Senators flag ‘risky’ plan to invest ₱10B public funds on struggling private companies

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Metro Manila (CNN Philippines, March 11) — Some senators expressed alarm over provisions of a stimulus bill that will allot ₱10 billion from public funds to revive big businesses crippled by the COVID-19 crisis.

Members of the Senate Committee on Banks, Financial Institutions and Currencies on Thursday said they were reluctant to support the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery or GUIDE Act –– a measure backed by the Department of Finance –– as it uses taxpayers' money to turn privately-owned but “strategically important” companies around.

The bills seek to infuse ₱7.5 billion into the Land Bank of the Philippines and ₱2.5 billion into the Development Bank of the Philippines. The banks will set up a holding company and invest in cash-strapped firms that need a lifeline.

Landbank market economist Guian Angelo Dumalagan said around 15 private firms may benefit from the capital infusion. The bill targets companies facing temporary cash flow problems from sectors like manufacturing, transport, logistics, power, construction, food, and property sectors.

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Lawmakers were hesitant about the planned handouts.

“Maga-allocate tayo for these companies na naba-bankrupt para naman makaahon ang ekonomiya natin, but we should limit it because those are all high-risk companies,” said Senator Cynthia Villar, who is also a billionaire businesswoman.

“Pwede rin silang maka-recover, pwedeng hindi, pero ‘pag nilagay natin ‘yung pera natin diyan, we accept the fact na pwedeng mawala na ‘yung pera na ‘yan.”

[Translation: We will allocate funds for these companies going bankrupt so that we can revive our economy, but we should limit it because those are all high-risk companies. They may recover or they may not, but when we put the money there, we accept the fact that that we can lose that amount.]

Senator Imee Marcos also opposed the creation of the investment firm, saying she would prefer setting up a “trust fund” within the two state-owned banks that would make it easier for the troubled companies to borrow money.

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Companies suffering “temporary solvency” issues but show potential for high economic returns or high employment potential may apply, but they must prove their financial strength pre-pandemic. They should also submit a credible financial recovery plan to qualify for the capital boost.

Apart from government money, National Treasurer Rosalia De Leon said multilateral groups like the Asian Development Bank, World Bank, and the International Finance Corp. may be tapped for equity funding to corporates.

Dumalagan said the fresh capital infusion will allow distressed companies to borrow more from banks or the capital markets and raise enough to support their rehabilitation plans. The scheme is expected to save over a million jobs, against 2.7 million employees displaced by the 2020 coronavirus crisis.

Meanwhile, Senator Franklin Drilon questioned if the stimulus is enough to really revive business activity.

“We don’t want a scenario wherein the GFIs will lose control and will end up holding ownership of distressed companies,” Senator Sherwin Gatchalian added.

The proposed law also requires government banks to grant more loans to small businesses, a continuation from previous stimulus packages signed into law to spur economic rebound after last year’s recession.

Another hearing on the GUIDE Act is set for March 17.