Press Release
August 12, 2007


Senate Minority Leader Aquilino "Nene" Q. Pimentel, Jr. (PDP-Laban) today called on local chief executives to exercise utmost prudence in exercising their authority to contract loans from banking and financing institutions in the wake of extreme difficulties now being encountered by many local government units in repaying their debts due to lack of thorough evaluation before the loans are approved.

Pimentel, principal author of the Local Government Code, expressed alarm over the rampant abuse by the local officials in securing loans particularly with the Land Bank of the Philippines at amounts that are beyond their paying capacity.

"Consequently, the borrower-local government units are forced to allocate a lion's share of their Internal Revenue Allotment (IRA) to repay the loans, leaving little or no money for the delivery of essential public services," he said.

Pimentel said that the Land Bank should be forthright enough to reject the loan application of the LGUs concerned if the amount they are borrowing is disproportionate to the income of the LGUs and therefore beyond their financial means.

He stressed that the IRA representing the share of LGUs from the collection of internal revenue taxes is intended to subsidize the financial requirements of LGUs, and not as collateral for loans.

Most of the poor municipalities are 80 percent to 100 percent dependent on the IRA to support their financial needs. Pimentel said banking and financial institutions should exercise due diligence in lending money to LGUs if they have meager internally-generated income.

To prevent the abuse of the authority of LGUs to avail of credit facilities, Pimentel said that proposed loans should comply with rules on transparency and normal evaluation and approval process.

Thus, he said, no loans agreements entered into by the provincial governor/city or municipal mayor, can be considered valid unless first approved by the provincial board or the city/municipal legislative council.

As proposed by Pimentel as part of the amendments to the Local Government Code (Republic Act 7160), government financial institutions shall open appropriate lending windows for LGUs but fourth, fifth and sixth class municipalities, cities and provinces shall be entitled to concessional rates.

The LGUs shall publish all loans applied for, specifying the amount to be borrowed, the project to be funded, the security offered, and the terms of payment in a newspaper of local circulation, if any, or if there is none, in a newspaper of general circulation in the province, city, municipality or barangay concerned.

Upon the filing of the loan, the provincial, city or municipal government concerned shall cause the posting of the loan applications in the bulletin boards of the provincial, city or municipal halls concerned.

Under the Code, LGUs have the authority to secure loans with any government or private banks or lending institutions to finance construction, improvement or expansion of public facilities, infrastructures, housing project, acquisition or real property and implementation of other capital investment projects.

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