REGISTRATION OF FOREIGN LOANS AND OTHER RELATED TRANSACTIONS. (2009, September). Retrieved January 2012, from bsp.gov.ph: http://www.bsp.gov.ph/downloads/Publications/FAQs/forloans.pdf
Country Lending Summaries- Philippines. (n.d.). Retrieved September 3, 2011, from World Bank.org: http://go.worldbank.org/MOQX1X4390
Purisima, C. V. (2011, September 23). Statement by the Hon. Cesar V. Purisima.
Tetangco, J. A. (2011, September 23). Statement by the Hon. Amando M. Tetangco, Jr.
Total External Debt. (n.d.). Retrieved September 3, 2011, from bsp official website: http://www.bsp.gov.ph/statistics/spei_new/tab17.htm
World Bank. (n.d.). IBRD Articles of Agreement.
Online Sources
As World Bank president visits country: Think-tank says world bank policies,loans worsen poverty in the Philippines. (2011, October 27). Retrieved February 18, 2012, from Bulatlat: http://bulatlat.com/main/2011/10/27/as-world-bank-president-visits-country-think-tank- says-world-bank-policiesloans-worsen-poverty-in-the-philippines/
Bello, W. (1999, November 8). Is the Structural Adjustment Approach Really and Trully Dead?
Bello, W. (n.d.). Should Developing Countries Push to Decommission the IMF?
Classic Theories of Development: A comparative Analysis. (n.d.). Retrieved September 6, 2011, from http://www.aw-bc.com/info/todaro_smith/Chapter4.pdf Govt to tap foreign funding agencies for PPP center operations. (n.d.). Retrieved February 2012, from The Manila Times: http://www.manilatimes.net/index.php/business/848-govt- to-tap-foreign-funding-agencies-for-ppp-center-operations
Nicolas, S. (2004, April). IMF-WB in the Philippines: Half-Century of Anti-Development. Retrieved 2012, from Bulatlat: http://bulatlat.com/news/4-11/4-11-imf.html
Philippines - First Development Policy Loan to Foster More Inclusive Growth. (n.d.). Retrieved February 17, 2012, from The World Bank: http://www.worldbank.org.ph/WBSITE/EXTERNAL/COUNTRIES/EASTASIAPACIFICEXT/PHILIP PINESEXTN/0,,contentMDK:22919738~pagePK:2865066~piPK:2865079~theSitePK:332982,0 0.html
Shah, A. (2010, November). Structural Adjustment- a Major Cause of Poverty. Retrieved February 2012, from Global Issues: http://www.globalissues.org/article/3/structural- adjustment-a-major-cause-of-poverty
Stiglitz, J. E. (2011, May). Of the 1%, by the 1%, for the 1%. Retrieved February 10, 2012, from Vanity Fair: http://www.vanityfair.com/society/features/2011/05/top-one-percent- 201105
With More Privatization, Aquino Uses Same Old Policies by Predecessors. (2010, July 29). Retrieved February 2012, from Bulatlat: http://bulatlat.com/main/2010/07/29/with-more- privatization-aquino-uses-same-old-policies-by-predecessors/2/
APPENDIX
LIST OF FIGURES
Figure 1: The Components of the Philippine Financial System
Figure 2: Multilateral Debt’s percent of the total external debt of the country
Figure 3: Development Projects by the World Bank
Figure 4: The Number of Development Projects of the World Bank in the Philippines from
1990- 2011
Figure 5: The World Bank Projects in the Philippines
Figure 6: World Bank Projects per Sector
Figure 7: Excerpt from the World Bank Charter
Figure 8: The BSP’s Monetary Board
Figure 9: BSP’s Monetary Board Members As of 2012
Figure 10: The Monetary Stability Sector
Figure 11: The Philippines’ Inflation Rate from 1995-2011
Figure 12: External Debt of the Philippines by Type of Debt (in million US dollars)
Figure 13: Philippines’ Total External Debt by Maturity
Figure 14: External Debt by Maturity and its Average Maturity
Figure 15: Philippines’ Total External Debt by Borrower
Figure 16: Philippines’ Total External Debt by Creditor
Figure 17: Philippines’ Total External Debt by Currency
Figure 18: The Number of Operating Banks and Asset Shares of Bank Category as of 2011 and 2010 accordingly
Figure 19: Procedure for Processing of NG and Guaranteed Loans (DOF)
Figure 20: IBRD Loans in US Million dollars from 1983-2006
Figure 21: External Debt of the Philippines to IBRD and ADB
Figure 22: Total Grants by Source as of 2009
Figure 23: The Breakdown of Multilateral Financial Flows into the Philippines
Figure 24: Multilateral financial flows to the ASEAN founding Nations LIST OF TABLES
Table 1: Significant Events in the Philippine Financial System
Table 2: The Lower-middle income economies member countries of the World Bank
Table 3: The New Phase of IMF and BSP Relationship
Table 4: The Recommendations of the IMF
Table 5: Financial Sector Reforms in the Philippines
Table 6: Net Foreign Direct Investments from 2000-2011
Table7: The Comparison of Net Foreign Investments from 2000-2010
Table 8: Gross Foreign Direct Investments by Country of Source
Table 9: The Growth Rate of the Net Foreign Direct Investments in the Philippines
Table 10: The Net Inflows of Foreign Direct Investment
Table 11: Average Tariffs in Southeast Asia
Table 12: Inward Foreign Direct Investment in 2010
Table 13: Average Weighted and Nominal Tariffs of the Philippines
Table 14: Objectives of trade and Industrial Policy Reforms
Table 15: Trade Liberalization in the Philippines
Table 16: Some Active Projects of the World Bank as of 2012
Table 17: The Main Points of the Relationship of the WB and BSP
Table 18: The Similar Themes of the World Bank and the BSP
Table 19: The Governors of the BSP from 1981-Present
Table 20: The instruments of the BSP in controlling inflation
Table 21: National Government’s Cash Operation
Table 22: National Government’s Current Outstanding Debt
Table 23: Total External Debt of the Philippine by Maturity
Table 24: Philippines’ Debt Profile As % of GDP
Table 25: Philippines’ Total External Debt Ratio Table 26: Legal Basis on the BSPs Role on Foreign Loans
Table 27: Leading Commercial and Universal Banks and their Owners
Table 28: Leading Privately Owned Universal Banks in the Philippines
Table 29: Top 20 Banks in the Philippines Based on total Assets as of March 2011
Table 30: List of Foreign Banks in the Philippines
Table 31: Top Foreign Banks in the Global Setting that are present in the Philippines and their Assets As of 2011
Table 32: The Foreign Banks in the Philippines
Table 33: Some Recently Approved loans by the BSP
Table 34: The Difference between SAL and Development Policy Loans
Table 35: The Development Policy Loans
Table 36: The Investment Loans
Table 37: The World Bank Projects and its Private Partners
Table 38: The Positive and Negative Effects of the World Bank
Table 39: The Purpose of the World Bank
Banko Sentral ng Pilipinas Interview (via Email) Questions Answered by
Thomas Benjamin B. Marcelo Director International Relations Department
Inputs on Philippines – International Monetary Fund (IMF) Relations
Ø How is the relationship of the BSP and the IMF today? What factors strengthened the BSP’s partnership with the IMF? What factors weaken their relationship?
Ø How important are multilateral institutions like the IMF in the Philippines? Why? Do you feel that the BSP is independent even with the presence/ influence of the IMF? Why?
Ø What are the implications of the relationship of the BSP and the IMF in the Philippines? Are there negative implications of the IMF’s relationship with the BSP? What implications are these?
Ø The Philippines has been borrowing from the IMF since 1962, in 2006 the BSP paid its outstanding debt to the IMF. Is the BSP or the Philippine Financial system still monitored by the IMF? What will be the new role of the IMF to the BSP and to the Philippines?
Ø The BSP remained to participate in the IMFs lending program. Why did the Philippines renew its participation to the International Monetary Fund’s Financial Transactions Plan and Use of Borrowed Resources (IMF-FTP) as a creditor country? How does it affect the country?
Fund membership.The Philippines joined the IMF on 27 December 1945. The Governor of the BSP acts as the Philippine Governor to the IMF while the Secretary of the Department of Finance acts as the Alternate Governor. The current quota of the Philippines is SDR1,019.3 million representing 0.43 percent of the total IMF quota. This represents 10,934 votes or 0.43 percent of the total voting power in the IMF.In terms of its voting membership in a constituency, the Philippines is part of the South East Asia Voting Group (SEAVG). It may be noted that the SEAVG consists of countries with which the Philippines has strong economic and financial cooperative arrangements, shares the same interests, concerns and goals, and belongs to the same regional groupings such as Association of Southeast Asian Nations (ASEAN) and Southeast Asian Central Banks (SEACEN).
Fund relation.As member of the IMF, the Philippines is a participant toits regular bilateral surveillance efforts which involved theconduct of the Article IV Consultation Mission held inDecember 2010. This served as a venue for policydialogue between government authorities and Fundexperts on the country’s economic situation and outlook.Further, the country was represented by the BSP, asGovernor for the Philippines, in a member of conferencesand meetings organized by the IMF for discussions on itsongoing reforms related to the Fund’s mandate,governance, financing and lending framework. The BSPlikewise, provided inputs and comments on IMF issuepapers elaborating on global economic concerns, reformof the global monetary system, financial stability andcapital flows, among others. The Philippines has entered a new phase in its relationship with the IMF, in terms of a shift in status from a debtor to a creditor (reserve) position of the Fund.
(a) Exit from the IMF Post-Program Monitoring (PPM). On 29 December 2006, the BSP prepaid in full the outstanding obligations to the IMF in the amount of SDR146.3 million or US$219.7 million. The prepayment of the outstanding obligations to the IMF ahead of its 2008 scheduled maturities paved the way for the country’s early exit from its PPM arrangement with the Fund, which was originally scheduled to end in April 2007. The decision to prepay the remaining obligations to the Fund was due to the strong international reserves position of the Philippines. The prepayment also resulted in interest savings for the BSP. The exit is a defining moment in the Philippines’ relationship with the Fund as it marked the end of the country’s use of IMF resources after nearly four and a half decades.
(b) Philippine Contribution to the Fund’s Concessional Lending Instrument and Financing Framework for Low-Income Countries. On 4 June 2010, the Monetary Board approved the Philippines’ subsidy contribution to the IMF’s concessional lending to low-income countries in the amount of SDR1.9 million (approximately US$2.84 million). To be disbursed in five equal annual installments (approximately P25.1 million per year) from 2011 to 2015, the contribution signified the Philippines’ support for developing countries which were seriously affected by the global financial crisis.
(c) Participation in the Financial Transactions Plan (FTP). Meanwhile, in line with its commitment to help address threats to the international monetary system and given its sufficiently strong balance of payments and reserve position, the Philippines participated in the Fund’s quarterly Financial Transactions Plan (FTP) since October 2010. The FTP is the mechanism through which the Fund finances its lending and repayment operations in the General Resources Account. A member is selected for inclusion in the FTP plan based on a finding by the Executive Board that the member’s balance of payments and reserve positions are sufficiently strong.
(d) Participation in the New Arrangements to Borrow (NAB). The country’s continued participation in the FTP will pave the way for the BSP’s admission in the NAB facility of the IMF, a credit (lending) arrangement between the IMF and member countries or institutions which aims to forestall or cope with situations that could impair the international monetary system. In the SEAVG to which the Philippines belongs, only Malaysia, Singapore and Thailand are participants of NAB. The Philippines’ participation in the NAB would be a significant step in strengthening international cooperation and would demonstrate the country’s strong commitment to help address threats to the international monetary system.
