WB favors EO 138

The Philippine STAR 09/19/2006

The World Bank (WB) has expressed grave concern on the repeal of Executive Order (EO) 138 which was replaced by EO 558.

EO 558, signed by President Arroyo last month, allows all government agencies to lend money regardless of its mandated functions. The repealed EO 138, signed by former President Estrada, designated only government financial institutions (GFIs) to extend loans.

During a press briefing on corruption and good governance held yesterday, WB country director for Philippines Joachim von Amsberg said that EO 138 restored public lending to only GFIs and it placed strict rules on pricing, subsidies and credit programs.

“What EO 135 did, was to restore fiscal stability and discipline on public lending,” Von Amsberg stressed.

The WB official also pointed out that EO 135 created a level playing field between private lending institutions and government, which in effect also helped develop the country’s flourishing financial sector.

The repealed executive order was developmental and favored good corporate governance, the lending agency official added.

Earlier, Finance Secretary Margarito Teves proposed that a clear and transparent implementing rules and regulations (IRR) should first be outlined and approved before EO 558 is enforced.

In his reaction letter sent to Malacañang, Teves said that EO 558 was all embracing or without limits and that it would directly compete with GFIs. Concerns over ballooning non-performing loans (NPLs) of the government sector would only derail government plans to eliminate its fiscal deficit by 2008.

Unnamed officials of the GFIs said that EO 558 “brings us back to the Masagana 99 era where government doled out public funds resulting in huge debts which we are paying to this day.”

Only GFI can directly tap funding from multilateral or bilateral arrangements thus able to get lower or favorable repayment interest rates. “The system allows for better control on the country’s debt levels,” they said.

Another official said that it could be subject to abuses by local or national government entities pointing out that the “elections was just around the corner.”

EO 558 was issued by Mrs. Arroyo last Aug. 8, repealing EO 138 which was issued in 1999.

EO 558 simply said that it repeals the Estrada order, and that any agency can start lending direct.

EO 138 designated GFI as the main government vehicle for the delivery of credit services by providing wholesale funds to government or private entities which will in turn practice direct lending. The practice would cushion government from huge and numerous exposures.

“It is also the reason why official development agency (ODA) funds are flowing in,” a GFI official added.