GFIs and PAL

The Philippine Star

Friday, December 11, 1998

Demand and Supply

Boo Chanco

Sometimes I wonder if government should manage any financial institutions at all. The proposal made by Finance Secretary Ed Espiritu for GFIs to provide bridge financing for PAL is a bad one. Even the GFIs were not too enthusiastic about it. PNB for one does not want any more exposure in PAL. It is already too exposed in PAL as it is.

In fact, in the case of PNB, it is trying its best to clean up its book so that government can get a good price when it privatizes its remaining shares. There is even this proposal, I think from Ed Espiritu’s shop, to put up an entity that will take over some of the really hopeless accounts in PNB's portfolio. I suspect one of those accounts will be PAL.

This means, the taxpayers will once again pay for PNB’s bad loans. The taxpayers did this once before when Ed was still president of the bank. So, this is a second time taxpayers will rescue PNB. As it is, PNB Chairman Ed Angara was heard complaining about the fact that a PNB subsidiary ended up with millions of pesos in hills to cover the expenses of Cathay Pacific when it took over PAL’s domestic route after it shut down some months ago.

It wouldn't make sense for DBP to provide bridge financing for PAL. DBP has other priorities, more promising and more in line with its mission as a development bank. The same is true for Land Bank, whose funds are better invested in countryside lending to guarantee the success of agrarian reform.

As for SSS and GSIS, these are trust funds and government has an obligation to private sector and government workers who are members of the two systems to guarantee the safety and earnings of their money. It is easy to call such assistance as "bridge financing". But the truth is, any GFI money lent to PAL now is money down the drain.

Government must work to encourage successful negotiations between PAL and Cathay Pacific. That is PAL’s last chance to survive as an airline. Unless of course, Lucio Tan is ready to bleed some more by standing alone.