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BSP, DoF friction emerges over negotiated sale of IOUs

By Ruben Hortelano

03/24/2008

A conflict on the policy in the sale of government debt papers are straining relations among officials of the Department of Finance (DoF) and the Bangko Sentral ng Pilipinas (BSP).

Finance Undersecretary and Treasury chief Roberto Tan, however, vowed to continue selling Treasury bills on negotiated basis despite the likelihood that he may be charged before the Ombudsman for graft.

Who said this was illegal? We have always resorted in the past to the negotiated sale whenever the situation calls for it, Tan pointed out, even if the BSP may filed graft charges against him.

According to Tan, the DoF, particularly the Bureau of Treasury where he is head in acting capacity, felt the bimonthly T-bills auctions have not been operating normally in recent months.

The BSP had earlier contended that all government sale activities be conducted under an auction process so that transparency is assured or risk inviting unwanted market perceptions.

The negotiated sale of government securities will give us the flexibility we need. It will help us be more opportunistic. But you must understand we will conduct it using market-determined pricing, Tan said.

That the market has not been behaving normally was evident by recent attempts to ramp up the cost of raising funds from T-bills where even a three-month paper would cost the Treasury more than five percent.

Tan noted, the 91-day paper should cost government no more than 3.673 percent and the BSP offered the banks far shorter-dated papers with yields approximating those given the long-dated instruments.

Tan also cited the BSP for removing its one-week, two-weeks and one-month SDAs that used to yield up to 5.1875 percent investment-hungry banks looking out for the most return with as little risks as possible.

We expect liquidity to return to the T-bills market now that some of the SDAs have been withdrawn, Tan said.

BSP Gov. Amando Tetangco Jr. encouraged in May last year to expand the eligible SDA participants to include the various trust units adding even government owned and controlled corporations to soak on externally-driven liquidity.

Tetangco ruled out government pressure when the seven-man Monetary Board dropped the two, three and six-month SDAs to encourage the lending of more loa n funds for the banking public.