Lending to government

Atty. Jun De Zuñiga Atty. Jun De Zuñiga

Under the Constitution and its Charter, the Bangko Sentral ng Pilipinas (BSP) in the discharge of its mandate was vested with fiscal and administrative autonomy. “Fiscal autonomy” was defined by the Supreme Court as “freedom from outside control” and in BSP is exemplified by its authority to adopt its own budget and authorize its expenditures as are in the interest of its operation. It does not depend on Congress for budgetary appropriation unlike other government agencies. “Administrative autonomy,” on the other hand, is defined as freedom from intervention and interference by other agencies which means that, in the case of the BSP, its decisions are not subject to administrative review within the executive branch, but can only be reviewed through the judicial process.

There is historical background for such autonomy. By mandating the independence of the central monetary authority, the framers of the 1987 Constitution sought to prevent a situation where the executive branch of the government is in control of monetary policy. Their view is that monetary policy should be adopted with focus on long-term financial stability and not on political expediency and other considerations. Moreover, such autonomy is envisioned to ensure that the BSP is able to anticipate and respond to the challenges of a more globalized economy (Banking Laws of the Philippines, Book I, BSP, p. 14).

With its independence from the executive branch, the rule is that the BSP should not lend to and be a creditor of the National Government (NG) and the latter cannot draw funds from the BSP at will (Ibid., p. 314). However, in extraordinary times, the law itself also provides an instance when the BSP may lend financial support to NG. In the course of the COVID-19 pandemic, the BSP executed a repurchase agreement (“repo”) with the Bureau of Treasury involving the latter’s issuance of government securities to BSP with obligation to buy back. Essentially, a repo indicates an extension of credit and in this case such extension of credit is deemed not in breach of the autonomy rule. The repo was granted on the basis of a provision in the BSP Charter itself, specifically Section 89, which provides that the “Bangko Sentral may make direct provisional advances with or without interest to the National Government to finance expenditures authorized in its annual appropriation: Provided, that said advances shall be repaid before the end of three (3) months extendible by another three (3) months as the Monetary Board may allow following the date the National Government received such provisional advances and shall not, in their aggregate, exceed twenty percent (20%) of the average annual income of the borrower for the last three (3) preceding fiscal years.”

The repo is deemed compliant with the following conditions prescribed in Section 89, namely: (1) that the term of the advances shall be three (3) months, extendible by another three (3) months; and (2) the advances shall not exceed 20% of the average annual income of the government for the last three (3) preceding fiscal years. Section 89 is not an idle provision but one with a purpose. The BSP is not likewise expected to remain idle or nonchalant in an extraordinary time where the country is besieged by monumental financial responsibilities such as those brought about by the COVID-19 pandemic. Section 89 exists for such a purpose and the BSP rightfully used it.

The above comments are the personal views of the writer. His email address is jzuniga@bsp.gov.ph