Next year, we must pay P35B to redeem PEACe Bonds

Critics ask where did the P10B obtained in 2001 go?

The return of Corazon “Dinky” Soliman to public prominence as secretary of the Department of Social Welfare and Development made the media resurrect a controversy involving an organization that she headed until just before she joined the Cabinet of former President Gloria Arroyo in 2001.

That organization, Code-NGO, was among the most active groups that moved for the ouster of then President Joseph Estrada.

Several allegations were hurled at Code-NGO, formally known as the Caucus of Development NGOs, an umbrella group of several non-government organizations. One was that it obtained a profit of P1.4 billion through the unethical flotation of Treasury bonds.

The 10-year zero-coupon bonds worth P10 billion are set to mature next year. This obligates the government to pay the holder of these T-notes an amount of 35 billion.

Soliman resigned as executive director of Code-NGO on becoming Mrs. Arroyo’s Social Welfare secretary. But she did remain a board member of a nongovernment organization belonging to the Code network, PHILHDRRA.

One of the arguments against the Code-NGO windfall was that Marissa Camacho-Reyes, who replaced Soliman as the head of Code-NGO, is the sister of the Finance secretary at the time, Jose Isidro Camacho.
The Finance secretary of any Philippine government is a substantial voice in approving bond flotations together with the Treasury secretary.

The Senate Investigation on the matter featured certain senators denouncing the case as graft, saying that there was favoritism in the bidding process.

The nonprofit economic group, Freedom from Debt Coalition (FDC), released an incisive position paper at the time. It included a chronological list of events.

According to the FDC document, Camacho-Reyes along with other Code-NGO officials, such as then National Coordinator Danilo Songco, had started plotting with investment bankers as early as February 2001 to raise money for their activities by selling government bonds.

The idea was that Code-NGO would negotiate through RCBC (Rizal Commercial Banking Corp.) Capital, the investment arm of the bank, 10-year zero-coupon PEACe (Poverty Eradication and Alleviation Certificates) bonds from the Treasury. The notes would then be passed to the secondary market, while Code-NGO would receive a small percentage in commissions.

On July 17, according to the FDC: “RCBC offers to buy P15 billion of 10-year, zero-coupon T-Notes from the Bureau of Treasury for about P4.7 billion. The T-Notes will be resold as PEACe Bonds, the earnings from which will be used to finance anti-poverty projects and programs of NGOs. This will be the centerpiece of the President’s State of the Nation Address on 23 July.”

The Treasury apparently found direct negotiation of the notes to be inappropriate as it suggested to the Department of Finance to include the zero-coupon bonds in its regular financing program. Former Secretary Camacho approved this notion to include the bonds in the bidding process, but this would open the bonds to other Government Securities Eligible Dealers (GSED) instead of being an exclusively Code-NGO affair.

The bidding was set to occur on October 16 of the same year. But by that time, the value of the T-notes had increased to 35 billion.

Those who denounced Code-NGO claimed that the bidding was tipped in its favor.

According to the FDC’s position paper, Code-NGO with the help of the government “made sure that the timing and process of disclosure would favor the most prepared—CODE-NGO—who had worked on the deal longer than anyone else, who was intimately familiar with the details, and whose bank was prepared way ahead of its rivals.”

It is also interesting to note that the bidding on that day was done manually by fax, even though an automated electronic system was set to be fully installed a few weeks from then, the FDC document stated.

Songco, who along with Camacho-Reyes resigned from their posts after this controversy erupted, wrote a defense for Code-NGO that was published in the Philippine Daily Inquirer on February 17 2002.

“If indeed there was information asymmetry or if the auction was rigged, the bidders had two days to make their complaints and demand a re-bidding. Not one of the bidders raised a complaint. Since all of those who participated in the auction are expert traders, they would not have participated if the playing field was not level. Logic dictates that the bidders are the best witnesses to testify if the bidding was fair or not.” Songco wrote defending his group against the argument that the bidding was tilted in Code-NGOs favor.

“The idea behind the PEACe Bonds project was to raise P1 billion from the capital market, a potent source of funds. The target amount had to be big in order to make a significant impact on a colossal problem.

CODE-NGO would buy bonds from government and sell them in the secondary market. The profit from this sale would be used to establish an independent foundation that would manage a trust fund (only the interest would be spent) to finance NGO/PO projects to fight poverty. The fund would be made available to all legitimate NGOs and POs—not just to CODE-NGO members.” Songco wrote.

This foundation Songco spoke of is now the Peace and Equity Foundation (PEF), which manages the Peace and Equity Fund and is based in the headquarters of Code-NGO.

The PEF is only a funding institution and therefore does not directly implement programs. It does, however, screen programs based on eight categories and decides on whether each category for a given program is ineligible, eligible or case-to-case. Project eligibility is decided in regard to its location, beneficiary sector, community participation, project results, market/product, technology, counterpart and sustainability. Tried and tested projects are given priority for eligibility.

The PEF has annual audit reports from 2003 to 2009 that is open to the public and can be found on their website. Here they also feature a complete list of all the programs they have given loans and grants to, including such details as how much was granted or loaned and the nongovernment organization conducting the project.

On page two we have the 2009 disbursements for various anti-poverty nongovernment organizations.

From late 2001 to the end of 2009, the PEF has financially assisted more than 1,000 projects with classification of such ranging from basic services to developing social capital and livelihood.

The latest audit report, based on 2009, shows that there are relatively no changes to the amount contained in the PEF Trust Fund; it still has about 1.6 billion. The fund is replenished thru earnings from
loan interest.

Soliman recently declared that she wanted the newly formed Truth commission to include this issue in its investigations to finally shed some light on the allegations and also to clear her from any involvement on the matter.

Soliman also said that both Camacho-Reyes, Songco and Code-NGO were being praised in the International Community for devising a creative approach to raise funds to fight poverty. She also said is only here in the Philippines where they are being maligned.

Perhaps she is right.

But the only thing certain right now is that next year, P35 billion of taxpayers’ money will go to the holders of those bonds. –Rafael Puyat REPORTER, Manila Times