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Manila Bulletin devider Philippines devider Gatchalian wants BSP's outright exclusion as fund source for Maharlika bill  

Gatchalian wants BSP's outright exclusion as fund source for Maharlika bill  

Published Mar 16, 2023 05:24 am
  Senator Sherwin Gatchalian said he has recommended that the Bangko Sentral ng Pilipinas (BSP) be immediately excluded as a source of funds for the proposed Maharlika Investment Fund (MIF).   Gatchalian said the BSP’s outright exclusion would help shield the agency amid growing concerns of a global financial shock.   The Senate ways and means committee chairman indicated his recommendation in a four-page letter addressed to Sen. Mark Villar, who heads the public hearings on the MIF as chair of the Senate Committee on Banks, Financial Institutions and Currencies.    The senator said BSP’s declared dividends should be removed as a source of funds both for the capitalization of the MIF and the Maharlika Investment Corporation (MIC), which is projected to be an independent body that would govern and manage the state fund.   “By approving the proposal to include BSP as a source of MIF, we will be exposing our financial system to uncertainties,” Gatchalian said.   “We will be hindering the BSP from enabling itself to meet the challenges to the economy since anything can happen in a span of 17 years,” he pointed out.   The lawmaker also stated that it will take 17 years for BSP to fully realize its capitalization requirements if the central bank is mandated to contribute its dividends to the MIF.   Gatchalian warned the government should also look into the current liquidity crunch facing the banking sector in the United States as an example. This, he said, was triggered by the collapse of Silicon Valley Bank (SVB) and Signature Bank, shaking investor confidence across the globe.   Reports show that SVB’s shutdown was caused by concerns about the bank’s solvency causing a wider sell-off in stocks and prompted an increase in clients pulling out their deposits, he noted.   He also said concerns over the health of the global financial system were further stoked by Credit Suisse’ largest single-day sell-off on US and European markets.    According to Gatchalian, such developments are reminiscent of the 2008 collapse of Lehman Brothers that prompted a market meltdown and a global recession, leading central banks all over the world to execute dramatic easing of monetary policy rates.   Based on his assessment, Gatchalian said the proposed MIF bill will weaken the very institution capable to quickly intervene and take action should the Philippines’ banking industry experiences a crisis.    He also said the measure will limit BSP’s capability to take extraordinary measures to reduce bank run risks and shore up confidence in the financial system during uncertain times.   Aside from this, Gatchalian also said agreeing to the current proposal to source from the BSP’s declared dividends the MIC’s capitalization would mean contradicting the Senate’s vote in the 18th Congress when it approved Republic Act 11211, also known as The New Central Bank Act.    “With the passage of RA 11211, we have approved the increase in the capitalization of the BSP from P50-billion to P200-billion. We were made to understand the urgency to increase the capitalization of the BSP to ensure the financial strength of the institution given the growth of  the banking industry through the years,” the senator pointed out.   Further, mandating the BSP to declare dividends in favor of the MIC will upset BSP’s independence and credibility in performing its price and financial stability mandates, the lawmaker warned.   “By declaring dividends to contribute to MIC’s capitalization, BSP will have lesser funds to take full action against inflationary pressures which entail huge costs on the financial markets and can result to output loss and unemployment and eventually affecting the public’s perception on the track record of the BSP in anchoring inflation expectations,” Gatchalian stressed.    
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