The title of today’s Inquirer.net editorial Excess money says it all. There is enough money swirling around in the domestic economy to fund significant capital expansion. Big Philippine banks manage a big chunk of these funds. Trouble is, as the Inquirer editor observes, “banks choose to park these funds at the Bangko Sentral ng Pilipinas [BSP, the Philippines’ Central Bank] than risk lending them…”
To be fair, part of the problem has to do with the continued excessive proliferation of high-yield low-risk securities in the Philippines. One culprit identified are these so-called special deposit accounts (SDAs)…
The reason banks put as much money as they can in SDAs is that the central bank pays a high rate on these deposits. The SDA facility was introduced in November 1998 as a tool for the BSP to manage liquidity, specifically the amount of money circulating in the system that affects inflation. In April 2007, the BSP expanded access to the facility to siphon excess pesos arising from strong foreign exchange inflows (dollars, when converted to pesos, increase money supply and pose inflationary risk). Interest rates on SDAs were then set at a high-enough level of about 6 percent to attract funds.
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The obvious next steps, as described by Mr Editor is to restrict inflow of funds into SDAs to encourage banks to, instead, lend excess funds to businesses which, as the theory goes, should “generate jobs.” The point here is that this is one aspect of an internal domestic dynamic that significantly affects Filipinos’ inclination to invest domestically. How many more solutions to induce indigenous domestic investment are lying under people’s noses waiting to be discovered?
Trouble is, the drums beating to cheer on the loser-mentality notion of attracting foreign capital in the form of “foreign direct investment” into the country as the be-all-end-all solution to Filipino wretchedness rings louder in the ears of the country’s lazy “thinkers”. The value of capital trapped in SDAs — two trillion pesos, according to Mr Inquirer Editor — is astounding. That’s fifty billion US dollars in investible funds just cowering away from the lucrative albeit Wild Wild West business landscape of the Philippines. That number is double the total amount of FDI reportedly attracted by the Philippines from 2000 to 2011.
To be fair, however, the BSP originally set up SDAs to mitigate the inflationary effects of excess funds entering the economy, much of which is accounted for by that quintessentially Filipino source of pocket money — overseas foreign wokers’ (OFW) remittances. Too much money circulating in the country — specially money that ultimately ends up in Henry Sy’s pockets — can cause upward pressure on the price of pagpag (a native Filipino dish), you see.
So while restricting banks’ use of SDAs to park excess money sounds like the obvious solution to lackluster domestic investment, all roads still lead to that singular roadblock to sustainable Philippine prosperity: Filipino culture, which predisposes Filipinos to piss away windfalls of cash on non-durable stuff (cellphone load, fiestas, Fred Perry shirts, Chinese-made trinkets, etc.) rather than on durable capital-building things and projects.
Indeed, most likely recognising this, Shanaka Peiris of the International Monetary Fund (IMF) warns how crucial it is that “funds be used for direct investments, especially in manufacturing and other industries, and not for buying stocks or making speculative investments in real estate.” He should add to that consideration for the way OFW families treat their relatives toiling away in desert kingdoms like piggybanks. Recall that the Philippines has among the lowest savings rates in the thrifty Far East. All of that OFW cash hasn’t been turned into factories, longer-lasting lightbulbs and other capital goods and artifacts, or at the very least, deposited in savings accounts. All that dough was likely spent on booze, Hong Kong holidays, iPhones, Samsung Galaxies, Internet time spent on chatting, trolling and camwhoring, and on long-distance phone calls to their overseas relatives to follow-up their remittance cheques.
The BIG assumption underpinning all this “debate” is that more money will necessarily spell a better future for Filipinos. We assume that money in the hands of Filipinos will be well-spent. Has anyone ever questioned this BIG assumption? Seeing it from that perspective, the issue of whether said money comes from overseas or from within simply becomes a non-issue and brings to light the question of how sound this assumption is.
[Photo courtesy Pinoy-OFW.com.]
benign0 is the Webmaster of GetRealPhilippines.com.