Nine years ago to this month, the 9th Congress of the Republic of the Philippines decreed the death of the Central Bank created under RA 265 and resurrected it through Bangko Sentral ng Pilipinas under Republic Act 7653. The demise of the old bank regulator was never explained by the proponents to the public – it was better that they kept it under wrap rather than agitate the taxpayers who assumed the P308 billion burden of the old central bank so that the new entity can have a fresh start.
Interestingly enough, of the P308 billion liabilities of the old bank, about one billion dollar was reported to have been spent by Mrs. Marcos on shopping binges abroad and for real properties. It was under Fidel Ramos where this law was enacted and World Bank, provided fresh loans to the country as incentive to spin off the old central bank and a new one be created in its place.
“The 1986 constitution … called for the creation of an independent central monetary authority (CMA). In the early Aquino years, Central Bank authorities were very resistant to congressional initiative to fulfill the provisions of the constitution, since the overall intent was generally to curb the powers of an often highly unpopular institution. By the early 1990s, however, the Central Bank embraced the constitutional provisions as a convenient way of addressing three increasingly grave challenges: mounting deficits, ongoing lawsuits and overall weakness of bank supervision, and low salaries. In creating the new CMA, officials hoped to clean up their balance sheet, enhance legal safeguards for a supervision staffing under siege, and break loose from the salary standardization measures that had reduced compensation to highly attractive levels. The World Bank provided a carrot to the Philippine Congress by making the creation of a new CMA a condition for $450 million financial sector adjustment loan, and the Ramos administration provided further grease through its skillful disbursement of discretionary funds to legislators.
The creation of the new institution, however, generated considerable controversy. In December 1992, the House of Representatives deleted provisions transferring the P308 billion in liabilities to the national government, merely creating a commission to study the matter. Later versions of the bill provided only partial transfer of the liabilities, and some legislators demanded an investigation into $1 billion of Central Bank funds allegedly ‘spent by former First Lady Imelda Marcos for her shopping binges abroad and on real estate purchases.’ But Central Bank Governor Jose Cuisia (Fernandez’s successor since 1990) urged legislators not to ‘get distracted’; with the support of Ramos administration, the World Bank, and the BAP he pushed for a bill as advantageous as possible to the new CMA. A conference committee finally produced a bill in June 1993 (just before the World Bank’s June 30 deadline) creating the Bangko Sentral ng Pilipinas (BSP) – and leaving it up to a special committee to decide, as one newspaper reported ‘which of the old CB’s losses would be transferred to the BSP and which shall fall under a category meant for creative financing options.
The BSP merged with a clean balance sheet, but promises of creativity seem to have been ignored. By the end of 1993, the former liquidator of banks was itself turned over to the Central Bank –Board of Liquidators, which assumed a phenomenal P331.2 billion in liabilities from the dead institution – even more than initially proposed to Congress in 1992! With a tone of generosity, however, the BSP later explained that the liquidators would hand over the liabilities to the national government ‘gradually up to a period of 25 years’ rather than ‘in one fell swoop.’ The corresponding amount of assumed assets consisted overwhelmingly of so-called suspense accounts that the BSP admitted ‘are in reality expenses already disbursed years earlier but kept on the books of assets. [with] no real value. Analysis of the three ‘worthless asset accounts’ reveals little suspense: as noted above, they are quite easily traceable to such earlier sources of oligarchic gain (and Central Bank losses) as assumed foreign debt, swaps and Jobo bills.
The national government’ overall assistance included not only the bailout of the old monetary board authority, but also P10 billion in initial capitalization for the new BSP and P220 billion of treasury bills to reinvigorate open-market operations. The New institution was soon proudly proclaiming its profitability, and issuing dividends – as provided by law – to offset damage done by its predecessor. New profits, however, were dwarfed by old losses. In the first year, 1993 the net restructuring (P24.3 billion in liabilities passed on by the Board of Liquidators minus P5.3 billion in profits passed on by the BSP) added P15 billion in burdens to the national budget – equal to $730 million, or roughly $11 for each Filipino citizen. The net cost in 1995 was P16.4 billion, and that of first semester 1996 over P7 billion; the total government outlay for health each year, by comparison was less than P12 billion.
While technically, the bailout of the monetary authorities merely shifted liabilities from one branch of the government to another, the overall effort exposed more clearly than ever how much distress the immense financial mess at the Central Bank would end up causing both taxpayers and consumers of public services. The major business daily paper predicted the restructuring will ‘haunt taxpayers’ and (according to Finance Secretary Roberto F. de Ocampo) contribute to ‘drastic cut in capital outlays’ for infrastructural programs. While extraordinary national government proceeds from privatization masked fiscal woes in the short term the Central Bank bailout can be singled out as a leading contributor to a very troublesome longer-term scenario. Ongoing efforts to contain the overall deficit, predicted political economist Amado Mendoza, ‘will force government to continue curtailing vital expenditures or imposing easily collectible regressive taxes.’
The reminting of the Central Bank as the Bangko Sentral was most successful in dumping old debts on the treasury and enabling the new BSP to begin life (July 3, 1993) free of debt. (Booty Capitalism, Paul Hutchcroft, p. 209-211).