(e) Increases in Quota Share. When the 2008 adhoc increase took effect, the Philippines’ quota level increased from SDR879.9 million to SDR 1,019.3 million representing an increase in the country’s quota share from 0.404 percent to 0.428 percent. This implies that the country’s access limit or the amount of financing that can be obtained from the IMF also increased by SDR139.4 million. The country’s increase in quota share essentially enhanced the country’s voice and representation in the Fund in general and the SEAVG in particular.
Ø The IMF brought structural reforms to the country’s financial system, is it successful? Did it benefit the country?
Financial system reforms were initiated and implemented by the Philippine government/central bank. Multilateral agencies such as the IMF and World Bank could make studies, proposals and recommendations as well as provide technical assistance to the country but they do not have the authority to implement the reforms. Thus, although multilateral institutions encouraged/helped the reform process, improvements in the financial system’s strength and performance should be largely attributed to the efforts of Philippine authorities.
Despite several decades of changes in the financial system, reforms are still continuing to respond to evolving and emerging issues and to enforce current banking laws and regulations.
· Among the early reforms, Presidential Decree Nos. 71 (Amendment to the General Banking Act) and 72 (The Central Bank Act) both dated 29 November 1972 adopted the proposed recommendations by the Joint IMF-CB Banking Survey Commission designed to ensure the financial system’s soundness and healthy growth. Some of the most important recommendations were related to the objectives of the Central Bank, its policy- making structures and scope of its authority as well as the classification, consolidation, operation and prudential management of banks.
· The reforms of the 1980s reflected the recommendations of a joint IMF-World Bank Mission in March 1979 which focused on the revision of the banking structure and administrative regulations. The major aspects of the 1980 reforms on the banking structure, include among others: (i) the introduction of the expanded commercial bank (now known as universal banks); (ii) reduction in differentiation among categories of banks and non-bank financial intermediaries authorized to perform quasi-banking; (iii) elimination of all functional distinctions among thrift banks; and (iv) increase in the powers and functions for non-bank financial intermediaries authorized to perform quasi-banking functions. While policy changes started since the 70s and 80s, the 1990s brought in economic/financial liberalization and the establishment of the BSP as an independent monetary authority through the New Central Bank Act (Republic Act (R.A.) No. 7653). Moreover, the outbreak of the 1997 financial and currency meltdown in Asia encouraged the need for greater financial strength and the observance of sound banking practices. Meanwhile, the aftermath of the crisis emphasized the pursuit for further reforms to promote greater financial resiliency against financial uncertainties and shocks.
· One of the recent key reforms in the financial sector is the passage of the General Banking Law of 2000 which institutionalized a critical mass of banking reforms. Immediately after its passage, the BSP moved quickly to draft implementing rules and regulations, particularly those relating to the adoption of a risk based capital adequacy ratio, the observance of fit and proper rule on bank management, the acquisition of a domestic bank by foreign banks/nationals and the granting by financial institutions of microfinance loans.
The sustained efforts of the central bank to push forward key initiatives that enhance its supervisorial capability and enforcement powers as well as raise transparency and prudential standards of the financial system were the main factors behind the fundamental strength and soundness of the sector. The exercise of greater prudence in the conduct of operations to protect asset quality at the institution level is also a key factor in the sector’s strength. Altogether, the reform process has made the financial system strong and operationally sound. In turn, these supported the continued economic growth of the country through the years through the sustained, efficient and reliable intermediation of funds, particularly amidst the current volatile global developments.
Ø Do you think the conditionalities that came with the Structural Adjustment Program and the IMF is fair and for the good of the country? Is these favorable for the IMF and the Philippines? Why?
Conditionality in its broad sense covers both the design of IMF-supported programs—that is, the macroeconomic and structural policies—and the specific tools used to monitor progress toward the goals outlined by the country in cooperation with the IMF. Conditionality helps countries solve balance of payments problems without resorting to measures that are harmful to national or international prosperity. At the same time, the measures are meant to safeguard IMF resources by ensuring that the country’s balance of payments will be strong enough to permit it to repay the loan. All conditionality under an IMF-supported program must be “macro-critical”—that is, either critical to the achievement of macroeconomic program goals or necessary for the implementation of specific provisions under the IMF’s Articles of Agreement.
The aim for appropriate conditionalities is to enhance the ownership of the adjustment program and improve governance. While conditionalities serve to protect the Fund's lending and ensure the needed adjustment processes, conditionalities should by no means be so restrictive and extensive that the national authorities would already refuse to own the program and therefore, the chance of its success will likely be very low. More technical assistance has been deployed to the member countries for capacity building and, in the process, ensure more effective implementation of the program.
Ø Does the liberalization program of the banking system good for the BSP and the Philippine Financial system? Why? Ø There have been criticisms that the BSP is used by the IMF to the further supervision and manipulation of the financial system of the country through the amendments/policies proposed by the IMF. Ø The BSP favors the interests of the IMF-WB, TNCs and oligarchy that dominate the financial system of the Philippines by allowing the setting up of banks owned by the elites and extending numerous incentives to enterprises engaged in the export-import arena.
The passage into law of R.A. No. 7721, otherwise known as “An Act Liberalizing the Entry and Scope of Operations of Foreign Banks in the Philippines” in May 1994 encouraged greater foreign participation in the domestic banking system by allowing foreign banks to operate in the Philippines through the establishment of foreign bank branches and subsidiaries and through investing in majority of the voting stock of an existing domestic bank. This is in addition to the establishment of representative offices of foreign banks which are engaged mainly in promoting and giving information about the services offered by the parent bank.
The empirical evidence presented in the paper of Prenio and Marcelo (2004) suggested that greater foreign bank presence in the country resulted in competitive pressures, but it is still unclear whether it actually contributed to a more stable banking system and a less volatile supply of credit. According to Marcelo (2003), the competition posed by new foreign bank participants in the Philippine banking system contributed to the narrowing of interest spread of banks, which is an indication of greater efficiency in fund intermediation. More importantly, this development suggested the ability of the Philippine banking system to adjust to a more competitive environment.From the consolidated articles of the BSP publication “Perspectives from Bangko Sentral ng Pilipinas: Money and Banking in the Philippines” released in July 2003.
Foreign banks also serve as one of the best training grounds in the banking industry due to their strict compliance to international best practices and up-to-date knowledge, technology and processes. Moreover, increased competition and the introduction of financial innovations (e.g., derivatives and credit cards) through the entry of foreign banks have resulted to a more dynamic banking industry.
The liberalization also ushered in expansion opportunities and new markets for Philippine banks as the reciprocity agreement embedded in the entry of foreign banks in the country enabled the former to establish branches, subsidiaries and/or representative offices abroad.
Ø How does the BSP supervises Commercial Banks, Universal Banks and Foreign Banks? Are there special treatments when it comes to supervising Foreign Banks or Commercial and Universal Banks? Does the BSP encourage the entry of foreign banks? Why and in what ways?
On supervision and regulation of banks
The BSP undertakes regulatory and supervisory functions over the banking system. Accordingly, the BSP oversight of foreign banks is performed in the same manner as for domestic banks.
· The regulatory functions of the BSP cover the issuances of policies, rules and regulations and the establishment of the parameters in the form of legislative and administrative issuances under which bank and quasi-bank operations may be conducted.
· As supervisors of banks, the BSP conducts examination and regular investigation to determine compliance with laws and regulations and whether an institution has safe and sound business practices as well as to assess the general performance and condition of financial institutions. Bank examinations are made with emphasis on asset quality, solvency, liquidity, profitability, governance and risk management.
Developments in the financial services industry have largely influenced the manner in which financial institutions are supervised. The BSP has adopted a consolidated and risk-based approach to bank supervision in an effort to ensure that financial institutions understand and control the types and levels of risks they assume.
· Risk-based supervision is an on-going process whereby the risks of a financial institution are assessed and the appropriate supervisory activity designed and executed in an efficient manner. The assessment of risk incorporates both a current and prospective view of the institution’s risk profile.
· Consolidated supervision is a group-wide approach to supervision whereby all the risks run by a banking group are taken into account, wherever they are booked. Consolidated supervision helps protect the integrity of, and confidence in, the banking group. Its purpose is threefold: o To support the principle that no banking operation, wherever located, should escape supervision altogether; o To prevent double-leveraging of capital; and o To ensure that all the risks incurred by a banking group, no matter where they are booked, are evaluated and controlled on a global basis.
On foreign bank entry
The Monetary Board of the BSP may allow the entry of foreign banks provided that they meet the requirements of R. A. No. 7721 (An Act Liberalizing the Entry and Scope of Operations of Foreign Banks in the Philippines), dated 18 May 1994. R.A. No. 7721 was passed into law to encourage greater foreign participation in the domestic banking system to create a more competitive environment, which could help deepen and improve the financial system as well as bring in new technology and products. According to R.A. No. 7721, foreign banks may be allowed in the Philippines through the following modes of entry:
· by acquiring, purchasing or owning up to sixty percent (60%) of the voting stock of an existing bank; · by investing in up to sixty percent (60%) of the voting stock of a new banking subsidiary incorporated under the laws of the Philippines; or · by establishing branches with full banking authority,
To date, the only form of foreign entry available for foreign investment in the banking sector is through the investment or acquisition of up to 60 percent of the voting stock of an existing domestic bank. However, with regard to the investment of up to 60 percent of the voting stock of a new banking subsidiary, it has to be noted that the three-year moratorium on the establishment of new commercial banks regardless of ownership imposed from 2000-2003 pursuant to the General Banking Law (R.A. 8791 of 2000) has technically expired, but as a matter of policy, continues to be observed. This policy is currently under review in the light of the move towards a financially integrated ASEAN region.
Ø In the years of the IMF’s supervision of the BSP, how often does the IMF propose amendments to the BSP charter in a year? How many were adopted by the BSP? Is it mandatory for the BSP to adopt these amendments? Why?
Ø Does the government intervene with the IMF and the BSP’s relationship? How? Do they have power over the approval of the amendments proposed by the IMF to the BSP charter?
The BSP has never been supervised by the IMF and the IMF does not propose any amendments to the BSP Charter. The BSP proposes amendments to the BSP Charter to strengthen the legal framework of central banking, which would cover the following main objectives, among others: enhancing the financial strength of the BSP through the completion of its capitalization; and strengthening the capability of the BSP to supervise the banking system through appropriate administrative sanctions and corrective actions.
Expansion of BSP’s mandate to cover financial stability. The need for an efficient monetary policy for a stable financial system cannot be overemphasized. The recent financial crisis spawned “financial stability” as the objective for the review of financial architecture.
Oversight over payment systems. The payments and settlements systems are integral parts of the monetary, credit and banking system of a country. The need for oversight over these payment systems will address risks to participants and the possible disruptions in the financial system.
Prior BSP approval for transfers and acquisition of substantial bank shares. Presently, there is no law requiring prior BSP approval for transfers or acquisitions of substantial bank shares. By regulatory issuance, the BSP has required its prior approval for transfers or acquisitions of bank shares involving at least 20 percent ownership or sufficient to elect a board seat. This is insufficient since no legal consequences are provided for non- compliance with the regulation. This enabled unscrupulous parties to perpetrate fraud against banks and the public. This proposal will enable the BSP to evaluate the fitness and integrity of bank owners.
Legal protection for BSP officials and staff. BSP officials and staff are required to exercise extraordinary diligence in the performance of their official functions. This requirement increases legal risks to BSP personnel by the indiscriminate filing of harassment cases with the Office of the Ombudsman. It is proposed therefore to place the required diligence on the same level as that required for other public officers and to provide for legal immunity except for acts done in bad faith, gross misconduct and gross negligence. This will instill confidence and resoluteness among BSP personnel in the discharge of their functions and provide legal protection against baseless and harassment suits.
The BSPenjoys fiscal and administrative autonomyas mandated under R.A. 7653 (The New Central Bank Act).Article I, Section I of the BSP Charter also states that the Philippines shall maintain a central monetary authority that shall function and operate as an independent and accountable body corporate in the discharge of its mandated responsibilities concerning money, banking and credit.
