The need to restructure the financial system

Today’s article will continue to delve on the imperative of establishing, organizing and re-capitalizing the banks that comprise the financial system of the country. Last week’s article espoused the creation of two new specialized banks, that is, the Philippine Industrial Bank and the Philippine Export Bank.

To these specialized banks, we add a third and equally important one, the Philippine Tourism Bank. We shall likewise emphasize the need to re-organize and re-capitalize both the Development Bank of the Philippines and the Land Bank of the Philippines.

The Philippines, as is well-known, is a tourism paradise of 7,100 islands blessed with a tropical and temperate climate and an endless coastline of world-class beaches. For the people of cold-stricken parts of the world, as are northern Europe and the northern part of the Americas, the Philippines is an over-beckoning eden longed for to be experienced.

Well and good for the Philippines as for as natural beauty and endowment is concerned. But sheer grandeur of our natural resources alone is no insurance for the flocking in multitudes of foreign tourists to our shores. An equal enticement are the man-made infrastructure and utilities that ensure the comfort and convenience of the visitors. But, alas, this is what the Philippines, inspite of its beauty, sorely lacks.

In order to purposely and forcefully address this missing link in our tourism program, we suggest the creation and establishment of a Philippine Tourism Bank. The PTB, properly and adequately capitalized, shall have the singular mandate of financing, through long-term and low-interest loans, local companies and businesses engaged in the construction of tourism-related infrastructure and utilities all over the country. The PTB shall support such activities as the building of hotels, resorts, airports, ports, and telecommunications, to name a few.

A condition should be laid down, however, in that the foreign currency earnings of all these companies and businesses engaged in tourism-related activities financially supported by the PTB shall be sold to the Central Bank to be used to service our foreign debt, and eventually retire it. With an eventual target of 20 million tourists a year in five years, and with each tourist spending an average of $3,000, then we shall have about $60 billion, enough foreign currency to pay off our foreign debt.

An also important reform crying out to be undertaken in the financial system is the re-organization and re-capitalization of the Land Bank of the Philippines.

To start with, the LBP should be re-named the Philippine Agricultural Development Bank, which new name aptly describes the emphasis and reason for its existence. The PADB shall be a specialized bank dedicated to support all aspects of domestic food production from planting, to harvesting, to processing, storage, transport and marketing. In short, the bank shall extend long-term, low-interest local credit facilities to local companies and businesses related to food production such as agriculture and fisheries.

Indeed, the LBP’s present thrust of paying off bonds to landowners covered by the agrarian reform program is not productive. To begin with, the bonds are given over a long period of time which militates against the landowners using the capital to venture into necessary ventures and industries, which would be the case had the cash been given to them outright.

We suggest that the proposed Agriculture Bank instead directly loan out to farmers money for them to develop public lands which the country has so much of rather than the government acquiring private lands for distribution to farmer beneficiaries. This way, the money that would otherwise go to the landowners under the present set-up would be made available to the farmers for the agricultural development of so much public lands.

A final, yet significant other reform needed is the re-direction in the thrust of the Development Bank of the Philippines as well as the regular augmentation of its capital.

Presently, the DBP cannot fully fulfill its role as the government’s premiere development bank as it is undercapitalized so that it cannot extend the proper and adequate loan facilities for the development of the nation. The solution, obviously, is to recapitalize the DBP and, more importantly, to regularly augment its capital structure to make it more responsive to its role as a national development bank.

As is, our development loans to our local companies are mismatched as against the lendees’ needs. Even worse, the local loans extended are short-term and with high interest that make it economically not viable for the lendees to pay up their loan in so short a period from the profits of their ventures alone. Hence, our suggestions as above-indicated.

The theory, of course, is that unless local business is properly and adequately financed through long-term, low-interest local credit facilities, they can never succeed in their operations and can never withstand the competition from their foreign counterparts.

We owe it to ourselves to fully support our local businesses through the reforms here suggested, as the success of our own local businesses spells a better future for our country and people.

You may write your comments / suggestion at 15/F Equitable Bank Tower Paseo de Roxas, Makati City or through e-mail at HYPERLINK "mailto:[email protected]" [email protected])

(Editor’s note: Atty. Roxas is writing a limited series of articles dealing with financial matters and other important business topics. He is available for speaking engagements on the subject matters of his articles.)