Truth about the peace bonds

The controversy over the peace bonds is obscuring the bigger picture of the challenges of Philippine development and of the need for innovative ideas from both government and citizen organizations (my preferred term for civil society which I have always understood from my study of Marx and Hegel as a negative concept) to lift our most vulnerable countrymen from poverty—and draw up the necessary resources to fuel these development initiatives. This challenge of fund-raising itself demanded creativity and innovation, which is the root of the Poverty Eradication and Alleviation Certificates, or peace bonds project by the Caucus of Development NGO Networks (Code-NGO).

The Philippine financial market represented a potential resource pool for interested parties. Such parties traditionally were money merchants and traders, banks and hedge funds, and the like, but Code-NGO’s then-Chairperson Marissa Camacho-Reyes, working with its then-Executive Director Dan Songco, came upon the idea of tapping this market to generate the needed resources to fund NGO initiatives. The peace bonds project was the result. Code-NGO would authorize Rizal Commercial Banking Corporation, as its financial agent, to buy and sell (at profit) ten-year bonds from the Philippine government. (Originally, this was supposed to be an exclusive purchase by RCBC, but the government opted instead to auction off the bonds to interested parties, despite which RCBC still posted the successful bid). The profit from the reselling of the bonds would then be remitted to Code-NGO, which would most of the funds to establish a resource pool for citizen-led projects.

This was more than nine years ago. Today, those ten-year bonds are scheduled to be redeemed by the Philippine government to the tune of about P35 billion—which is the expected price of their maturity. This has drawn renewed criticism and resurrected allegations dating back to 2001 and 2002 that the peace bonds were a result of money market conspiracies, using the influence of public officials like former Finance Secretary Jose Camacho and Secretary Corazon “Dinky” Soliman, and that the P35 billion payment to redeem the bonds are an unfair and illegitimate burden on the Filipino taxpayer.

The personalities involved with the peace bonds are the best people to testify in the project’s defense, as they have testified well before both Congress and in media. We should however be clear that it is neither Soliman nor Peace Adviser Secretary Ging Deles who needs to do any explaining. Both had nothing to do with the peace bonds as Soliman had already resigned from Code-NGO by the time the initiative was conceptualized and pursued while Deles was not even active in the aforementioned organization. Other than this, I would rather pass on any commentary on any political motivations surrounding the affair, as I do not wish to muddy up the waters any further. What I wish to contribute to the discussion is the bigger picture of where the peace bonds lie in the fabric of Philippine development and civil society.

Capitalism cannot address (at least not fully, or even satisfactorily) the pressing issue of social equity, especially with regard to protecting the most vulnerable members of society from exploitation or being left behind by the market. Still, whatever vices capitalism possesses, it also possesses some virtues, which all of society can also acknowledge. The entire affair can be understood as a demonstration not just of corporate social responsibility (on RCBC’s part) but also of social entrepreneurship: Creative ideas to promote sustainable and equitable development. In this case, the peace bonds were created to solve the pressing need of funding local development projects, at a time when their traditional, philanthropic sponsors were scaling back their aid, by tapping into Philippine financial markets. The current success of the Peace and Equity Foundation, which received and managed the bulk of Code-NGO’s profit from the sale of the peace bonds, in supporting development activities of its many partners all over the country testifies to the good outcome of this experiment.

There were also no irregularities in the entire process of acquiring the government bonds. Finance Secretary Camacho, whose sister Marissa Camacho-Reyes had become the chairman of Code-NGO, had properly inhibited himself from the Finance Department’s involvement in the peace bonds. If anything, in hindsight, perhaps Ms. Camacho-Reyes should also have resigned as Code-NGO’s chairperson to remove all appearances of conflict of interest. But in good faith, they believed that it was enough that Secretary Camacho inhibited himself from the transaction. Incidentally, nobody has ever charged that any of the personalities involved in the approval of the peace bonds benefited personally from its issuance. Here, character as well as credibility is at stake, and Code-NGO certainly could not risk the project’s derailment by any irregularity.

This leaves the only credible sticking point, that of the P35 billion the government must pay to redeem the bonds by next year. This was the expected price of maturity of the ten-year bonds, based on the 12.75 percent per annum interest rate that RCBC bid, so it should have been no surprise. Still, it would neither be in government’s nor in RCBC’s interest to be vindictive or obstinate on this matter, both for the financial market’s and the project’s sake. How government will redeem the bonds in question may still be a point for discussion. Whether issuance of such bonds as a way of raising money by the government for its priorities is or is not a good thing is a legitimate question to ask. But these questions should not be asked in the heat of unproven allegations of market manipulation and insider pressure, and certainly not in confirmation hearings where the appointees have nothing to do with the issue, but the inquiry should be conducted objectively and dispassionately.

The peace bonds project was a good example of how innovative ideas (even capitalism-based ones) can be used to help support poverty alleviation and social equity programs. It’s also a showcase of agents of market and citizen organizations coming together for both a worthy cause (fund-raising for development projects) and a profit motive. In the future though, I strongly advise social innovators “to go an extra mile”, in fact even better “to go two extra miles” (i.e. exert extra effort) to make transactions like these completely transparent, participatory and accountable. As is common knowledge, there were also other citizen organizations and credible individuals who questioned in good faith the peace bonds and perhaps more debate among citizen circles might have been helpful. One understands of course that the diversity of citizen organizations means that there will be no consensus on a matter as critical as raising funds from the financial markets.

In sum, I hope this is the lesson that people will take from the peace bonds experience: that it is possible to tap the financial markets and the private sector to fund pro-poor, citizen-led development initiatives and this can be done without compromising social justice, effective outcomes, and good management. To this day, we still face the twin challenges of poverty and social equity. To overcome them, we need vision, leadership, innovation, and risk-taking. The exercise of these qualities resulted in the peace bonds. That is the truth and let us move on with this in mind and heart.–Dean Tony La Vina

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