Ø The IMF pushed the adoption of foreign exchange controls and import controls in the past, how did it affect the country today? Does the IMF still push for foreign trade and investments? In what ways?
Ø Do you agree with the IMF’s policies involving foreign exchange and import controls? Why? Do you agree with the IMF-WB that globalization, foreign trade and foreign investments are good for the country? Why?
The Monetary Board of the BSP approved on 28 October 2010 certain amendments to the Manual of Regulations on Foreign Exchange Transactions. These changes are a result of the continuing efforts by the BSP to keep the foreign exchange (FX) regulatory framework responsive to and attuned with current economic conditions and to align it with the policies of neighboring countries in the region to maintain the competitiveness of the Philippines FX regime. The policy amendments, which further liberalized rules governing foreign exchange transactions, consist of the following:
· Increase from the ceiling of US$30,000 to US$60,000, of over-the-counter FX purchases by residents from authorized agent banks (AABs) and AAB foreign exchange corporations (AAB-forex corps) without documentation for non-trade current account purposes. This measure is aimed at further inducing transactions to be coursed through the banking system and away from the unsupervised FX market.
· Increase from the ceiling of US$200 to US$5,000, of the amount that departing non-resident tourists or balikbayans may reconvert at airports or other ports of exit without need for proof of sale of FX for pesos. This will simplify procedures for transactions of tourists and balikbayans, e.g., higher ceiling so that more FX initially brought in can be reconverted without securing BSP approval, and in the process help align Philippine rules with those of other countries.
· Allow residents to purchase FX from AABs/AAB-forex corps from US$100,000 to up to US$1 million, to cover advance payment requirements for import transactions without prior BSP approval subject to standard documentary requirements. Through this measure, more trade transactions are expected to be facilitated, and turn-around time for imports shortened, which would help further stimulate business activities and encourage higher demand for FX.
· Allow prepayment of BSP-registered foreign/foreign currency loans of the private sector to be funded with FX from AABs/AAB-forex corps without prior BSP approval, subject to presentation of supporting documents and certain conditions. As a result, residents will have greater flexibility in managing their FX obligations/exposures and finances.
· Allow registering banks to act on requests by foreign investors for conversion to FX and outward remittance of peso funds not to exceed the FX brought in less the amount used for investments actually made in the country, subject to conditions and documentary requirements. This amendment will help facilitate payments arising from foreign investments.
Increase in the present ceiling of US$30 million to US$60 million per investor per year, of the amount that residents may purchase from authorized agent banks for outward investments and/or investments in government bonds and other Philippine debt papers issued offshore, including peso-denominated instruments to be settled in FX, provided the total FX purchases for any or all of these purposes by any investor in one year does not exceed the prescribed limit. This will be complemented by the following additional measures:
· One, lift the registration requirement for outward investments in excess of the USD60 million limit and replace this with reporting to BSP. Prior approval for investment in excess of the prescribed limit is, however, retained; and
· Two, extend the periods for inward remittance and conversion to pesos/reinvestment of proceeds and related earnings on outward investments of residents from two and seven banking days to 30 banking days from receipt of funds abroad.
These aforementioned measures will provide residents greater flexibility in diversifying and managing their outward investments as well as managing the attendant risks.
In dealing with the surges in capital flows, policymakers need to establish at the onset the sustainability, reversibility and volatility of these flows. The primary objective is to minimize the volatility in the domestic financial market and work towards managing the economy in a way that will encourage long-term capital inflows. The IMF recently proposed a framework for policy advice in managing capital flows. The framework distinguishes between: (a) macroeconomic policy responses; and (b) measures going beyond them to manage capital inflows, or capital flow management measures.
The BSP finds the framework for managing large-scale capital inflows to be broadly acceptable as these recognize the importance of different country circumstances in implementing CFMs. The framework acknowledges the difference between countries with open capital accounts and those that have yet to liberalize. Further, the framework provide guidance to the authorities on which policy mix to employ, based on country-specific circumstances, in containing potentially harmful and prolonged episodes of capital flows. The BSP is of the view that the costs of CFMs should also be considered in managing capital flows since such can adversely affect the pace of capital market development particularly in emerging market economies. In addition, compliance with CFMs is prone to circumvention, which may require additional investments in enforcement or administration on the part of the authorities.
Ø The BSP calls for private firms to invest more given a good business environment. Why is the cooperation of private sector important to the BSP?
The Philippine Government recognizes the essential role of the private sector as the main engine for national growth and development. In this view, pertinent incentives will be provided to stimulate private resources for the purpose of financing the construction, operation and maintenance of infrastructure and development projects normally undertaken by the Government.
To attain the level of economic growth needed to generate productive employment opportunities, the Government will provide an enabling environment for private sector investment and increase the country’s competitiveness through:
· stable macroeconomic environment and sound and consistent public policies; · investments in infrastructure; and · improving governance by reducing the cost of doing business, enforcing the rule of law, ensuring the effective and efficient delivery of public service, and improving the investment programming processes.
The BSP supports the Public-Private Partnership program and will continue to endeavor to promote a macroeconomic environment that would make it gainful for the domestic private sector (on their own or through strategic foreign partnerships) to participate in much-needed domestic infrastructure projects.Related to this, the BSP issued Circular No. 712 in February 2011 amending the Regulations on Single Borrowers’ Limit allowing the increase in the total amount of loans, credit accommodations and guarantees for the purpose of undertaking infrastructure and/or development projects under the PPP program of the government duly certified by the Secretary of Socioeconomic Planning (also Director General of NEDA).
Ø The Philippines debt burden remains, how does the BSP address the problem with the foreign debt?
Outstanding Philippine external debt approved/registered by the BSP stood at US$62.4 billion as of end- September 2011, reflecting an increase of US$1.0 billion (1.6 percent) from the US$61.4 billion level as of end- June 2011. While loan transactions for the quarter resulted in net outflows (as loan repayments exceeded loan availments by US$211 million), external debt grew due to the weakening of the US Dollar (the reporting currency for outstanding debt) against the Japanese Yen, thereby increasing the debt figure in US dollar terms by a net amount of US$735 million. The transfer of Philippine debt papers from resident to non-resident investors amounting to US$504 million further increased the debt level.
External debt refers to all types of borrowings by Philippine residents from non-residents that are approved/registered by the BSP.
Year-on-year, external liabilities grew by US$2.7 billion (or 4.4 percent) since availments were bigger than repayments by US$2.4 billion, and foreign exchange revaluation adjustments were positive at US$1.6 billion attributed mainly to the stronger Japanese Yen vis-à-vis the US Dollar. On the other hand, a US$1.4 billion increase in residents’ holdings of Philippine bonds and notes issued abroad during the last 12 months reduced the debt level accordingly.
External Debt Ratios
Major external debt indicators remained at comfortable levels at the end of the third quarter. Gross international reserves (GIR) of US$75.2 billion as of end-September 2011 represented cover for short-term debt of 10.5 times (under the original maturity concept) and 7.3 times (under the remaining maturity concept), which are both much higher than the international benchmark of 1.0. [Short-term accounts under the remaining maturity concept consist of obligations with original maturities of one (1) year or less, plus amortizations on medium- and long-term accounts falling due within the next 12 months, i.e., from October 2011 to September 2012.]
The external debt ratio or outstanding external debt as a percentage of gross national income (GNI1) improved to 21.6 percent from 23.4 percent a year ago. Using gross domestic product (GDP1) as denominator, the debt ratio likewise reflected an improvement from 31.3 percent in 2010 to 28.4 percent this year.
The external debt service ratio (DSR) or the percentage of total principal and interest payments to exports of goods and receipts from services and income likewise further improved to 8.3 percent2 from 8.8 percent a year ago. The ratio has consistently remained well below the 20 to 25 percent international benchmark range, indicating the sustained improvement in the country’s capacity to service maturing obligations.
Debt Profile
The external debt portfolio remained predominantly medium to long term (MLT) in tenor, with share to total debt at 88.6 percent. [MLT accounts are those with maturities longer than one (1) year.] The larger share of MLT accounts means that loan payments are spread out over a longer period of time, resulting in a more manageable level of payments.
The weighted average maturity for all MLT accounts stood at 22.4 years. Accounts of the public sector had a longer average tenor of 24.2 years, compared to 11.4 years for the private sector.
Short term external debt comprised the 11.4 percent balance of the debt stock; these were largely trade credits and inter-bank borrowings.
Public sector external debt rose to US$47.9 billion (76.7 percent of total) from US$46.9 billion a quarter ago. While net repayments of US$260 million were recorded during the quarter, foreign exchange revaluation adjustments (US$721 million) for non-US Dollar denominated debts and transfers of Philippine debt papers from residents to non-residents (US$501 million) pushed the debt level upward. Private sector external debt amounted to US$14.6 billion, representing 23.3 percent of total debt.
The creditor profile remained essentially unchanged: official creditors (consisting of multilateral institutions and bilateral creditors) continued to have the largest exposures at 43.9 percent of total, followed by foreign holders of bonds and notes, 36.6 percent, and foreign banks and other financial institutions, 13.3 percent. The rest of the creditors (6.2 percent) were mainly foreign suppliers/exporters.
The currency composition of external debt was largely the same, with the bulk denominated in US Dollars (46.5 percent of total) and Japanese Yen (28.6 percent of total). Multi-currency loans from the Asian Development Bank and the World Bank comprised 10.6 percent of total debt, while the rest of the accounts (14.2 percent) were denominated in 18 other currencies.
Debt Management in the Philippines
External debt management aims to keep the external debt stock and the external debt service burden at manageable levels while also influencing the utilization of loan proceeds towards areas that support the country’s development priorities (Gonzales, 2005). In the Philippines, the BSP is solely responsible for managing private sector external debt but shares the responsibility of managing public sector external debt with a number of government agencies and regulatory bodies, primarily the Department of Finance, the Development Budget Coordinating Committee, and the Investment Coordination Committee.
Ø What do you think will happen with the Philippines’ Financial System without the IMF? How will be the relationship of the BSP and the multilateral institution like the IMF in the Philippines would be? Until when will the country need the support of the IMF-WB?
Ø What else can the BSP and the IMF do to improve the financial system of the country? What else can the BSP and the IMF do to ensure the growth of the economy?
The Philippine financial system is dominated by the banking industry. As of June 2011, banks’ total assets accounted for 79.0 percent of total resources of the financial systemand 78.2 percent of the country’s gross domestic product (nominal, annualized). The Philippine banking system stayed in its growth trajectory for the first half of 2011 despite the global economic slowdown and modest domestic expansion during the review period. During the said period, total resources reached Php7,018.0 billion and were 11.5 percent higher than the Php6,295.5 billion recorded a year ago. Loans, financial assets other than loans and equity investments were still the main recipients of growth. Net profit grew by 27.8 percent year-on-year to Php51.9 billion from Php40.6 billion a year ago.
Sustained implementation of key financial sector reforms together with the improving macroeconomic environment augured well for the Philippine financial system.The banking system, as the core of the Philippine financial system and principal source of credit for the economy, reported remarkable performance in its key balance sheet accounts: steady asset expansion, sustained credit growth, growing deposit base, ample liquidity, continuing improvement in overall asset quality and above standard solvency ratios. Other BSP supervised financial institutions similarly exhibited sustained resilience during the year.To remain in tip-top shape and gain further strength within the ASEAN5 moving forward, the system has to maintain the following fitness regimen:
First, regulators have to sharpen their focus on the effective supervision of financial conglomerates as potential stressors of supervisory muscle. The IMF cited the unique construct of the financial system in the conglomerated economy of the Philippines and observed that majority of bank assets were controlled by banks belonging to a conglomerate or a conglomerate itself. Cognizant of this challenge, the inter-agency coordinating body of financial regulators in the Philippines known as Financial Sector Forum (FSF) is bulking up their regulatory muscle for the effective supervision of financial conglomerates and prevent the double- leveraging of capital as seen in many other jurisdictions dealing with financial conglomerates. The initial step toward this end is periodic updating of conglomerate maps and intensified information sharing between the BSP, the Securities and Exchange Commission (SEC) and the Insurance Commission (IC) to appropriately monitor crucial bank and non-bank linkages and mitigate concentration risk in the financial system.
