Position Paper of CODE-NGO on the PEACe Bonds

The PEACe Bonds did not involve any graft or corrupt practice, did not violate any law and did not defraud or disadvantage the government or the Filipino people.  On the contrary, the PEACe Bonds was a legitimate and legal transaction that has resulted to the creation of a substantial and sustained endowment fund, which has been managed responsibly and transparently and used for anti-poverty projects – benefiting poor Filipinos in the past 9 years and in the years to come.

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Submitted to the HoR Committee on Good Government and Public Accountability

In response to House Resolution No, 58 directing the Committee on Good Government and Public Accountability to conduct an investigation into the PEACe Bonds to “resolve the issue regarding the Poverty Eradication and Alleviation Certificates (PEACe) Bonds and on whether the government was defrauded or not”, we are submitting this position paper.

The Senate, through its Finance Committee, and the House of Representatives already conducted separately exhaustive investigations into the PEACe Bonds in 2002, which were also covered extensively by media at that time, and at the end, both committees did not come up with any finding of any irregularity in the PEACe Bonds.

We are submitting to the Committee our position paper, which we prepared and submitted to the Senate Committee on Finance more than 8 years ago (enclosed), as this answers the questions and issues that are being resurrected at this time.

In summary, we reiterate these main points:

a)No law was violated by any party (CODE-NGO, the involved government agencies and officials, RCBC and RCBC Capital) in the course of the issuance of the PEACe Bonds.

The issuance of government bonds is part of the normal functions of the Bureau of Treasury (BTr).  As required by law, the BTr had secured Presidential Full Powers for the issuance of the bonds.  The BTr announced the auction of the bonds one full week in advance, more than the required “prior notice”.  The manual bidding procedure had to be used by the BTr because their electronic auction system could not handle the 19-lender rule and the 20% withholding tax exemption, and had been established in consultation with and with the conformity of the Government Securities Eligible Dealers (GSEDs).

While existing laws and regulations and BTr policies allow the issuance of government bonds on a negotiated sale basis, as had been proposed by CODE-NGO, the BTr decided to go through the public bidding route to ensure the transparency of the process and to get the best rate for the government.

Then Finance Secretary Lito Camacho also did not violate any law.  All the preparatory groundwork for the issuance of the PEACe Bonds had been completed before he was appointed Secretary of Finance.  Nevertheless, he formally inhibited himself in writing and assigned Undersecretary Gison to handle all matters relating to the bonds.

The Bangko Sentral ng Pilipinas (BSP), Bureau of Internal Revenue (BIR) and the Insurance Commission all acted according to their official powers and functions and the applicable laws.

Neither did CODE-NGO violate any law.  CODE-NGO did not violate any law when it negotiated with the BTr to issue the PEACe Bonds exclusively to CODE-NGO thru a GSED.  Treasurer Edeza testified during the Senate hearings that the BTr from time to time sells government securities on a negotiated basis to a single buyer.  Fifteen GSEDs, including 5 multinational banks, participated in the bidding.   The regularity of the conduct of the bidding is attested by the fact that not one of them raised any complaint about the bidding process or results within the 2-day period for complaints provided by the bidding rules or even afterwards.  In fact, on February 14, 2002, the Money Market Association of the Philippines formally stated that none of the GSEDs complained about the conduct of the auction of the PEACe Bonds and that they “firmly stand by the integrity of the government securities auction process”.

CODE-NGO did not use its Chairperson’s relationship with the Finance Secretary to secure any favor from his department or the agencies under him.  Before Secretary Camacho was appointed to the Department of Finance, CODE-NGO requested for the issuance of the bonds and for tax rulings and eligibilities on the basis of existing rules;  it never solicited any of those agencies and their officials to give CODE-NGO any concession.

Finally, RCBC and RCBC Capital only performed their normal business operations as a GSED and an investment house, respectively, and did not violate any law in the process.  

b)The issuance of the PEACe Bonds did not prejudice the Philippine Government or the Filipino people.

