The Market Monitor Minding the Nation's Business
By Luis Leoncio
Some P279.3 billion that the national government (NG) advanced to the Bangko Sentral ng Pilipinas (BSP) after it was created in 1993 to pay off debts of the old Central Bank (CB) was disbursed against the law, tantamount to “unauthorized use of funds,” according to a 2014 Commission on Audit (CoA) report on the Bureau of Treasury (BTr).
The report said the use of the huge funds that were infused into the BSP until 2012 was contrary to the agreement signed between the NG and the BSP on December 15, 1993.
Congress passed a law in 1993 creating the BSP that replaced the old CB, which had accumulated billions of pesos in debts that affected its performance of its mandate.
The law that created the BSP required the NG to shoulder the debts of the old CB to allow the new institution, the BSP, to start with a clean financial record.
The Department of Finance (DOF), through the BTr, has since allotted billions of pesos every year for the CB liabilities.
The CoA said that on December 15, 1993, a memorandum of agreement (MOA) was signed by the NG and the newly created BSP stipulating that the latter “shall purchase from the NG treasury bills with an aggregate discounted value of P170 billion, earning the average of 91-day treasury-bill rates at the last auction immediately preceding the date of issue and renewal and shall be automatically rolled over, unless otherwise expressly indicated by the Republic of the Philippines (RP); and treasury bonds with an aggregate face value of P50 billion earning the average of 182-day treasury-bill auction rates at the auction immediately preceding the issue or interest-setting date, with maturity of 25 years renewable at the option of RP.”
The proceeds of the NG debt papers should have been deposited with the BSP “to assist in the retirement of Central Bank- Board of Liquidators (CB-BOL) liabilities at the least cost to RP.”
The CoA, however, said documents it obtained showed that the NG advanced to the creditors of the CB-BOL payment of its liabilities and that the refinancing of the CB-BOL liabilities accumulated to P279, 302,940,753.93 as of December 31, 2012, which have been carried over in NG books until December 31, 2014, and recorded as “Receivables – due from GOCC- CB-BOL.”
The CoA said the action taken by the NG was contrary to what was agreed upon in the 1993 MOA regarding the settlement of the CB-BOL’s liabilities to creditors, which settlement, accordingly, must come from the proceeds of the issuance of the P220-billion securities at the least cost to RP.
“We recommended that BTr management coordinate with the CB-BOL and the BSP and demand the settlement of the advances made to the CB-BOL creditors amounting to P279, 302,940,753.93,” the CoA said.
The BTr said P136.8-billion advances to the CB-BOL came from the proceeds of the P220-billion securities deposited with the BSP as per the MOA, while P142.5 billion was sourced from NG deposits with the BSP.
The BTr also demanded payment or settlement of the accounts of the CB-BOL. But in its reply, the BSP said it has no funds to settle the accounts with the NG, according to the CoA.
“We, therefore, further recommended that management coordinate with the DOF regarding the proper action to be taken to settle the CB-BOL liabilities with the NG; and assess the BSP’s capability to manage the CB-BOL’s liabilities to come up with settlement procedures in agreement with the BSP,” the CoA added.
The CoA said that based on government records, out of the P331.3-billion liabilities, only P171.7 billion pertains to outside creditors, and P159.6 billion is its liability to the NG in cash deposits to the old CB that were transferred to the CB-BOL as deposit liabilities and were recorded by the NG as notes receivable upon issuance by the CB-BOL of a promissory note dated July 28, 1997.
“Therefore, only P171.7 billion needs government financing in aid of its retirement. However, the advances by the NG, which started from 1993 up to 2012 already aggregated to P279.3 billion; thus, payments made were more than the CB-BOL’s obligations by P107,602,940,753.93,” the CoA said.
Furthermore, advances of P279, 302,940,753.93 have been recorded as due from the GOCCs-CB-BOL and remained outstanding since then without any settlement either from the CB-BOL or the BSP.
The CoA tasked the BTr explain the advances made to the CB-BOL creditors, which were more than the recorded CB-BOL liabilities by P107, 602,940,753.93.
In reply, the BTr said the amount of P171.7 billion represented the principal amount of the CB-BOL liabilities converted to peso using the exchange rate at the time.
“On the other hand, the amount paid by the NG included the interest portion for all liabilities of the CB-BOL plus any exchange rate difference for all foreign loans at the time of payment. Therefore, the difference represents the interest, other charges and foreign exchange rate differentials,” the BTr said.
The CoA added that the unnecessary issuance of bills and bonds and its continuous rollover since 1993 to assist the retirement of the CB-BOL liabilities heavily disadvantaged the government through the payment of a huge amount of interests computed at P428.4 billion as of December 31, 2014.
The treasury bills and bonds allocated for the CB-BOL in 1994 have been rolled over in the ensuing years based on the MOA, causing the NG to pay the maturing securities and its interests to the BSP from 1993 up to the present the total amount of P9,957,750,915,155.62 consisting of a matured principal of P9,529,310,710,000, plus interest of P428, 440,205,155.62.
The BSP is the holder of the issued securities as investor.
The CB-BOL liabilities to the creditors of P171.7 billion were already settled by the advances made by the NG totaling P279.3 billion as of December 31, 2012; hence, the issuance of securities to obtain funds is deemed no longer needed for its settlement, the CoA added.
“Therefore, the continued rollover of the CB-BOL securities only added up to NG debts that continually rise through the years, creating greater financial burden to the debt-stricken national government,” it said.
The CoA said the proceeds of the securities were deposited with the BSP, thereby adding to the frozen deposits of the NG, which remained uncollected since 1997, and which have been dormant for 16 years now.
The CoA asked the BTr to inform the DOF of the settlement of the CB-BOL liabilities to outside creditors and recommend a halt of the rollover of the CB-BOL Securities.
But the BTr said the matter was referred to its Legal Services for an opinion on the interpretation of the MOA between the government and the old CB.
Moreover, the CoA said the cash deposit of the NG in the old CB, which was transferred to the CB-BOL as deposit liabilities and recorded as notes receivable in government’s books, had been dormant for 16 years now, thus, the collectability of the receivable account remained uncertain.
“Included in the old CB liabilities of P331, 200,000,000 were the cash deposits of the national government of P159, 600,000,000, which were transferred to the CB-BOL as deposit liabilities. Out of this amount, P22, 588,796,706.10 was settled through BSP dividends, government equity contribution and matured government investment that were applied as payment to the receivable,” the CoA said.