Microfinance
Government’s About-Face

At a time when the public sector is reining in its fiscal deficit, the government has decided to resume direct lending operations by its agencies and corporations, starting with the Department of Social Welfare and Development’s microlending projects for the poor.

Last 27 October, President Gloria Macapagal-Arroyo issued Executive Order 558-A to clarify the implementing framework of government credit programs under EO 558. EO 558-A directs the DSWD to provide livelihood credits to municipalities and barangays that are not covered by banks, cooperatives, and nongovernment organizations based on interest rates comparable to those charged by the Quedan Rural Credit and Guarantee Corporation. Quedancor charges below market interest rates of 18% to 24% a year, compared to microfinance institutions which charge 34% to 40%. Most of the 47 municipalities not served by microfinance institutions and the DSWD are found in the country’s poorest provinces.

EO 558-A also specifies that credit programs shall support the poverty alleviation thrusts of the government. It tasks the People’s Credit and Finance Corporation to identify unserved areas and to support financial institutions interested in providing services in these locations. The PCFC shall also monitor DSWD’s livelihood support program. Meanwhile, credit programs administered by government nonfinancial agencies (GNFAs) and government-owned and -controlled corporations (GOCCs) will require the President’s approval.

EO 558-A and the original EO 558, issued last 8 August, reversed the credit policy guidelines set out in EO 138, issued in 1999. EO 138 had phased out direct credit programs of the government. GNFAs and GOCCs were prohibited from implementing government credit programs after past subsidized loan programs failed to reach their beneficiaries and remain viable. EO 138 instituted a market-oriented credit policy for the National Credit Council. The private sector provided financial services to the basic sectors, while the government’s role was limited to creating the proper policy environment and delivering support and capability-building services.

The repeal of EO 138 was criticized by various sectors. In a privilege speech last 27 September, Senator Ramon Magsaysay Jr. called EO 558 a “pre-electoral campaign masquerading as a poverty alleviation tool.” The Makati Business Club also issued a statement on 27 September calling on the government to withdraw EO 558 and restore EO 138. In response, the Arroyo administration came out with EO 558-A to clarify its microlending policies.

The Ninoy Aquino International Airport Terminal 3, built on a 63.5-hectare lot in Pasay City to accommodate 13 million passengers each year, was approved for construction in 1997. Originally scheduled to open in 2002, the NAIA 3 presently remains closed, stuck in a web of legal disputes and technical anomalies, and its completion date is still up in the air.

The government reports that NAIA 3 is already 98% complete and is slated to open by March 2007. However, pending issues with contractors, budget and financial liabilities, and international arbitration threaten to stall the opening of the new terminal once again. Nevertheless, President Gloria Macapagal-Arroyo stands committed to the new deadline, confident that with the government’s recent acquisition of the ownership and operation rights to the NAIA 3, the airport will soon be ready to operate.

In September, the Philippine government formally took possession of the airport terminal from its original contractor, the Philippine International Air Transport Corporation, after the government paid PIATCo a down payment of P3 billion (approximately US$6 million), as ordered by the Pasay City Regional Trial Court. The Supreme Court had previously ruled the PIATCo contract “null and void.”

A committee of valuators has been appointed by the Pasay RTC to assess the actual worth of the facility. This is to determine the total compensation that the government will have to pay PIATCo, which is seeking US$565 million. On the other hand, the government is arguing that the new airport costs no more than its bid price of US$350 million.

In the meantime, the government is facing another hurdle as it tries to conclude its contract with Takenaka Corporation, the Japanese contractor commissioned to complete NAIA 3. Takenaka suspended construction work at the terminal following disagreements with the Manila International Airport Authority regarding the replacement cost of some equipment whose warranties have lapsed and the expansion of Take-naka’s scope of work in relation to the repair of the ceiling that collapsed last March.

Airport officials and contractors are presently racing against time to correct more than 40 construction defects in the facility. An additional US$6 million to US$8 million is needed to complete work on roads, connecting lanes, security systems, and communication lines. Meanwhile, the idle facility is said to incur P1 million in expenses every month for electricity alone.