The PEACe Bonds did not add to the debt stock of the Government.  The bonds were issued by the BTr as part of the planned borrowing program of the government to finance its budget deficit.  In other words, with or without the PEACe Bonds and CODE-NGO, the government would have borrowed the same amount in 2001.

The fact that government will pay Php35 Billion in 2011 when it received only Php 10.168 Billion in 2001 is being raised by some quarters as proof that the PEACe Bonds are disadvantageous to the government.  However, Php 35 Billion only reflects the regular payment of the Php10.168 Billion borrowed by the government with 12.75% interest compounded semi-annually.  It only seems so big because instead of making semi-annual interest payments over a period of 10 years, the government will make only a single one-time payment after 10 years.  It must be noted that the prevailing interest rate for 10 year treasury notes at that time, excluding the 20% final tax and the 50 basis points to account for the reserve eligibility feature, was 13.64% – so that government has actually saved 0.89% in interest and avoided paying higher interest with the 12.75% interest that it will pay on the PEACe Bonds.

The money earned by CODE-NGO was the trading gain in the course of the secondary market sale of the bonds and is therefore private funds, which did not come from the government.  The Php 10.168 Billion that was paid to the BTr in the primary market sale of the bonds is the public funds.  This was received by the government in full.

c)No one profited illegally from the PEACe Bonds transactions.

No one from government or from CODE-NGO profited personally from the PEACe Bonds.  All the proceeds of CODE-NGO from the bonds have been accounted for and are carefully managed as endowment funds by CODE-NGO (10%) and by the Peace and Equity Foundation or PEF (90%).

In addition, we would like to clarify the following:

1)Social Welfare and Development Secretary Corazon “Dinky” Juliano Soliman was never involved in the PEACe Bonds transactions either as an officer of CODE-NGO or as a government official.

Despite the repeated and sometimes apparently malicious attacks against Secretary Soliman linking her to the PEACe Bonds, she was no longer connected to CODE-NGO when the process for the bonds began in March 2001.  She had resigned as CODE-NGO Chairperson in January 2001 when she accepted the appointment to DSWD.  She was also never involved as DSWD Secretary in the PEACe Bonds process, which concerned the finance agencies of the government.

2)The proceeds of the PEACe Bonds received by CODE-NGO have always been managed responsibly and reported to the proper authorities, with such reports also being published and posted on our websites for transparency purposes.

Ninety percent of CODE-NGO’s proceeds from the PEACe Bonds or Php1.3 Billion was donated to the Peace and Equity Foundation (PEF) and 10 percent (Php 148 Million) was retained by CODE-NGO as an endowment fund.  

CODE-NGO has been using the interest income from this fund to support the strengthening of its member networks and also to provide modest support for the advocacies of people’s organizations (POs).  The use of this fund has always been included in our audited financial statements, which we submit annually to the Securities and Exchange Commission, as required by law, published and distributed to our annual General Assembly and to other institutions, and also posted on our website (www.code-ngo.org).

PEF is a separate organization from CODE-NGO, with its own legal personality, Board of Trustees and management, so we cannot speak for them.  However, based on reports which it has regularly made public through its website (www.pef.ph) and various publications, PEF has, in the past 9 years, already provided Php1.06 Billion to support 1,215 anti-poverty projects run by NGOs, people’s organizations and communities. These projects have benefited 320,000 households in the poorest communities or over 1.5 million Filipinos.  At the same time, it has also managed to grow its endowment fund from Php 1.3 Billion to Php 1.6 Billion.

In conclusion, we wish to assure the committee that the PEACe Bonds did not involve any graft or corrupt practice, did not violate any law and did not defraud or disadvantage the government or the Filipino people.  On the contrary, the PEACe Bonds was a legitimate and legal transaction that has resulted to the creation of a substantial and sustained endowment fund, which has been managed responsibly and transparently and used for anti-poverty projects – benefiting poor Filipinos in the past 9 years and in the years to come.

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