Second, banks need to have a burning desire to ascribe to the highest ideals of corporate governance to promote corporate responsibility and market discipline. For its part, the BSP has been diligently building on its corporate governance regulatory framework to foster a deeper culture of corporate governance among its supervised financial institutions. During the review period, the BSP has redefined "Related Interest" for purposes of DOSRI ceilings to rationalize connected party lending (Circular No. 695 dated 22 October 2010).
Third, there is a need to continually develop market niches and nurture the rural economy to provide flexibility in banks' core earning potential. With the Philippines being an archipelago, the role of the small market players in serving various market niches remains pivotal especially in catering to the unique needs of microfinance clients and beneficiaries of migrant Filipinos (cash transfers of remittances). Toward this end, the BSP provided some guidelines to strengthen the capital position of rural banks by: raising the minimum capital requirement for rural banks (Circular No. 696 dated 29 October 2010), promoting industry consolidation through the Strengthening Program for Rural Banks or SPRB (Circular No. 693 dated 06 August 2010) and implementing Basel 1.51 (Circular No. 688 dated 26 May 2010).
Lastly, access to financial services can be extended to some remote areas of the archipelago through financial inclusion. Efforts to develop a truly inclusive financial system has started to show gainful results with the recent citation from the Economist Intelligence Unit (EIU) ranking the Philippines (together with Cambodia and Pakistan) as the best in the world in terms of providing regulatory framework for microfinance. As of end-year 2010, there were 203 banks engaged in microfinance with a total loan portfolio of P6.9 billion and serving 930,965 micro borrowers. These represent a total savings component of P3.2 billion.
Summing up, the path to sustained health and wellness is a test of discipline, commitment and endurance. The Philippine financial system managed to emerge from the recent global financial crisis of 2008 in great shape. Definitely, it cannot rest on its initial gains and has to remain hard set in the continuing build up of core strength to be in great pink of health for the years to come.
Sources: IMF website BSP website
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Questions Answered by
Mr. Robert B. Quintos, Manager of BSP’s International Operations Department (via Email)
1. The BSP calls for private firms to invest more given a good business environment. Why is the cooperation of private sector important to the BSP?
The role of the private sector is critical in economic development. If you check the national income accounts, the private sector provides most of the output. The role of government is to provide an environment conducive to private sector growth, e.g. low inflation, stable financial system, peace and order, political stability, proper regulation, etc .
2. The Philippines debt burden remains, how does the BSP address the problem with the foreign debt?
External debt management of the BSP aims to keep the external debt stock and external debt service burden at manageable and sustainable levels while also influencing the utilization of loan proceeds towards areas that support the country’s development priorities. To achieve this, we do the following: a) Propose and implement policies, regulations and administrative tools for management of external debt and other FX accounts; b) Evaluate financing terms and conditions and their impact (e.g. on balance of payments, money supply, international reserves, debt ratios) in line with BSP’s mandate to keep outstanding debt at manageable levels and maintain adequate international reserves to meet foreseeable foreign exchange requirements; c) Help channel borrowed funds to priority areas for development; d) Provide advisory assistance to borrowers in obtaining reasonable terms to reduce costs and void bunching of maturities; e) Measure comprehensively, monitor and analyze debt data (stock and flows) and related developments, generate statistics and analytical reports/studies.
3. What else can the BSP and the IMF do to improve the financial system of the country? What else can the BSP and the IMF do to ensure the growth of the economy?
Development of the capital markets, ensuring a stable banking system and promoting microfinance are some of the objectives of the government which will contribute to the development of the financial system of the country. You may wish to check the Philippine Development Plan (financial chapter) on plans, programs and policies of the government to develop the financial system.
Interviewee: Ms. Lani J. Azarcon – Operations Officer, World Bank Mr. Karl Kendrick Chua- Country Economist, World Bank Mr. David Llorito
Date: January 12, 2012 Venue: World Bank Office
Interview:
(What is the basis of the partnership between the World Bank and the BSP? As an international institution, what support does the WB extend to the Central Bank?)
Mr. Chua: Yung first impression ko is the research questions you need to change it a bit because as the presentation showed the main counterpart of the World Bank is the Department of Finance and the IMF because it manages international currency stabilization, the Central Bank. So at first you might want to rethink your research questions. But then the World Bank still has some support indirectly. Because the Central Bank is an autonomous agency, not even congress can dictate on the Central Bank, even who to appoint it has its own independence. But then from time to time as the country economist, I share/ exchange views with the officials of the Central Bank on monetary policies.
(How does the WB perceive the BSP’s current monetary policies?)
So as to your third question BSP has no fiscal policy, that’s the job of DOF, DBM and NEDA. In terms of monetary policy, the key objective of the BSP is to stabilize inflation. Every year they set a target between 3-5% and they use monetary policy, by that we mean adjusting interest rates, bank reserve ratios and other prudential measures to ensure that inflation does not run uncontrollably. In other countries inflation can run from 10,20 to 50 percent, so that would be detrimental to financial stability and the role of the Bank indirectly, we don’t have a direct say on their policy unlike fiscal, we have a more direct say. We propose tax measures, expenditure management advice. We only provide in our quarterly economic update our assessment of the monetary policy and So far BSP in the last decade has been very good in managing the inflation except for the couple of years wherein the drivers, food or oil price is beyond their control.
(Despite the large external debt of the country, why does IMF-WB continue to lend funds to the country?)
Now in your fourth question on the external debt, the definition of large should be quantified. Normally we compare the debt with your country’s ability to generate income. For example US has trillions of dollars in debt that is large for us but may be small for them because they are able to generate enough income. So in terms of external debt, our external debt is down to 40% of GDP compared to almost 80% five or six years ago. In general it has been falling and the main reason is that the country is growing faster than interest rates and interest rates have fallen 6% in general. In terms of IMF we don’t even borrow from IMF anymore, the reason is because our economy is in a state where we have current account surpluses every year because of large remittances so we don’t have any external imbalance. I think we have fully paid our obligations with the IMF five years ago. As for the World Bank you’ll be surprised that only 6% of the total portfolio of the government is from the World Bank and almost 80% comes from bonds issuances. We still lend to the government but our lending is more focused on the areas of development priorities. For example health, education, infrastructure. Let me just finish by saying that we don’t do Structural Adjustment Loans anymore since the early 2000 we call it the development policy loan. The main difference is in the past we tell the government you do this and that and then we give you the money or the conditions. The main difference now is that the government comes to us and say we want to do this reform, could you help us achieve this reform by providing us financial assistance, so that the general picture. Its more client-owner. The ownership now is with the client.
Interviewer: Sir no conditionalities?
Mr. Chua: You know the term conditionalities, of course there are but we call it triggers now. Instead of saying you have to do this we now say that if you do this subject to what we have agreed upon we will provide you a development policy lending.
Ms. Azarcon: In the 90s the Philippines was in the far worst situation we had that time both current account deficit and fiscal account deficit which means that the government is not collecting enough revenues to pay for its expenses. It was not also earning enough dollars to cover the dollar account obligations so we have the current account deficit. At that point in 1984-85 the Philippines wouldn’t borrow from anyone else except the IMF because our economy is in such terrible shape. Then eventually the World Bank was able to lend to the Philippine government for structural adjustment operations as well as investments. Structural adjustment meaning the government commits to certain set of policy reforms in exchange for dollar loans to allow the government to pay for dollar obligations, to pay for imports and to pay for debt obligations and also to cover short falls and laps collections to pay for public spending. That was in the 90’s that was a different regime all together. That’s when IMF-WB was the chant of the streets. But having been there during the time the Philippines actually didn’t have much of a choice coz we couldn’t borrow from anyone else. Commercial banks were not lending to the Philippines and those reforms need to happen anyway because like after Marcos years, a lot of economic policies really did start to favor certain interest. Fast forward to the 21st century, the World Bank has changed the instrument its now called development policy lending and in fact it is based a program of reforms that the government would like to pursue and then the World Bank provides the financing. Just to give you an example, the likes of Vietnam, they’ve been borrowing from the World Bank using this instrument for many years and they receive development policy lending support from the World Bank for favorable policy reforms. For reform oriented governments it is a very good source of financing to support. And the nice thing about development policy loans is they are not, just to contrast to investment loans which the World Bank also provides, the Philippines for instance borrows from the World Bank to build roads we have national road improvement project, we have projects in irrigation, and we have projects for land reform. Those were for specific expenditures related to projects. In contrast development policy lending is meant to support policy reforms and as long as the policy reforms has been achieved and triggers have been met and the World Bank in a way check the Philippine government and the Philippine government can use it to support its own development priorities under the Philippine development plan.
Interviewer: Ma’am is there agencies or institution that reviews the policy reforms?
Ms. Azarcon: Within the government? There’s no single agency, so it’s DOF, NEDA and DBM working together providing oversight over the Philippine economy, so if you notice it doesn’t include the BSP that’s why we wanted to clarify our research questions because our main counterparts do not include the BSP. The BSP gets involved in World Bank operations only to the extent the monetary authority gives approval for the foreign currency obligations of the Philippine government because the look out of the Banko Sentral is to manage the stability of the currency and the supply of dollars, to manage the exchange rate. So it’s a very indirect relationship with the BSP and its more direct with the Department of Finance, budget and the NEDA because they plan out the budget, the five year plan of the Philippine government as well as how it will be financed whether it will be financed through taxes, commercial borrowings, treasury bills or from borrowing from other governments including China, Japan and international organizations such as the World Bank and the ADB.
Interviewer: Bakit po sinusupport or ineencourage ng World Bank ang foreign investment sa Philippines?
Mr. Chua: The word promote is not accurate one but let me start by saying that the World Bank is not only a financial bank, it is also a knowledge bank meaning because of our experience with 180 countries we have a collection of good practices that works in some countries that could work with the Philippines and most of them are embedded in foreign investments. For example although the World Bank does not support this, if Toyota doesn’t come here and put up a factory then we lose a lot of intellectual and knowledge based information on how to build cars for example or how to maintain cars so in the same way we think that there are a lot of good that comes with foreign investments especially for a country that is not able to create jobs faster than its producing people.
Ms. Azarcon: The other reason why foreign investments are not such a bad thing is that if you consider. If you’re a company or the government how will you finance, you want to build a project, you want to build 1000 schools in the country how will you finance that, what are the sources of revenue of the government? Taxes, fees. that’s all diba? If it cannot raise enough taxes and fees it has to borrow overseas or borrow from domestic sources including treasury bills so that’s the government. If you’re a private company what are your choices? You borrow from a commercial bank, you raise your own capital, you go to your shareholders you ask them to contribute cash or you invite other investors and as Karl Points out these investors could bring financing or they could also bring technology for instance the Light Rail Transit, before they were built I don’t think there’s any Philippine company that can build and run a light rail company by themselves. We need the expertise that comes with. If you’re an expert or a company that runs a light rail operations in Hong Kong, Tokyo why will you just teach the Philippines, you’re not a bank so you will not really lend to the Philippines or the company that want to run light rail transit in the Philippines you want to put in money. An investment involves putting in money and technology in exchange for a share in profits a s suppose to a loan, If you’re a lender, I am a commercial bank, I lend to Ayala corporation for instance, I’ll give you money we sign a loan agreement in exchange for 10% interest. If I am an investor and put in money for this project in exchange whatever the profits are I get a share. So if it’s a hell of a lot of profits I am better of as an investor rather than a bank. And if you’re not a bank you’re not set up to lend money you’re more set up to provide investments. So it’s not such a bad thing. I guess the World Bank to the extent that it will help the Philippines achieve its development objectives would not be opposed to foreign investments but to say that we promote it I think it’s not accurate because it’s not us who is selling the Philippines, it’s the Philippine government that’s selling the Philippines to lenders, investors whatever source of financing, resources and technology they want to avail.
