Miriam’s primer for illiterate politicians and critics

Buencamino is a fellow of Action for Economic Reforms (www.aer.ph).

Sen. Miriam Santiago called critics of the Central Bank’s (or Bangko Sentral ng Pilipinas, BSP) $1B pledge to the IMF’s “firewall” program illiterates.

“Ang dami-daming pinagsasasabi pero hindi naman nagbabasa. The main problem with some of our politicians is that they are illiterate.”

She was referring to those who denounced the loan for the following reasons:

1. Why not use that money for infrastructure, education, health, and programs that address the needs of the poor?

2. Why lend when we have debts to pay?

3. Why not lend the money to the government and earn higher interest at the same time investing in development?

4. Why was Congress not consulted?

5. Charity begins at home.

Miriam addressed the criticism in the following manner:

“Why is the BSP lending to the IMF, when over 38% of the Philippine population are living below the poverty line? The answer is that it is the national government and not the BSP which is directly responsible for addressing poverty with resources coming from the budget.”

Why lend when we have debts to pay? Why not lend the money to the government and earn higher interest at the same time investing in development?

“The answer is the legal provision that our international reserves follow an investment guideline mandating that only investment-grade and highly-rated financial instruments of non-residents should qualify. Therefore, the BSP cannot lend part of its reserves to the national government to retire Philippine public debt, and the law prohibits the BSP from engaging in development banking or finance.”

Besides, and this is me not Miriam talking, our debts are at manageable levels so why use our reserves to prepay them ? Better to keep our reserves intact and allow them to grow. It’s always better to have something to fall back on, right?

Why was Congress not consulted?

“At present, there is no such law that requires the President to consult Congress or the Senate. If the Senate wishes to participate in the foreign loan process, then it should pass a bill to that effect.” But Miriam is not in favor of passing a law requiring the president to consult Congress for lending or borrowing money. “We can never tell the magnitude of a financial crisis in the future. Let’s give him enough leeway,” she said.

Charity begins at home. That is a brickbat that even I can swat away.

The $1B pledge is not charity. The BSP is not giving away a single centavo. The pledge is a loan. It will be repaid with interest. The BSP could have bought gold but it chose to place the money in the IMF firewall program because the non-monetary benefits of that transaction cannot be gotten by having gold bars sitting in a vault.

Congress made the central bank autonomous in a rare moment of enlightened thinking. It gave the Bangko Sentral sole authority and power to manage and safeguard our “money, banking, and credit.” It quarantined international reserves and kept it safe from political expediency and the sticky fingers of politicians.

The international reserves, in addition to “preserving the international value of the peso and maintaining its convertibility into other freely convertible currencies”, also serve as our “shit hits the fan” fund. If for some reason or another shit happens, and it’s not far-fetched considering the current global financial situation, we will have $76B in reserves to help us clean up the mess. Now politicians are using the $1B loan to the IMF as a means to get their hands on all of those reserves, to spend on their favorite fetish.

Do you want your $76B in the hands of politicians who apparently do not know or care what the reserves are for and whose vision extends only as far as the next election? Are you going to let them blow all of your $76B on problems that can be solved in due time or do you want the BSP to grow the reserves so you will have a safety net for when a real emergency occurs?

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