Hi! I am Nina Lasala, former Treasurer of the Philppines. This blog is meant to be an open forum for investors, fellow finance professionals, and other interested parties to discuss the state of Philippine Debt Management.

Sunday, February 27, 2005

The Ombudsman and The Need for Public Bidding of Strategic Government Assets / infrastructure

Interestingly, the PDS* presentation to the Bureau of the Treasury in 24 November 2004 cited MTS Italy as example of a developed fixed income market ( copy of powerpoint slides from PDS is attached as Annex 1). In the same slide, PDS indicated that in 1988-together with Bank of Italy, the Italian Treasury established the framework for a centralized fixed income market through legislation.

To assess the merits of the PDS proposal , I visited the web page of MTS Italy . I urge the readers to do the same. MTS began as an Italian Treasury operated system of clearing, settlement and redemption of government debts. In 1998, this was privatized generating revenues for the Italian government. Though privatized, MTS continues to be supervised by the Italian Treasury.

The route, however, the PDS group wants to take is to effect the creation of the fixed income bourse through the BSP circulars.

BSP circulars 392 and 428 has the unintended effect of "awarding" use of what is presently a government owned multi-million peso system to private parties who’ve admitted (see Star article) that they stand to charge half a billion in fees annually from it. (This number does not take into account the number of times securities are turned over during its life. A turnover of 20 times generates Php10 billion).

I am still trying to figure this out, RoSS is a government owned property. Additional budget will be needed from government to reconfigure the system to suit the custodians’ platform and annual maintenance costs to Government will continue to be incurred to support the privately run system of the custodians particularly PDS for private gain to the tune of Php10 billion, at least, following the claim that the proposal will increase turnover. There is private sector gain as the custody platforms connect to RoSS with no income for government....

Shouldn’t the RoSS be privatized instead?
Answering that question might require the involvement of the National Economic Development Agency that is responsible for evaluating Build Operate Own / Transfer initiatives.

Hypothethically, a privatization eliminates the costs of maintaining RoSS on the part of government and it will raise the revenue the government badly needs.

Is the government not required to bid out the contract to supply services related to the registration of government securities? As Treasurer, do I ,because of the BSP and the DOF order to implement Circulars 392 and 428, have the legal authority to transfer the intellectual property rights to RoSS, not to mention the fact that it is PUBLIC INFRASTRUCTURE, to the private party custodians? To donate a system built with the assistance of bilateral institutions to benefit a few private parties?

On the other hand, will the BSP or the DOF free the Treasurer from any and all legal liability for turning over the Bureau’s electronic records to private party custodian and from any resulting damage arising from the ability of these custodians to enter and correct any of the entries in the registry?

If there are competing claims to registration by two or more private party custodians, what legal rules should the Bureau of the Treasury and the courts recognize? Should the Ombudsman find that the award to the private party custodians is grossly and manifestly disadvantageous to government, is the Treasurer free from all liability for fully turning access to RoSS to Third Party Custodians?

Circular 392 was issued in 2003 and was bruited about as a capital market reforms. At the least, the International Credit Rating Agencies were not impressed.

I realized , too, that two weeks into my term as Treasurer I was expected to execute these circulars without assessing its merits. When I joined the Bureau of the Treasury, I looked forward to becoming part of the solution to the country’s fiscal ills but some sectors have me become a part of its myriad of problems.

As a prudent keeper of the country’s resources, I have prepared the attached note (Annex 2) to the then Secretary of Finance to mitigate the harmful effects of a mandate to implement the circulars in two weeks time.

* the only non-bank custodian accredited by the BSP


Anonymous Anonymous said...

I do not want the RoSS privatized. I believe it is the government who should be in control of such an important system HOWEVER, bidding it out to be privatize is a better alternative to giving it away to a private enitity as is being conceived by the BSP people and their cohorts. at least that way, the government will get to earn something! How terrible that those behind the 3rd party custodianship thing like leeches want to sip the government dry of its blood and even earn in the process. Then having done that, make the government pay up for the whole deal. It is nightmare! How can this be happening?

4:22 PM

Anonymous Anonymous said...

DILBERT SAYS: How can a DOLT think that such a complex IT task like the connection of the RoSS to the custodian be effected in two (2) weeks' time?! HELP!!! WE HAVE A BUNCH OF CLUELESS GUYS IN THE BUREACRACY!!!

4:26 PM

Anonymous Dogbert said...


to my knowledge, all the foreign custodians had no problems connecting to RoSS. in fact, the only one who wasn't able to connect was the custodian with insufficient capital (PD**)!

so i guess the deadline wasn't unreasonable. from what i heard, you can't connect RoSS to vaporware...hehehe ;)

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2:39 PM


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