Interviewer: Does World Bank lends money to commercial banks or other private institutions?
Mr. Chua: IBRD, the World Bank known as the IBRD lends just to the government then there is the World Bank IFC, a group companies that lends to private sectors.
Interviewer: Ano pong mas malaking niloloan yung sa private po or sa public?
Ms. Azarcon: I guess it wouldn’t be comparable because if it’s the private sector it depends on how much they earn, it’s a company so they determine how much they want to borrow. Whereas for the World Bank, the IFC provides support not just through lending, they could be investors , so it can be equity or loans.
Mr. Llorito: Although we have lending to DBP
Ms. Azarcon: But it’s not a private bank it’s a government bank
Interviewer: Sa development projects naman po , Kapag may ongoing development projects po, do you lend pos a panibago pong project kahit po may ongoing?
Ms. Azarcon: Yes, infact theres such a thing called Additional financing for projects that are going well. The World Bank will provide additional financing.
Interviewer: Pano po yung mga failed na projects? Pano po ninyo nasusupervise?
Ms. Azarcon: The government asks the World Bank to finance development projects, we review it and we take it to our board. The Philippine government also does its own reviews and the NEDA, DBM and the DOF review their projects technical terms appraise their projects before they give it to the WB. So once the WB board approves or disapproves the project we sign a loan agreement and the Philippine government implements the project and the World Bank as lender provides support during implementation. During the implementation the World Bank team and the government go to the project sites and review performance every year at least once a year. At the end of the project we prepare what is called an implementation completion report to assess the success of the projects in achieving its objectives. Then within the world bank there’s an independent evaluation group that does separate assessment of the performance of the projects. There is a very systematic and rigorous monitoring and assessment of projects.
Interviewer: Does the BSP serves as an intermediary, kunwari may loan po na igragrant ang World Bank. Dumadaan po ba yung loans sa BSP bago po sa government agencies na nagloan?
Ms. Azarcon: The dollars? Yes because that’s how the Philippine monetary system is set up everything goes to the Central Bank.
Interviewer: Pero wala po silang say dun sa loans or dun pos a projects?
Mr. Chua: In terms of the project design their main concern is how to manage the currency and the supply of dollars so pag tapos na yung project design, inapprove na ng department of finance they will seek permission from the monetary board, normally may usapan yan na pwede then pagdating ng pera dumadaan yan sa Central Bank. The treasury as an account in the Central Bank. Hindi siya minimix sa central banks. Conduit siya.
Interviewer: Aware po ba kayo sa criticisims sa World Bank? What is your stand on the following criticisms concerning the World Bank’s existence in the Philippines?
There have been criticisms that the World Bank, together with the IMF, uses loans to gain control over the country’s financial system and that such policies imposed serve the interest of the institution. For instance, in the case of the Philippines, WB programs were criticized as serving only the interests of transnational corporations.
Ms Azarcon: Maybe we’ll take this in segments. For one there’s no way we can gain control on the country’s financial system when we only provide only 6% of the total borrowing requirements of the Philippine government. It overestimates the influence of the World Bank on the financial system. And then, policies imposed, kasi yun nga eh we are a bank, it doesn’t help us, in the extreme cases when there are policies that keep countries poor it doesn’t help the World Bank in any way if that was the case, In the first place we are not in any position to have the influence over the country’s financial system and second of all it’s not in any of our interest to have policies that will work against the interest of countries. On the contrary since we’re owned by these member countries we are under pressure of our own board to show that we are helping rather than hurting these developing countries that borrow from the World Bank. In the case of the Philippines, I think what happened here is yung parang the link between the World Bank and transnational corporations has no basis eh because the World Bank provides financing so I’m trying to see the chain that they are advocating.
Mr. Llorito: And in fact the transnational corporations, if you look at the statistics all over Asia and all over the world, Foreign Direct Investments percentage of GDP is very very small. Mas mataas sa China , Vietnam, Thailand. Sa atin very minute lang ang contribution ng TNCs.
Interviewer: I think po nagstart po nagsimula po yun nung dumating po yung IMF-WB dito yung ngopen po ng policies na nagsasabing inaallow nap o yung entry ng foreign banks sa bansa. So parang nililink po siguro yung sa IMF-WB na dahil sa policies po nila naopen po yung economy and more foreign investors.
Ms. Azarcon: I guess yun, meron kasing segment na even in the academic community they do not think kindly towards foreign investments, which ako yung feeling ko that’s possible if the Philippine government had other resources., financial resources to finance its needs. For instance if Filipinos were taxed enough and saved enough we don’t have to rely on foreign lenders, foreign investors and international financial institutions including the World Bank then maybe but there is no country that succeeded in doing that, yung autarky, model where you don’t rely on any other country. In autarky you don’t trade with anyone else in financing you don’t borrow from anyone else, okay fine if you think its possible pero unfortunately the Philippines has constraints in resources in finances. We have to mobilize resources from others and technical expertise in innovation. But I don’t know, ako yun yung interpretation ko. There was a time when China was like that but even China abandoned that thinking and in fact China is so aggressive in seeking foreign investments and is now investing in other countries and providing their own resources as lenders and as investors to other developing countries like Africa and the Philippines.
Mr. Llorito: Well yung mga sinasabi mong nagiimpose ng mga policies, one good example of that is our national roads improvement projects, there are requirements of the government has to observe in borrowing money. One is it should be transparent, that there should be civil society groups monitoring the implementation, corruption free things like that. There are really strong requirements. Parang banko may sinasabi siya, pero sa World Bank you allow NGOs to observe the bidding process, merong third party monitoring, dapat maayos, malinis.
Ms. Azarcon: I guess isa pang misunderstanding that needs to be corrected is that yun nga the World Bank is owned by member governments so to say that it serves the interest of transnational corporations or private companies is a disconnect because an institution that is owned by the government serve transnational corporations or private companies, it doesn’t connect.
Mr. Chua: Let me just summarize and give you a thought, the World Bank has evolved significantly from 50’s to the 60’s yung main job ng World Bank was to reconstruct Europe. Ang ginagawa lang niya is to provide lending for roads in the 70s it decided to think na hindi lang roads ang problema pati education and health, In the 80’s the bank decided na kulang pa yan, we should provide assistance to help improve policies so pumasok yung structural adjustments because we need good policies, good institutions. In the 90s pumasok yung institution na policies are shaped by institutions to help strengthen institutions and right now we are at that stage. I think ang pinakaimportant is that any policy or decision one make there is a trade off, there’s always be loosers and winners so you can always be criticized for raising taxes because you hurt some people but more people gain, the key is how do you balance and compensate the losers. I think the main criticism here is why does the World Bank pushing for the term called Globalization. The main reason is for most countries it has proven to be an effective tool in growing faster and reduce poverty but admittedly there are a lot of losers along the way and the gainers were far more than the losers. So the policies of the country, like China, how do you compensate because there are so many people gaining from Globalization, how will you compensate the losers. There will always be that kind of criticism the most important thing is how does a country,with assistance or without assistance from the World Bank manages. For example BPOs come into the country. Do you know why BPOs come into the country and 500,000 people have jobs? Because in 1995 Ramos chose to break the PLDT monopoly and because nabroke yung monopoly na yun nabreak at nakapasok yung sangkatutak na telephone companies at internet providers. For example the main reason why tourism has increased by 100 times is because Ramos also made the decision to break the PAL monopoly, so may losers at may winners talaga. I think the criticism must be put in that context, How do you minimize that kasi may losers parati. World Bank is in a position to advice government.
Ms. Azarcon: Moving forward, In a time when World Bank supplies only 6% of the financing needs of the Philippine government, guess who needs to take ownership of the policy decision making? The government. It’s so convenient to blame it to the World Bank and the dictates of the conditions if its imposed by international organizations. If we were in the 80’s maybe because the Filipinos have no choice, we have no dollars we have no pesos so we had no choice except to go with the reforms that were proposed by lenders but now Philippine government is far more has moved on and in ar better control of its finances and because of that they must take more responsibility in the policy decisions that it makes, its no longer credible to blame it on TNCs, we have only very small foreign investments, you cannot blame the International Financial Institutions, Philippine government has no loans on the IMF and has only 6% of the World Bank of its financing requirements. There’s no one else to take responsibility but the government. Civil Society including academe would have a role because you can just ask DOF, DBM, NEDA, the environment is open to engage to Civil Society.
Interviewer: To end na lang po, Hanggang kalian po yung existence and support ng World Bank sa Philippines?
Ms. Azarcon: For as long as kailangan tayo, There have been countries that graduated from the World Bank borrowing and have become contributors nalang they don’t borrow anymore like Thailand, Malaysia. So it can happen but it means that the government would have raised enough resources for its own financing needs. But in fact the other countries like the Middle East they still go to the World Bank for technical advice and pay for it. So just to let you know that it really depends because these countries own the World Bank, by being member of the World Bank its an option that’s open to all member countries. If the Philippine government decides that we no longer borrow from the World Bank, the World Bank can allocate resources to other countries like Africa.
Interviewee:
Eduardo Marino International Finance Group Department of Finance
Date: February 2, 2012
Excerpts from the Interview:
1. The World Bank became a very important institution in the Philippines, What is the DOF’s relationship with the World Bank? How does the World Bank influence the DOF?
The DOF became the WB’s main counterpart here in the Philippines. When it comes to negotiating loans kami yung kanilang palaging kaharap and sometimes pag sa mga technical assistance mga grants libre lang naman they always have to inform us if they are doing something. World Bank influences the department of finance through capacity building. Usually what WB does is that they offer seminars, workshops and through doon may some kind of knowledge transfer occurs. You can say that’s one way that they can influence us. The way they think they share that to us. We agree with it.
Regarding po sa loans dumadaan po bas a Central bank?
Yes, dumadaan sa Central Bank it’s because yung pagpasok ng loans may monetary impact. If there is a new loan example $500, 000 the moment na pumasok yun sa Pilipinas tataas yung money supply natin by $500, 000 unless the Central Bank does something. That’s one reason why we need to get their approval. The other is that sa constitution natin ang nakalagay na monetary board, the financial adviser ng Government and saan ba nakahouse yung monetary policies, sa Central Bank. Yung loans naming have monetary impacts.
2. How important is the World Bank’s continuous support in the country? How important are the development projects brought by the World Bank?
The projects themselves are consistent sa priorities ng government. Its fit to say that it is important for the country. For the government it is very important because they support our priority projects. Their continuous support is important because they provide us with very cheap loans, knowledge transfer, technical assistance, grants, capacity building, it helps yung government to be more efficient and in doing its job.
3. In your opinion, do the country assistance strategies of the World Bank been effective? In what ways? Do you agree with the strategies of the World Bank?
Is the CAS of the WB effective?
The Country assistance strategy of the World Bank is developed with the consultation with the government. If I tell you na ineffective yan its basically saying na ang strategy naming ay ineffective din yung strategy namin. We believe that what we are doing is effective.
Do the World Bank Dictates policies?
The WB does not dictate policies. They cannot do that. Hindi namin sila papansinin kapag ginawa nila yun. They advice, sasabihin nila na this is what other countries are doing and yung international best practice. If the agency thinks na maganda yung suggestions then it is adopted. 4. Despite the large external debt of the country, why do we still borrow from multilateral institutions like the World Bank? Mura yung utang nila eh. For us it is one of the most important reasons. Yung mga utang na yan may mga technical assistance na na kasama and those technical assistance are free. They help improve the capacity of the government without budgetary allocations and additional resources generated by the government.
