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MANILA, Philippines - Banks are seeking guarantees for projects that are exposed to political risks, such as social infrastructure initiatives, which could wipe out their investments.
In forum organized by the Asian Development Bank and Asian Institute of Management on Monday, BDO Capital and Investment Corp. asked panelists whether institutions such as the Asian Development Bank are willing to provide risk guarantees for public-private partnership (PPP) projects that can become hostage to politics.
Eduardo Francisco, BDO Capital president, said banks would not be able to translate these risks in their balance sheets.
"Except for the four GFIs, no one will be willing to finance the projects," he said, referring to government financial institutions, namely the Development Bank of the Philippines, Land Bank of the Philippines, Government Service Insurance System and the Social Security System.
For example, the budget for classrooms is under the Department of Education, but would have to come from the General Appropriations Act, which is passed by Congress. The DepEd would release the budget through the local government unit that requires the school buildings, thus exposing the project to political risk.
"What if the Department of Budget and Management (DBM) would not be able to allocate something for the project? The private financial institutions would not get paid. What if Congress does not pass the budget for the school in that district?" Francisco told the panel.
Recently, some members belonging to the opposition bloc in the House of Representatives accused the Aquino administration of holding back their Priority Development Assistance Funds because of their political affiliation.
"The whole classroom project is MYOA or the so-called Multi-Year Obligational Authority. And the only one who might accept it is government. Government to government, bahala na silang magtinginan," Francisco told reporters on the sidelines of the forum.
The same case holds for bridges since such projects have no toll collection component, and so would depend on political support.
Because of the nature of these social infrastructure projects, private financing institutions might be wary of entering a program that exposes them to political risks.
Private financial institutions cannot take on such risks, which could weaken the country's financial sector if one or several of the projects fail.
"That's why the risks should be mitigated also. There's liquidity but there are not much adequately structured projects," Francisco said.
In a speech during the same forum, Finance Secretary Cesar V. Purisima said this is the reason the government took a long time in rolling out a PPP project.
"I fell flat on my face because I said we will launch 10 projects last year but we only managed one," Purisima said.
"But that is the challenge for the Aquino administration: to bring back the trust and confidence in PPP. There are successful PPPs in the past, such as the water privatization. But we have to make sure all projects will stand scrutiny of the next administration," he added.
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