THE government plans to use state-owned pension funds and other government financial institutions to provide the cash that will help fund the Aquino administration’s initiative to entice more project partnerships with the private sector.

Finance Secretary Cesar Purisima said in a Senate hearing on the 2011 national government budget that pension funds, such as Government Service Insurance System (GSIS) and the Social Security System (SSS), may put their billions of available cash in an investment instrument that the government itself will create and sell to the private companies.

GSIS is the pension fund for the government workers, while SSS mainly serves workers in the private sector.

Purisima said the Department of Finance (DOF) is looking at floating a 25-year peso-denominated zero-coupon bond.

He said the DOF is still looking at which agency will package and float the debt instrument.  Zero-coupon bonds are instruments that pay no interest, but instead are sold at a deep discount of its face value.

Purisima did not give specifics on the tenor of the debt paper and how much the government will float to fund the project.

“If you look at pension funds, in insurance companies, the very nature of their business, the requirements for investments are very long. In the past, they’ve been buying very short-term instruments and which made their investment planning and estimation difficult,” said Purisima.

“When we lend these funds, we would securitize them so that we can, likewise, replenish the funds that will be relent,” he said.

The debt papers will then be sold to the same companies that needed money in order to implement its project in partnership with the government, or what the Aquino administration calls the public-private partnerships (PPP).

Purisima said only the proponents of the solicited project proposals will be able to buy the debt paper.

According to the P1.645-trillion budget proposal for 2011, the Aquino administration has slashed the government’s capital outlay to just P196.6 billion, or 12.8 billion less than this year’s budget for the said item.

Most of the infrastructure projects will be carried out in partnership with the private sector and the government will only provide some P15 billion to facilitate the implementation of the projects and to study what infrastructure projects can be worked out in the future. The amount will be divided among the Departments of Public Works and Highways, of Transportation and Communications and of Agriculture.

Some of the funds will be allocated to agencies, such as the Department of Social Welfare and Development, to continue the conditional cash transfers to the poorest families in the country.

The plan to rechannel the funds intended for capital outlay to social services has irked some senators, which have called the PPP initiative “very iffy,” as the government is pinning its hopes on the growth of the economy from the private sector rather than doing some pump-priming efforts.

“You are putting all your eggs in one basket. What happens if this PPP does not push through?” Sen. Ralph Recto said.