On the criticism that the World Bank gains thru loans:
Isipin mo ito pag umutang tayo sa merkado ng 25 years ang ibibigay sa atin niyan ay 5%. Ang WB ang binibigay sa atin ay same maturity LIPOR (.77) +.49. It comes around mga 1.1-1.2 so if you compare 1.1 to 5% napakamura ng WB loans. Now, kumikita ba si WB sa atin? I’d say yes or atleast break even sila sa atin. Kung anong ibigay sa kanila ng merkado ipinapasa lang naman nila sa atin. May kaunting spread para sa admin costs, operational costs pero I would not think na substantial yun. I guess personally kung kumikita sila or not is irrelevant ang mahalaga is kung yung binibigay ba nila sa atin ay the best deal that we can get. If kumita sila win win for all parties.
TNCs gain through development policies and projects of the World Bank
Pag projects kailangan mo ng equipment, contractors, suppliers. Generally si World Bank may astringent when it comes to procurement. To the extent na nagbebenefit ang private companies it has to be because we are purchasing their services. Kung walang project walang kailangang gastusan walang private company ang kikita. For policies that helps TNCs kasi ang trust ng WB is generally ang policy advice niyan liberalized, yung market oriented reforms ang sinusuggest. But before we implement reforms we agree if it is good for us. Andiyan man ang WB o wala we are to pursue these reforms. Sinusuportahan ng WB ang efforts natin ng reforms through loans and technical assistance. In that sense yes yung TNCs will benefit because the WB supports the government’s drive to more open markets, efficient tax collection.
5. Does the Development Policy Loans of the World Bank effective? In what ways?
These Development policy loans are budgetary support so wala yang pinopondohang specific na project. It will fund any item na nasa budget. To ask whether its effective or not is asking whether the government is effective or not. Kasi kung nasa budget yan ginagawa lang naman ng World Bank ay yung loans at kung paano gastusin government na yung may responsibility.
6. World Bank loans have been known to contain conditionalities. In the case of the Philippines, in what ways do you think have these attached conditions been positive to the country’s development? Are there any negative implications brought by these conditionalities?
Hindi ko kasi alam yung stand ng government but from my point of view, may mga nababasa kasi ako na studies na its useless. yung mga reforms na yun ay hindi naman natin gagawin unless na we wanted to do it ourselves so nangyari lng tuloy yung the fact that nagimpose sila ng conditionalities ay naging simple PR disaster because the government found somebody to blame dun sa mga reforms na gagawin naman talaga nila na they themselves feel necessary.
7. Does the DOF propose projects or loans to be funded by the World Bank? What process does these projects or loans undergo before they are approved?
We don’t. The WB working closely with the government implementing agencies like the DPWH, DOE. What happens is that siyempre may close coordination sila they already know kung anong gagawin ng mga agencies na yon. They create this kind of loan package at sasabihin na itong loan na ito susuportahan yung initiative na ito tapos ipropropose nila yun sa agency in question. The agency accepts that and they have to go through the process (See Table: The Process of NG Loans). DOF try to secure all the necessary approval from the DBM, BSP, OP and DOJ. (Project Loans)
(Program Loans)Development Policies are program loans. Yung pinagkaiba nila yung Project loans is going to fund a new project so you can point to a project na popondohan specifically. Program loans are for budget support. It will not go to specific agency it’s going to support/fund the budget. Yung NEDA approval yung ICC, it only applies to project loans. Sa Program loans wala namang project na ipapaapprove.
8. Do you agree with the World Bank’s support on Globalization and foreign investments? Why? Do you help the World Bank in encouraging foreign trade and foreign investments? In what ways? Of course. If you’re asking for the government’s position makikita mo naman yan sa PDP, it’s all there. I don’t know kung may specific about globalization. I know that the government is keen in attracting foreign investments so I guess that’s a yes. For globalization its good for the simple fact na you give people more choices. The aspect I am thinking about is free trade. If youre the consumer you are given more choices either dun sa more efficient na foreign ano, magimport ka because it’s cheaper and mas maganda yung quality or you have the choice to buy imports or you can buy locally. The free trade having that is a plus already that you should support. I guess yung bias ko is that if you want to pertain yung freedom ng tao you better give a good justification of it.
9. As a government institution do you intervene with the policies/ amendments by the IMF that are being adopted by the BSP?
We don’t. Sila yung nagiintervene sa amin (BSP)
10. What is your stand on the following criticisms concerning the World Bank’s existence in the Philippines? a. There have been criticisms that the World Bank uses their development projects as part of the developed countries’ strategy to gain more control and profits in the country. The criticism is the supposed intention. Do I think na may ganoong intention ang World Bank from the people I’ve met sakanila? I don’t think so. Those people are generally professional. They are very much interested in supporting the development of Philippine Economy. I haven’t gotten an indication na may hidden agenda sila or something like that. Sige sabihin nating meron its really irrelevant for us because the point is merong road na nabuild from World Bank funding. Kung wala yan the bridge itself is something that we want to do. So kung hindi yan pinondohan ng WB the bridge will not exist and the benefits niyan ay wala so kung ano man ang intention ng WB its irrelevant for as long as yung result is something that we want.
b. The government is dependent on the support of multilateral institutions like the World Bank.
Can we survive without World Bank? Yes we can, we don’t need them actually. Kung umalis si WB sa atin they stop lending us they stop supporting our projects guguho ba ang Pilipinas that’s extremely doubtful. We’re talking about loans; actually we borrow more from the market than the World Bank. We are not that reliant. We want to use more of their facility because cheap yung loan but other than that we don’t need them in a sense that we will not avail of their loans. Worst comes to worst kapag umalis sila I think kakayanin natin. It is easier with the support of the World Bank.
11. How do you think the relationship with the World Bank and the Department of Finance can be improved? Until when will the country need the cooperation and support of the World Bank?
I think maintain constant dialogue between the two agencies. Maging forthright yung each other kung ano yung kailangan nila kung ano yung constraints so that halimbawa si WB marami yang prinoprosoe sa DOF na instruments para maimprove yung debt position natin, the thing is some of those suggestions/ instruments mahihirapang gawin ng department because of legal restrictions so I guess we need to clear to them yung limitations natin at ng DOF kung ano yung kayang gawin from there atleast yung WB madali ibigay yung suggestions kung ano yung feasible na kailangan ng government.
Last points:
World Bank and IMF cannot dictate anything. Walang policy dito na si WB lang or si IMF lang ang may gusto at ayaw ng gobyerno. It doesn’t happen now a days. Kunwari yung inflation targeting, that is not something dictated by IMF that is policy well accepted by the BSP, ng monetary board. There is a high level acceptance of that policy at I guess pati yung mga staff, they believe that yun yung policy to follow. Generally pag may nagsasabing dinidiktahan tayo ng World Bank na they have power over us don’t believe that. WB and BSP halos walang connection.
Interviewee:
Cong. Walden Bello Professor of sociology and public administration at the University of the Philippines Senior analyst at Philippine think-tank Focus on the Global South AKBAYAN representative, 15th Philippine Congress.
Date: February 1, 2012
Excerpts from the Interview:
1. The country’s financial system was under the supervision of the IMF-World Bank through the Central Bank. What is the implication of the relationship of the Central Bank with the IMF and also with the World Bank?
I think the very close relationship of the Central Bank with the IMF-WB is that it has definitely shaped the Philippine monetary policies. The driving doctrine of the Fund and the Bank ever since the 1980s was strict monetarism and neoliberalism. We had monetary policies that address price stability at the expense of growth and development. The Central Bank has always been suspicious in monetary expansion policies. It has been shown that in development you need to have flexible monetary policies and this lack of flexibility has been the major cause of the Philippines not being able to go into high speed growth.
2. The World Bank aims to alleviate poverty and address underdevelopment in the Philippines. Is the World Bank successful in their goals? Are their development strategies effective and good for the country?
No, I think that in our book development debacle in 1982 we pretty much showed the engagement of the World Bank with the Philippines under the Marcos government because Marcos is an important client of the World Bank which was justifies in bringing development from above and fostered dictatorship in the Philippines. Basically the process of incurring development that was pushed under McNamara (former president of the World Bank) is something that is detrimental to national interest. In 1986 the World Bank, aside from provisional project loans it then went into program lending, the structural adjustment policies. This was an anti-development policy synthesized in opening up the Philippine economy. Liberalization Deregulation and Privatization created consequences that compromised the Philippines position. The policies of the bank and the IMF since the 1980s have been heavily guided by what they perceive of the Philippines’ obligation to its creditors. The macroeconomic strategies have been mainly concerned with the Philippines’ having able to pay off its debt. They were able to institutionalize by legislation what was basically a policy of making sure that the Philippines would procreate every year that the government would pay the international institutions what was due to them in terms of interest and principle payments each year. Since the late 80s the Philippines has been paying 30-35% of its budget to the payments of its loans. This is a big drag, tremendous resources is taken away from infrastructure and developmental activities.
3. World Bank loans have been known to contain conditionalities. In the case of the Philippines, in what ways do you think have these attached conditions been positive to the country’s development? Are there any negative implications brought by these conditionalities?
These conditionalities have always been towards the liberalization of the economy, towards eliminating conditions that promote indigenous domestic enterprises it’s been here to open up the economy bringing down tariffs and trade as well as eliminating quotas. This liberalization had so many negative implications. The Philippines because of these conditions of trade liberalization that were both part of conditionality and structural adjustment loans as well as promoted by the WTO converted the Philippines from a net agricultural exporting country to a net agricultural importing country since 1995. Because of the unrestricted flow of imports in to the economy we have our manufacturing industry decimated and our agriculture dislocated.
4. The World Bank encourages foreign trade and foreign investment. Is it good for the country? In what ways?
Foreign trade and foreign investments is not bad. Foreign investment is oftentimes an interfactor for development. However what happened is that the World Bank and the IMF rather than developing the domestic market they have promoted and geared the industries and agriculture to serve export markets. These export markets became the center of the economy rather that the domestic markets. That’s the negative implications of these. As for foreign investments the problem with the World Bank approach is that it sees foreign investments as the strategic factor in development rather than a complementary factor. We had the creation of backward economic policies that have been built with these assumptions towards foreign investments. It is only a supplement.
5. Liberalization in banking paved the way for the entry of foreign banks, Is the entry of foreign banks good for the country?
What we had is a process of gradual liberalization of the domestic financial industry without the safeguards that would be important to make sure that credit is mainly geared to the development of the national economy. The question is whether or not foreign banks should be allowed to operate on the country but the question is really that do their operations promote the development of the economy and if you are going to allow them to enter what regulations should we impose on them.
6. What is your stand on the following: a. Multinational firms were viewed as necessary by the government as a result they are exempted on import and exchange control by the Central bank. Is this good for the country? How does this affect domestic firms?
I think that there are so many macroeconomic policies that are based on the assumption that transnational corporations are a central force in the development. I think the problem here is that they have been favored at the expense of domestic firms. And what we have is the process where domestic firms oftentimes incapacitated of the many benefits that have been legislated for the international firms that have negatively affected by these policies.
b. World Bank is an instrument for the promotion of US or Western interests in certain regions of the world.
I think that the Bank are key parts of the system of global economic governance to promote western capital specifically US capital They have been biased in the adoption of strategies that would increase the Western economic and capital penetration to other countries. They have been hostile towards imports substitution and industrialization. There are countries who are successful in development that departed from World Bank and IMF prescriptions.
7. Without the assistance from the World Bank and the IMF, what do you think will be the condition of the country?
Well I think the country will be much better off. We will have developed the domestic markets and we will have greater equity. We would be less integrated into the global capitalist economy.
