The IMF Loan Explained (Second of Two Parts)-A A +A
Sunday, July 22, 2012
THIS is a continuation of an article written by an employee of the Bangko Sentral ng Pilipinas, Jason P. Raval. Jason wrote a very simple—and very clear—explanation of the BSP’s US$ 1 billion loan pledge to the International Monetary Fund (IMF).
Jason’s first point: the Philippines is only among the many countries that made millions of dollars in pledges to the IMF. Below are the rest of his views regarding the issue:
2. When the IMF sounded this call, the Bangko Sentral ng Pilipinas and its Monetary Board decided to join in the global effort to help prevent another economic crisis.
3. An economic crisis in the Euro Zone can and will affect our country. If a country defaults on its loans, its creditors, who are most probably also those who lend to us when we need loans, will be in trouble. Our export industry will suffer since demand will lessen from the affected countries. Need I remind you that there are many OFWs in Europe? This may mean underemployment or worse, unemployment, for our OFWs, which will bring down remittances to our country. (I don't need to elaborate how remittances strengthen our economy.)
4. The $1 billion that we are going to lend will be taken from the Bangko Sentral ng Pilipinas’ foreign reserves, not from the National Government’s budget. The money that the government budgeted to fund our infrastructure, social services, etc. will not be touched.
5. The $1 billion is part of the BSP foreign reserves, again, RESERVES. It cannot be used by the National Government to fund infrastructure (schools, roads, bridges, etc), social services (education, healthcare, PPP program, etc.) The BSP has over $76 billion (as of April 2012) in foreign reserves (called GROSS INTERNATIONAL RESERVES or GIR) and this is kept and used by the BSP to ensure the convertibility of our peso and ultimately the stability of our economy. The reserves are in place and used when needed by the BSP to shield the peso from sharp fluctuation in the foreign exchange market.
6. We are part of a global community and we have the obligation to help out our neighbors in crisis. Our economy is strong enough and has the capability to lend out $1 billion from its $76 billion GIR. When we experienced an economic crisis in the late 80’s, we were also saved by the loan that the IMF gave us.
7. We have prepaid all our outstanding debts to the IMF in 2006 and in 2010 we have been a creditor country. From a borrower, we have now become a lender. We help other countries in crises and in the process help ensure the stability of the world economy.
8. To further emphasize my point #3, we are lending to the IMF so it can help the Euro Zone which is in bad shape now. A simple analogy is this. Europe is our neighbor which is catching fire. The IMF is one of the firefighters fighting the fire but needs water to quell the flames. If we don’t help the IMF by giving water (the $1 billion), we run the risk of that fire strengthening and spreading to Asia and ultimately to our country.
9. The $1 billion is a LOAN. It is not a dole-out or a donation. This will be paid back to us with INTEREST, therefore it is actually also an investment on our part.
10. The BSP is autonomous from the National Government. It has its own charter and its own mandates given by LAW.
I pray that our legislators in Senate and Congress would stick to their jobs and pass many badly needed laws. Just recently, we have almost been blacklisted by the international community because we have failed to pass into law all the needed amendments to the Anti-Money Laundering Act. This would have been a big problem for our economy and our OFWs.
For the Juans and Marias of our country, sleep easy knowing that our economy is in good hands. The BSP has a very good track record in keeping our economy stable. Its leaders are credible, mostly career officers with decades of experience, and they and their projects have received global recognition for being one of the best in the world.
These views and opinions are of the writer's and do not necessarily reflect the views of the Bangko Sentral ng Pilipinas.