P900B in excess liquidity may fund PPP projects

There is enough liquidity in the domestic market to bankroll major infrastructure projects under the public-private partnership initiative of the Aquino administration, trust and financial executives said Tuesday. Officials of the Financial Executives Institute of the Philippines (Finex) and the Trust Officers Association of the Philippines (TOAP) said that the financial system has excess funds including special depository accounts (SDAs) parked at the Bangko Sentral ng Pilipinas (BSP). The money could be used to finance major infrastructure projects, they said. TOAP president Marvin Fausto said in an interview with reporters that up to P900 billion in excess liquidity were deposited as SDAs with the central bank. Investors are willing to channel their SDA accounts to more productive investments such as infrastructure development as long as the government provides the platform for such investments, Fausto noted. "We are just waiting for the lead from the government," he said. Government does not have to look overseas to finance PPP projects worth between P400 billion and P500 billion, according to him. There is more than enough liquidity in the system that could bankroll the expansion projects of companies including major infrastructure projects under the PPP program of the Aquino administration without putting additional pressure on inflation. SDA placements with the BSP went up by 32 percent or P220 billion to P909 billion as of August from P689 billion as of the same month last year, BSP data showed. According to Bangko Sentral, investors continued to shift to high-yielding SDAs from reverse repurchase agreements or RRPs that also siphons liquidity off the financial system. RRP is a scheme for financial entities the buy securities from the central bank and sell these back to the BSP at a fixed date. The SDA facility is a fixed-term deposit placed by banks and trust managers with the central bank, introduced in November 1998 for the BSP to expand its liquidity management. In April 2007, the BSP expanded access to the facility by allowing trust entities to place SDA deposits with a view to managing liquidity in the face of strong foreign exchange inflows. At the rate OFW money and foreign portfolio investment or hot money is flowing into the country, the economy might not be able to cope with such reality, Fausto said. "The economy is not growing as fast as liquidity. Investments are needed to achieve higher growth," he said. OFW remittances went up by 7.1 percent to $10.679 billion in the January-July period from $9.973 billion a year earlier. Hot money, on the other hand, breached the $1 billion level as of September 10 fuelling the Philippine Stock Exchange index to record levels above 4,000. Trust funds have been growing also at double-digit levels over the past few years. The gross domestic product grew 7.9 percent in the first half of the year from 1.2 percent in the same period last year. Finex president Greg Navarro said the government should provide the mechanism for so-called infrastructure bonds where investors can place some of their idle capital. "The government should come in to provide incentives for investments," Navarro added. —VS, GMANews.TV