8. In your own opinion, what development model or strategy will be appropriate for the country?
I think we should have a development strategy that would emphasize the domestic market and promote a vibrant domestic market. The old developmental strategy is no longer proficient. We should have more strategies that is more environmentally sensitive at this point. We must not leave the strategies to the market, increase the participation of the civil society. We should have strategies that moves away from the dynamics of globalization, much more local and region oriented. 9. What are your recommendations for the Philippines’ financial system and the existence of multilateral institutions? What reforms should be made in order to ensure growth and development in the country?
The monetary policies of this country must not be so strict and that it must be much more encouraging of growth that means that we should be able to use the monetary system, the money in a more innovative way of growth and not be always too concerned with inflation.
We should not cut off our relationship with multilateral institutions. We should gain more sovereignty and independence in respect to them. If they make good recommendations why not follow it. If they make bad recommendations we should tell it to their face that we don’t want their recommendations. We should not lead the fate of the country to market forces.
10. In your perspective, what will be the relationship of the Central Bank, the IMF and the World Bank in the future? Until when will the country turn to multilateral institutions for help?
The IMF and the WB will continue if there is no change in the system. What we really need is a more independent monetary policy that is much more innovative in able to promote development. The problem with the Philippines is not inflation, which is the central worry of the IMF and the Central Bank. Fiscal and monetary policies should be servants of growth and development.
We should be more critical in our relationship with multilateral institutions and to be more selective in respect of their advices. The main thing is we should be more critical we should be more selective to track out an independent course. If there are positive lessons that they offer us lets adopt them but we should have the courage to tell them that we are not going to take their advice. I guess my position would be a pragmatic developmentalist for more strategic growth that strengthens and deepens the economy that promotes diversity, that promotes growth in an environmentally sensitive way.
Interviewee:
Sonny Africa Research Head IBON Foundation Inc.
Date: February 4, 2012
Excerpts from the Interview:
1. What can you say about the relationship of the WB and the Central Bank?
Marami dun sa framework sa pagcriticize sa IMF-WB noon actually hindi na applicable ngayon. Isang major shift para sa amin kung noong 1980’s isang critical point of leverage ang BOP support of IMF, for the financial system. Catastrophic yan eh kapag wala kang foreign exchange.Kaso Nagexit na sa tayo sa IMF diba. Yung ganoong klase ng direct leverage wala na. Kaakibat din nun, yung mga financial point of leverage ng World Bank yung sobrang laking structural adjustment loans nila. Meron parin ngayon pero hindi na siya kasing potent ng dati. Wala namang official stand by programs or fund facilities ngayon pero ang major difference ngayon yung foreign exchange means ng Philippines na dominated ng remittances tingin naming ang combined effect nun yung direct leverage ng IMF-WB ng policies using dangling the dollars ay nadissipate ngayong 2012 compared to 1980s and 90s dahil nagexit na tayo sa IMF. May significant foreign exchange buffer na tayo ngayon na wala dati so isang external circumstance yan. Tingin naming also relevant yung internal circumstance. Decades nadin more or less diba. Kung dati may trend talaga sa towards nationalists developmental activist state policies, aggressively binabago yan ng IMF-WB, mas less na yungkailangan nilang baguhin ngayon. Marami sa gusto nilang magawa dati ay nagawa na nila ngayon. Nawala na yung overbearing influence ngaun kasi intellectually debilitated na yung phil. government and yung thingking ng mga Philippine economists. Disarmed na sila. Nagbuy-in na sila sa whole neoliberal drama na yan. And in a lot of ways habang finoforce yung policies sa Philippine government tapos kunwari magreklamo sila kung anong gagawin ni Marcos, ni Cory, si Ramos kung anong gagawin nagcombine na intellectually siniraan ng Neoliberal Globalization yung activist economics. Yung technocratic form mo nainternalize na nila yan.
Madami kasi nagtatanong sa amin relevant pa bang ireklamo ang IMF-WB? Siyempre relevant pa yan kailangan nga lang ilagay sa specific historical context na may certain external and internal conditions ngayon na wala na noon.
2. The World Bank aims to alleviate poverty and address underdevelopment in the Philippines. Is the World Bank successful in their goals? Are their development strategies effective and good for the country?
Yung Pilipinas among other countries in Southeast Asia, East Asia ang may pinakabest na track record in implementing IMF and WB policies since the 1960s thru the 70s and 1990s and the present kung ihahanay mo yung Philippine Economic policies sinusundan talaga niya yung gusto ng IMF and WB compared to Indonesia, Malaysia, Thailand, Vietnam and other Southeast Asian countries. Ang sound bite diyan, for a country na pinatupad more than other countries actually napaka laggard natin sa region in terms of supposed development outcomes, whether industrialization, or yung development ng agriculture, poverty and unemployment. Tingin naming the results speak for themselves. Yung napaka poor development outcome ng Philippines ngayon compared to the other countries region and yung potential niya ngayon, ay because pinakaeager siya na ipatupad ang IMF-policies. Ang Philippines ang my pinakamababang tarrif sa region next to Singapore. In terms of Investment policies bagamat may cha cha proponents na napakaprotectionist natin, hindi yun totoo. As a whole at par yung foreign investment regime natin sa Southeast Asian countries.
3. What can you say about the development programs and loan grants by the World Bank in the Philippines? Does it benefit the country?
Yung World Bank may mga flavor of the decade yan eh ngayon inclusive growth and good governance yung drama nila. Tingin namin dun whatever yung naging pagbabago sa rhetoric yung substance niya hindi nagbago. Yung core Philosophy talaga ng neoliberals ay free market. Given yung frame nilang good governance na hindi understood as good governance kundi governance na magbibigay daan sa pagestablish ng capitalist free market system. Ang overall frame diyan walang nagbago talaga. Hanggang sa kasalukuyan ang IMF-WB ay neolib talaga , free market economics. Its always in the frame of sugarcoating and facilitating the core of the neolib…
Recently ang IMF-WB ay nagaattempt ng discussions for a new kind of international financial order.Siyempre nagride sila sa reaction ng tao na yung unregulated financial markets ay isang cause ng problem pero you notice them lahat ng proposal nila, international or local, nasa balangkas parin na magcreate tayo ng stable conditions for the free market to prosper and more stable more regulated financial system pero wala silang binago in terms of letting the market decide where capital should go para hindi madiskaril yung investment planning. Wala silang pinakaqualitative change sana na actively using the capital and finance for a developmental oriented government na subverting the market.
4. World Bank loans have been known to contain conditionalities. In the case of the Philippines, in what ways do you think have these attached conditions been positive to the country’s development? Are there any negative implications brought by these conditionalities? Is the government selective in adopting the advice of the WB?
Syempre on a loan to loan basis,pwede sasabihin ng Phil. government hindi naman ipinatupad lahat pero yung over all accumulation ng conditions ng loans ay nangyari. Ang amgandang balikan diyan yung wave of trade liberalization, investment liberalization, privatization since the late 80s to 90s. Lahat ng naging measures ng supposedly creating ng more developmental economies ng free market based structures may mga sangkap niyan dun sa World Bank loans eh...
Magaling yung World Bank eh, una amgpapaconference muna tapos magpapadala ng mga technical consultants so unti unti magdedevelop siya ng following dun sa Philippine government. Nung 1990s nagilang conference sila. Yung mga reforms matratrace mos a specific World Bank loans. Yung conditionalities 1980s 1990s peak talaga yan. Within the government and technocrats totoong naging redundant na yung conditionalities dahil nainternalize na. Kung 1980s and 90s ileleverage mo yang may konting resistance pa and then 200s and 2010,pinapangunahan pa ng Philippine government kasi nga solve na sila sa framework na yon. Yung mga realities ng mga conditionalities ng WB hindi padin nawala yun pero I think yun yung embarrassing dapat sa Philippine government compared to other countries. Tayo hinahayaan na tayo ng World Bank on our own dahil alam nila gagawin natin even without those conditionalities kaya medyo minor na lang yung mga conditionalities ngayon.
5. The World Bank encourages foreign trade and foreign investment. Is it good for the country? In what ways? Foreign trade and foreign investments ay maaring makatulong sa development pero engaging in foreign trade and investment ay maari lamang makatulong sa bansa kung pinamumunuan yang process nay an ng isang activist development state. Kung hahayaan mo yung foreign trade investment sa free market hindi makikinabang ang bansa kasi ang tendency niyan makikinabang yung trading or investment partner. Again simple before and after matagumpay yung IMW and Wb sa pagliberalize ng foreign trade and investment natin. Kitang kita yan in terms of policy measures. Tinaggal yung mga tariffs, investment controls,performance requirements na nagresult sa sobrang laking exports ng bansa. Lumaki din ang foreign investment dito. Yung exact same period na lumaki yung foreign investments and foreign trade ay yun ding panahon na ngrecord ng unemployment, bumagsak ang manufacturing, ang agriculture nanatiling bansot. Hindi siya nakatulogn at all pero maari siyang makatulong basta ang kailangan ay ang activist state government na mageensure na kung nagtratrade tayo with other countries may pakinabang tayo diyan. Kung magiinvite tayo ng foreign investors hindi ibibigay lahat sa kanila para lang maulat mo every end of the year kung gaano kadami yung andito dapat Makita mo yung benefits, technologies, hiring locals, access to other markets.
6. What is your stand on the following: a. The World Bank’s policies together with the IMF include deregulation and liberalization of markets, privatization and the downscaling of government. What is the impact of these policies on the financial system and to the economy of the country?
Clear naman na hindi nakinabang yung Pilipinas, yung population, at economy diyan. Shrinink yung industry natin, backward yung agriculture natin. Sa financial system I think yung pinakarelevant, yung deregulated financial system ay problematic kasi yung finance ay hard blood talaga ng any economy, capitalist man yan or socialist yung finance kailangan mo ng capital para magprosper yung economy. Ang laki ng problema na yung klase ng financial system na ineencourage at dinedesign ng IMF at WB ay hindi pro- development, pro-business siya.Yung key problem ng financial system ngayon idea niya na yung key financial resources ng lipunan na nachachanel kung saan siya kailangan ay hindi nangayyari kasi under the spirit of deregulation, in the spirit of the market knows where best to put capital, short term profit oriented yun as supposed sa kailangan ng Pilipinas na long term development oriented. Although yung ganoong analysis ay refers to where to put capital naghohold din siya where to put classes in the economy in general. Pano magraise ng pera? Realm siya ng fiscal policy pero may financial aspect siya. If the government relies on indirect taxes na regressive may problema dun. Nagiiwas sila magcharge ng direct taxes so para sa amin sa IBON dapat iextend yung concept ng financial system beyond banks, insurance and stock market at ituring siya na overall responsibility ng government. May resources sa lipunan, may nadidirect towards development, social services, development oriented businesses and strategic purposes.
Last point, The way the Central Bank works and the way the IMF teaches or prompts Central Bank’s worldwide work yung money influence niya ay pangtext book na sa panahong may crisis ang framework niya dapat wag magcause ng inflation. May problem kasi essentially nareduce yung BSP, ito kasi yung stress na binibigay sakanya ng IMF take care of inflsation, ang problema dun repressive siya. Halimbawa sa Pilipinas in a time of crisis, ganito yan ang kailangang gawin ng financial environment yung magpapasigla sa economy in the spirit of keeping the inflation down ang bias ng CB natin as thought by the IMF ay towards higher interest rates, free market determined exchange rates so yung mga key financial instruments mo para pasiglahin yung economy super low interest rates for people to borrow, for producers to borrow to invest hindi yan nangyayari. In terms of yung looseness ng monetary policies, tight monetary policy ang favored nila, in terms of exchange rate sobrang anti managed ng exchange rate eh samantala yung idol nga ng US ngayon yung China till the very end managed ang exchange rate eh. Yung Malaysia, much smaller country minamanage niya yung exchange rate niya. Lahat ng mga bagay na yan turo ng IMF sa ating government don’t manage exchange rate, don’t let inflation go out of control, implement a repressive interest rate regime.
b. Multinational firms were viewed as necessary by the government as a result they are exempted on import and exchange control by the Central bank. Is this good for the country? How does this affect domestic firms?
