LEGAZPI CITY—The Bangko Sentral ng Pilipinas (BSP) branch here has reminded local government units (LGUs) in Bicol to secure a prior opinion of the Monetary Board (MB) in securing bank loans to finance projects as next year’s elections are only over a year away.
LGUs need MB opinion as a requirement so that they are advised on the probable effects of their loans and other borrowings on prices, monetary aggregates and the balance of payments (BOP).
In a statement over the weekend, BSP Legazpi Manager Marlyn Paje said the requirement was in accordance with Republic Act 7653, or the New Central Bank Act of 1993, which designated the BSP as the government’s financial advisor on official credit operations.
The same requirement covers the national government, its political subdivisions or instrumentalities, including government-owned and -controlled corporations, local water districts, as well as state universities and colleges.
The process also enables the BSP to monitor the borrowing of the public sector and assess their impact on the monetary sector and external payments position of the economy, in fulfillment of its role and mandate to promote and maintain monetary and financial stability, Paje said.
Banks will be sanctioned if they release loans or other forms of borrowing to LGUs without prior MB opinion, she warned.
The MB opinion is valid for six months from the date of issue and may be extended for meritorious reasons, Paje said.
No opinion will be released if there has been partial or full release of a borrowing by a bank/nonbank financial institution/lender to the LGU since the MB will then no longer be in the requisite position to render the same, she said.
She also clarified that the MB opinion does not pass upon the feasibility of the projects to be financed by the proposed borrowing.
Issues not related to the rendering of an opinion on the monetary aggregates and BOP implications of a proposed borrowing shall be forwarded by the BSP to the appropriate government agency, such as the Department of Finance-Bureau of Local Government Finance (DOF-BLGF) or the Department of the Interior and Local Government (DILG).
Requests by LGUs for MB opinion on their planned loans/borrowings may be submitted to the BSP directly by LGUs or through the lending banks.
The request should indicate the amount and purpose of the loan, the lending bank, the terms and conditions of the loan, including interest rate, maturity, fees and other charges.
The request should also include the certification on the debt service and borrowing capacity of the LGU obtained from the DOF-BLGF; designation of a contact person/s responsible for coordinating with the BSP along with contact information, and—if he/she will act as representative on behalf of the LGU/chief executive—a Sanggunian resolution on the specific acts/services he/she has been authorized to perform; and indication by the lending bank of the source of funds it will lend.
Within 30 days after the full release of the loan proceeds, a post-borrowing report on the final terms and conditions and the utilization of the loan proceeds must be submitted to the BSP.
Proponents are, likewise, advised to consult other agencies, such as the DOF-BLGF and the DILG about their requirements, if any, apart from those of the lending bank.
For the release of the proceeds of the loan, the LGU has to submit to the lending bank/lender a copy of the ordinance approving the proposed loan’s terms and conditions, as well as the specific purpose/s and corresponding amount of the project to be funded.