Lead stimulus roles for LBP, DBP; NDC as ‘bailout agency’

April 27, 2020

House Economic Stimulus Cluster co-chair Joey Sarte Salceda (Albay, 2nd District) sees an “immense role” for government banks LandBank of the Philippines  and Development Bank of the Philippines in the country’s calibrated national economic stimulus plan, Congress is set to deliberate on shortly.

Salceda, who also chairs the House Ways and Means Committee said he believes the “willingness, experience, and scale of the government banks, especially LBP, in delivering socially-imbued, but ultimately commercially viable programs and projects means we get our ‘bang-for-the-buck,’ in economic impact and in net fiscal costs.”

“LBP and DBP are both relatively well-run government institutions, and both have been engaged, in recent years, in missionary expansion, so their reach and the relationship with small and medium enterprises  will be critical in delivering our stimulus loans,” he said, adding the Cluster has had consultations with the LBP, which expressed strong willingness to carry out stimulus loans.

“I got assurances from LBP that their stimulus loans will be off-balance sheet, so they can be administered without the usual rigorous risk-based assessments that banks do. In terms of bank processes, that’s as good as it gets, so our committee is quite encouraged by the assurance,” he said.

The Bicolano lawmaker has proposed Negative Interest Loans as a stimulus program to encourage companies with liquidity to invest, with the incentive of what he calls “government’s co-pay for their continued expansion.” The NIL “essentially provides firms a little bit of free money so that they are encouraged to invest a lot of their own money and retain employment,” he added.

Salceda said LBP and DBP would  be crucial for the implementation of his proposed Credit Refinancing and Mediation Service which would allow firms to renegotiate or refinance their loans.

“It allows them to capitalize on our survival, transition, and growth on terms that are easier than the loans they previous contracted. Nobody could have predicted the scale of this pandemic’s impact on businesses, so we’re allowing them to re-engineer their position, essentially,” he explained.

Initial suggestions his committee received from stakeholders suggest that government banks administer the loans while the Small Business Corp. and the Philippine Guarantee Corp. can provide the guarantees. In the same context, Salceda said he “likes the idea of repurposing and revitalizing the National Development Co. to serve as the government’s bailout agency”.

There’s need to keep a going-concern since “the economic costs of a progressive shrinking of the private sector, via closures and bankruptcies, is essentially forever foregone growth. So we need to preserve companies that would have otherwise been profitable, but which will go bankrupt because of this pandemic,” he declared.

“I propose a super body similar to what was promoted by Nobel laureate Joseph Stiglitz. It’s a company designed to rescue firms that fail due to an unforeseen economic crisis, through convertible loans, debts-to-equity swaps, or outright government purchase. The objective is really to preserve jobs,” he stressed.

“The body will ultimately deal with the bulk of the obligations of these newly or partly-acquired firms in one standard procedure, similar to what the PSALM did for our power sector debt, and what the Central Bank – Board of Liquidators (CB-BOL) did to Marcos-era debts of the Central Bank. Those obligations were existential threats to our economy, but because of these agencies, the average Filipino and the national balance sheet did not take too much of a hit,” Salceda added.

The NDC charter, under Presidential Decree 1648, allows it to “engage or invest in, or extend loans and guarantees to, or enter into joint ventures with Filipino and foreign investors, whether in the majority or minority position in commercial, industrial, mining, agricultural, and other enterprises, which may be necessary or contributory to the economic development of the country, or important to the public interest”.

The NDC, he explained, also has the power to “purchase, hold, alienate, mortgage, pledge, or otherwise dispose of the shares of the capital stock of, or any bond, security, or other evidence of indebtedness, created by any other corporation or corporations, co-partnership or co-partnerships in this or any other country, even as the stock owners continue to exercise all the rights of ownership, including the right to vote thereof; guarantee domestic and foreign loans and other evidence of indebtedness both as to principal and interest, or either, issued by duly incorporated companies including its own subsidiaries; and purchase bonds issued by any duly incorporated company engaged in desirable development projects”.

“It has practically everything we need in a bailout firm. We just have to reconfigure the conditionalities, and the capitalization, but the structure works for what we want,” he pointed out.

Apart from writing reports to the President almost every week, with recommendations on how best to handle the economic and health challenges posed by the pandemic, Salceda led calls to enforce a lockdown on Metro Manila immediately following reports of community transmission in San Juan. 

The lawmaker has also filed a bill seeking to create a Center for Disease Control and establishing special powers to address a health emergency as early as January (House Bill  6096). Aside from being a noted economist, he is also recognized as a lead  advocate of disaster preparedness by international bodies such as the United Nations, where he he served as co-chair of the Green Climate Fund.