BSP capitalization hangs as government drops plan to infuse P40 billion this year

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) would have to wait until 2010 for its full capitalization as the government finally dropped a plan to pay up the remaining P40 billion of the central bank’s capital this year.

The BSP has been pressing government to meet its commitment but the last three administrations have failed to do so.

After long discussions with the BSP, Finance Secretary Margarito Teves said the government, in the end, decided to scrap the capitalization plan that was supposed to have been completed as early as 1993.

Teves reasoned that the Department of Finance had to drop the plan after being advised that raising P40 billion to fully pay up the BSP’s P50-billion capitalization would require appropriations cover by Congress.

The Arroyo administration had earlier agreed to fulfill the requirement for government to pay up an additional P40 billion prescribed under the BSP charter, after an initial capital outlay of P10 billion.

But the decision meant that the BSP would have to wait until 2010 to get much-needed capital because the newly-enacted P1.415-trillion national budget for 2009 did not include a provision earmarking the amount for the BSP.

Teves earlier testified before Congress that the P177.2-billion deficit target for 2008 already included the BSP’s capitalization plan but he later denied that this was ever included in the budget.

Teves said the undertaking would have required a supplemental budget. He said the DOF would seek to include the P40 billion in the 2010 national budget.

After repeated failure to meet its revenue target, the Arroyo administration shelved the capitalization plan since it would widen the budget gap that has already been adjusted twice to accommodate the impact of the slowdown in revenues.

The National Government has also withdrawn P20 billion of the P30-billion restricted deposit that was supposed to be kept until the BSP was capitalized.

But sources said the NG sought to be allowed to use part of this fund when it needed it to boost its cash position at a time when the BSP was also reporting losses of up to P87 billion when the peso was surging against the dollar.

Sources added the BSP only agreed to allow the restricted deposits to be touched because the NG needed the funds and Finance officials promised to complete the capitalization of the central bank.

Ultimately, about P20 billion was taken out of the restricted deposits which were then used to buy Treasury bills. The government depository earned from the interest on the government securities and the Bureau of the Treasury received the cash.

A source said the Treasury Department then eventually deposited the cash back to the BSP but this only turned the cash around and the BSP was not really recapitalized.

“Otherwise the BSP did not get incremental benefit from the whole process,” the source said. “That will happen when the central bank is recapitalized.”