Indications are that, despite glowing reviews of the economy growing at one of the fastest rates in the region, multilateral institutions are expressing concern about the reckless approach to extracting money from state-owned firms.

Protests are spreading over the recent actions by the Department of Finance to extract P60 billion from the Philippine Health Insurance Corp. (PhilHealth) and P117 billion from the Philippine Deposit Insurance Corp. (PDIC) in order to bolster the funds for unprogrammed appropriations in the national budget.

Regular projects that are essential to maintaining the growth momentum were bumped off in the budget and placed under the unprogrammed appropriations with no definite source of funding.

In their place were inserted the pet projects of members of Congress that are the usual sources of pork barrel funds.

The International Monetary Fund (IMF) has expressed concern over the reallocation of funds and recently advised the Bangko Sentral ng Pilipinas (BSP) to restore the capital of the Land of the Philippines (LandBank) and the Development Bank of the Philippines (DBP) that was taken for the start-up capital of the Maharlika Investment Corp. (MIC).

The IMF said its proposal is aimed at ensuring the stability of the country’s financial system.

“Implementing capital restoration plans for the two state-owned banks following their contribution to the MIC’s start-up capital and exiting regulatory relief as soon as possible is important,” the IMF said.

“While the establishment of the MIC can help address the country’s investment needs, it should not come at the cost of a resilient financial system, sound regulatory framework, and level playing field,” it said.

The MIC had an authorized capital stock of P500 billion. Under the law, LANDBANK and the national government were mandated to initially contribute P50 billion each and the DBP, P25 billion.

The P50-billion government share would be sourced from central bank dividends, the income share of the Philippine Amusement and Gaming Corp., proceeds from the privatization of government assets, and other sources such as royalties and special assessments for a period of five years.

The BSP had acknowledged that the significant capital contributions made by Landbank and DBP had strained their liquidity positions, which might make them noncompliant with regulatory capital requirements.

A banker, who is now the head of an economic think tank, said that during the year that it remitted its P25-billion contribution to Maharlika, DBP’s capital ratios went below the regulatory minimum of 10 percent, based on its 2022 audited financial statement.

The ratios improved slightly in 2023 “but remained below the regulatory minimum.”

“In remitting its P25-billion equity contribution to Maharlika, the DBP was complying with Section 6.2 of RA 11954, but at the same time it violated Article III Section 12 of the same law, which specifically states that its equity investment should not exceed 25 percent of its equity,” the topnotch banker said.

He also noted that DBP violated Section 24 of the General Banking Act (RA 8791) which limits “equity investments in allied undertakings” to 25 percent of the bank’s equity.

Complying with the General Banking Act means that with a total equity of P82 billion as of December 2023, the maximum amount that DBP was allowed by law to remit was only P20.5 billion or 25 percent of P82 billion at the time of remittance, he explained.

Similar concerns arose with the transfer of PDIC and PhilHealth “excess funds” to the National Treasury, where they would be used to finance essential projects listed under unprogrammed items.

The P117-billion remittance forced on PDIC technically could be accommodated as a result of the huge reserve fund of the state firm.

“If you deduct P117 billion from the P310 billion deposit insurance fund (DIF), the remaining amount is P193.1 billion, or 5.5 percent of the estimated insured deposits of P3.511 trillion,” according to the banker source.

The DIF was shaved to the lowest end of their target of 5.5 percent to 8 percent from 8.8 percent in 2023.

The manipulation of public money for political agendas raises a red flag.