Wala na yung controls na yan eh. From the early 1990s progressively part na ng investment liberalization ay tanggalin na yung mga ganyang klaseng controls. So alam ko right now wala nang controls at all eh. Even yun yung pagtanggal ng controls na yon bad for the country yon. Kasi precisely yung responsibility ng government merong whole range of governmental power sa global economy, yung responsibilities niya iwill yung policies nay un sa local economy at kailangan ng controls para diyan. Yun ang anathema sa free market eh yung controls economy pero yung reality kung hayaan mo sa mga negosyo, sa mga malalaking bansa tulad ng US kung hayaan mo sila to do what they want to the country hindi naman development ng Pilipinas yung concern nila eh. Concern nila ay yung Interes ng Amerikano, ng Hapon, ng European kumita whatever it is. Dahil yun ang nature of the world, hindi na mabubura yon hindi naman yon social organizations dahil profits ang main interest nila at self interest ang umiiral sa kanila kailangan talaga ng controls para matap mo yung profits na yan. Ang frame naman ng IBON ay hindi naman to ease out at all yung multinational at foreign investments, ang framework ng IBON papasukin mo sila dito but make sure may pakinabang tayo kung papasok sila dito. Don’t give them all the incentives para pumunta sila dito. Pero dati yung mga controls nay an hindi naman nagamit for developmental purposes nagamit yan sa cronyism,patronage medyo malapit sa gobyerno. Nung panahon ng controls hindi siya nagamit responsibly. Ngayong nawala siya lalong nawala yung developmental results.
c. Central Bank was used as a medium for foreign trade and investment in the Philippines. Through the policies imposed by the IMF-WB the role of the Central Bank is influenced. Do you agree? Why?
Sobrang laki ng influence ng WB at IMF sa operations ng Central Bank. Noong panahon na may stand by agreements, fund facilities etc. ganon kalinaw yon na irerelease lang yung pera kung magcocomply tayo sa conditions na involved ang monetary financial terms, interest rates, manipulating the exchange rate, limiting the budget deficit, etc. For the longest time, yung IMF may mga agreements may mga conditions na kaakibat doon na iniinfluence ang Central Bank. Pero maliban doon may mga hindi masyadong visible pero influential din. Everytime ngpapaseminar yung mga yan everytime nagpapaprogram ang IMF sa US andoon din yung gmsa local technocrats natin tapos everytime na may mga local technocrats na papasok sa IMF, yung ganoong klase ng pagcreate ng system of influence over that ang nagsuffer dun ay yung genuine Nationalist developmental activist non-neoliberal policies kasi yung mga tao mo naindoctrinate sila eh. Malalim yung ideological indoctrination na yan pero through interaction yan, the circles you go around, yung career path mo nagaall come towards the IMF and the WB’s influence with the Central Bank across the board with other departments like NEDA, DOF. For the longest time din yung every year may mission na pinapadala dito kahit wala na yung formal arrangement ng IMF at Philippines every year andiyan padin yung assessment mission na yan eh. Nagkakandarapa lagi ang government para maging best foot forward sa mga yan.
7. Without the assistance from the World Bank and the IMF, what do you think will be the condition of the country?
Premise is, ilang dekada na ng WB at IMF assistance sa Pilipinas, yung WB hindi bababa sa $15 billion worth of programs and project loans in the last years. Yung IMF naka35 to 36 programs ata tayo with them since the 60s but ang clear dun as a premise, yung lahat ng assistance nay an ay hindi nagresulta sa development ng bansa kasi nga atrasado parin tayo at iaadd ko nga dun hindi lang sa atrasado tayo pero mas atrasado pa tayo sa mga bansa na hindi nagpatupad ng ganoong klaseng level ng WB-IMF programs.
Kaso may point ng premise number two din. Yung condition ng country bagamat hindi nakatulong, lumala pa under the WB and the IMF, yung premise number 2 ang key diyan ay yung gobyerno and right now,acknowledging the major problems dulot ng IMF and WB isang decisive problem natin sobrang walang development, pro-people or democratic vision yung government. Ang problema natin ay hindi pa tayo nagkakaroon ng government na meroong foregoing nationalist and developmental orientation. Kahit wala yung WB at IMF hindi parin masasabing nagimprove yung bansa. Contingent parin yon sa anong klase ng government ba yung in place at handa padin ba siya na bantayan yung local interest.
8. What can you say about the DOF’s statement that they are not dependent on multilateral institutions; they only avail of World Bank loans because of low interest rates?
Yung reality totoo yan, In the last decade totoo yun diminishing na yung Official Development assistance sa Pilipinas, In the last decade parang yung commitments niyan per year nagdidiminish for about 11-12 billion dollars per year, 9 or 10 nalang yata ngayon eh. Anyway, in absolute terms lumiliit na siya ng konti all the more sa relative term sa scale ng economy. Totoo yan diminishing na at part non ay diminishing naman talaga yung nakukuhang loans at programs from the ADB and the WB pero ito nga yung niraraise ko kanina eh, dapat talaga sa historical context yan eh. Over the last three decades lahat ng pangmamanipulate nila, yung objective nila na maging free market tayo at gawin tong policies na ito hindi naman infinite ang policies ng bansa eh. Sa 29 key areas ng economic policies nakuha na ng WB yung gusto niya. Yung pagdiminish ng exposure nila dito is also because nagawa na nila yung gusto nilang gawin at amrami na silang naindoctrinate dito. I agree with the statement of the DOF na hindi na tayo as dependent as before on them pero unstated doon na hindi na tayo influenced by them hindi yon totoo.
9. What are your recommendations to the BSP?
May key role siya sa daloy ng pinansya sa Pilipinas. Totoo naman at nainculcate na sa lahat ng Central Bank over the world na ang papel mo lang ay create a low inflation environment, to create a stable political climate, Siguro ang kailangan ngayon ay hindi lang Central Bank nay un ang single minded focus. Create a more developmental financial/banking system. Development in the sense na yung walang takot na imanipulate ang interest rates to benefit certain industries and sectors and businesses over others na may long term significance. Tapos tanggalin na yung bias against managing the exchange rate. Nirereklamo kasi yun as cause of instability eh pero Instability for whom? Ang best talaga ay stability for those who have development in mind wag stability for those na may narrow profit interest.
10. What are your recommendations to IMF and WB?
IMF by its nature ay stability na ang frame niya eh, yung pinapatupad niyang charter may bias talaga sa modern first world capital over development. Isara na yung IMF or baguhin na yung article ng IMF para gawing more developmental. Yung World Bank kasi mas masisingil pa yan eh. Siguro kung may maniniwala pa na pwede bang baguhin yung world bank to give more emphasis dun sa D nila (Development in IBRD) wag na itulak ideologically, economically or financially yung sobrang bankrupt na neoliberal paradigm. If you can’t do no harm and you do harm magsara ka na lang hindi ka din naman nakakatulong.
11. Until when will the country turn to multilateral institutions for help?
Tama naman talaga yung DOF na hindi naman major part ng economy financially, in quantitative terms yung nakukuhang pera from the IMF and the WB. Right now may larger problem talaga na yung Philippines takot siyang maging outcast. Kumbaga we’d rather be in the club na favored upon by the IMF and the WB rather than not kasi takot nga siya. Habang yung Philippine government ay walang appreciation ng kakayanan ng bansa to stand on its own and to interact with other countries and other institutions their turn to the interest of the Filipinos magiging sunudsunuran sila at magkakandarapa everytime may magsasalitang IMF and WB.
Interviewee:
Dr. Edberto Villegas Author of Global Finance Capitalism and the Philippine Financial System Doctor of Public Administration Former head of Development Studies Program
Date: February 6, 2012
Excerpts from the Interview:
1. What is the relationship of the World Bank and the Central Bank?
BInabantayan ng World Bank ang Central Bank kung pinapatupad nga ba yung mga agreements ng Philippines at World Bank. Ang World Bank ngpapahiram sa Philippine government at nagbaback up ng loans na pinapahiram ng mga private banks. May mga condition na kailangan gawin ng government bago marelease yung mga loans. Yung World Bank may opisina sa Central Bank, ineexamine kung paano ginagamit yung loans kasi yung central bank may hawak ng pera na pinapahiram sa mga private banks at government agencies. Ang World Bank ay parang guwardya tulad ng IMF. Masugid na binabantayan ng World Bank ang Philippine government.
Merong relationship yung World Bank at Central Bank dahil binabantayan ng World Bank yung Central Bank. Dumadaan yung loans sa Central Bank. Yung loans inaanalisa kung tama.
2. What can you say about the World Bank today? Did their ways and strategies evolved? Kasi Sir sabi po nila hindi na po sila nagiimplement ng reforms at nagiimpose ng conditionalities.
Hindi totoo yun kahit nga ansa Europe eh meron paring iniimpose na policies. Particulary yung IMF, sister organization ng World Bank. Iniimplement parin yung mga export-oriented policies. Yung mga deregulation sila nagadvice nun eh. Lalo na sa third World, tuloy tuloy padin yung structural adjustment loans. Hindi maabolish ng government yung connection nila sa IMF and WB dahil sa mga loans. Sa ngayon yung influence nila malakas pa lalo na sa economic policies, sa mga medium term development programs.
3. Hindi nap o naglelend yung IMF sa Philippines kasi po nabayaran na po ng Philippines yung obligation natin noong 2006. Sir sa tingin niyo po paano parin po naiinfluence ng IMF yung Philippines?
Yung mga pagapprove ng gma loans ng mga private banks yung IMF mismo. Maaring stop na ng mga loans sa IMF ngunit pag humiram ka sa mga bangko syempre kukunsulta yon sa IMF at WB. Yun ang parang Godfathers eh. Directly tumigil na ang IMF sa paglend dahil mayroon naman silang hawak na pera sa mga private banks. Malakas ang IMF sa private banks.
4. Sir sabi po in favor po ang World Bank at IMF pati po yung Central Bank sa mga TNCs at private sector.
Kagaya ng sa oil deregulation law sila yung nagpaimplement nun way back 1995. Itong mga malalaking corporation may connection sa World Bank. Kasi bangko yung World Bank. Mga 30% ng pera nila ay galling sa mga TNC. Nainfluence nila yung policies ng World Bank. Prinoprotektahan naman ng World Bank yung mga private corporations. Obvious naman eh kagaya ng export oriented industrialization, pabor yun sa mga TNCs kasi sila yung nageexport eh.
5. Sir ano naman po yung role ng government sa relationship ng World Bank at BSP?
Siyempre ang BSP ay under ng Philippine government yan. Under din siya sa general economic plan sa NEDA yung impluwensya ng World Bank. Yung BSP in charge siya sa pagrelease ng mga pondo siyempre bahagi yan ng plano. Involved ang BSP sa pagrelease ng pera sa mga bangko na hihiram. Mayroon ding influence ang BSP kung paano gagastusin. Yung Philippine government meroon siyang general so called development plan sa NEDA bahagi nun yung funding kasama ang BSP at Bureau of Treasury. Yung monetary board ng BSP ay malapit yan sa mga private banks na kontrolado ng mga TNC na nagcoconsult sa IMF at WB. So hindi puwedeng makaescape ang BSP sa direction na sineset ng IMF at WB na sinasagawa ng Philippine government. Ang BSP at ang government ay nagkakaroon parin ng interaction kahit independent. Hindi sila makakescape sa mga general plan na nakaset sa mga recommendations ng IMF-WB.