Philippine central bank seeks additional capital

The BSP said fresh financial support from the government would come in handy as the substantial foreign exchange inflow and rising domestic liquidity posed risks of faster inflation and a steep appreciation of the peso if not managed properly.

 

“Yes, the BSP has indicated to the government the need for additional capitalisation,” BSP Deputy Governor Diwa Guinigundo told the Inquirer.

 

The request for financial support followed a statement from the Department of Finance that the government intended to settle by the end of the year the remaining 10 billion pesos (US$242 million) worth of capital that it owed the BSP and that it might extend more if the latter asked for it.

 

“The economy has grown and the financial system has expanded many times over, and yet the BSP’s capital base has remained the same. We need more resources to further enhance the effectiveness of monetary operations and monetary stability,” Guinigundo said.

 

Under the charter of the BSP, which was created in 1993 to replace the old central bank, the government was mandated to infuse 50 billion pesos in fresh capital. 

 

However, due to budget constraints, the government gave the BSP only 10 billion pesos in its first years of operations. With an improved fiscal situation and prodding by monetary officials, the government gave the BSP another 10 billion pesos in December 2011 and another 20 billion pesos in December 2012. This leaves 10 billion pesos more in capital that the government owes the BSP.

 

Finance Secretary caesar Purisima was quoted as saying last month that the finance and the budget departments have agreed to disburse the balance by the end of this year. He also said that given the need to ensure that the BSP remained effective in the delivery of its mandate, the government was open to requests for additional support.

 

Due to its heavy dollar purchases and interest payments, the BSP has been posting losses since 2012. Its latest income statement showed that in the first 11 months of 2012, it incurred a net loss of 86 billion pesos, surging from 33.69 billion pesos in 2011.

 

The dollar purchases were said to be necessary to help temper the peso’s appreciation. The peso gained about 7 per cent against the dollar in 2012 to become one of the fastest-appreciating currencies.

 

*US$1=41.3 pesos