CREATE MORE JOBS WITH BETTER FINANCIAL ENVIRONMENT - ANGARA

In order to create jobs, the financial environment must be supportive to business and entrepreneurship.

To achieve this, Senator Edgardo J. Angara, chairman of the Senate Committee on Banks and Financial Institutions, called for the strengthening of capital markets through a 7-point financial reform agenda that includes pooling together and making available to creditors a comprehensive credit information system on borrowers; creating a regulatory framework for lending companies; setting up a private pension scheme to supplement the government-funded retirement scheme; reviving the preneed industry while protecting planholders; making insolvency procedures easier for ailing companies; providing for flexibility in mutual funds; and allowing real estate owners to register income generating property in the exchange market.

"Part of the reason why job creation in our country is limited is the weak capital market. Money does not circulate smoothly because we do not have enough financial instruments to allow access to financing. I have nothing against banks but it is quite unhealthy that our financing mainly comes from banks - or worse, "five-six" for small businesses - for lack of other options," said Angara.

"For instance, Bill Gates did not start out rich nor did he have a huge inheritance. But other countries produce multi-billion dollar businesses like Microsoft because they are able to leverage their bright ideas and access the capital market," he added.

The Credit Information System Act will enable easier access to credit by small businesses, as well as better risk assessment for lenders. Under the system, a borrower's or would-be borrower's credit information - whether good or bad - would be inputted into a system that is circulated among the accessing entities. Financial institutions like banks shall consolidate their records and contribute their credit experience on consumers to a central credit information system.

"This is a major step towards unlocking money because lenders will now be more comfortable to assess their risk of lending; while banks will know beforehand the credit history of their borrowers," said Angara. The Credit Information System Act (CISA) has been passed in the Senate and is pending concurrence in the House.

The Lending Companies Act creates a regulatory framework for lending companies in order to avoid disastrous pyramiding scams such as that of the Multinational Telecommunications Investment, Inc. (Multitel) in 1998.

The Senate has also passed the Personal Equity & Retirement Account (PERA), which will supplement the existing government-sponsored pension scheme by setting up a privately funded retirement fund. PERA allows private individuals to voluntarily set aside P50,000 a year, withdrawable when the contributor reaches the age of 55, and tax-exempt. It will encourage long-term saving and reduce our heavy reliance on the already overwhelmed publicly-funded retirement scheme.

Angara noted that almost 11 million Filipinos, mostly OFWs and owners of SMEs, have no retirement or pension scheme because they do not belong to the SSS or the GSIS. "They may be making a lot of money now, which goes mainly into consumption, but leave very little to savings. With PERA, they have a way to save for their retirement years," he said.

Another measure sponsored by Angara is the Pre-Need Code, whose aims are two-fold: protect the planholders and at the same time keep the pre-need industry viable. Among other strong safeguards and precautions, its best feature is the Trust Fund model, where a portion of the payment collected by the preneed company will be deposited in a trust fund. This would help guarantee the delivery of benefits to the planholder in the future, and minimize the risk of insolvency as the trust fund will remain untouched until the plan matures.

Further, the Committee on Banks is pushing for the Corporate Recovery Act, which seeks to improve insolvency procedures to make debt recovery process more efficient and give insolvent companies a chance to recover from illiquidation.

"It is so difficult to undergo liquidation or bankruptcy in the Philippines. A company declared bankrupt is like a patient declared dead. It can never get revived, and can be tied up in court forever," said Angara. "We need to find a way of rehabilitating ailing companies, because the loss to many people is much greater if we just let it die, worse if we just let it drag on and on. The point is, we like business to go on because they create jobs and provide income to people."

Angara has also revised the Revised Investment Company Act (RICA), into the Collective Investment Schemes Law (CISL), or the Mutual Fund law. The CISL will establish a comprehensive regulatory framework for all forms of Collective Investment Schemes (CIS) and eliminate existing differences in regulating them. Through this bill, I hope to balance the interests of the investors by giving them more flexibility to expand their CIS businesses, but at the same time instituting mechanisms that will safeguard the public interest.

Finally, the Real Estate Investment Trust (REIT) Act seeks to establish a legal and regulatory framework and the creation of a favorable market environment for real estate investment trusts.

"There is almost US$3 billion locked up in bankable real estate in this country. There is almost no liquidity, made worse by the high transaction cost of selling a real property. People, therefore, would rather hold on to real estate property, leaving no transaction. But with REIT, one can register income generating real estate in the exchange market, and trade the shares. That way, there will be liquidity injected into the real estate market," said Angara.

The real estate market is notorious for its boom and bust cycle. These ups-and-downs will be smoothed out with the REIT. The REIT, introduced to Asia only as early as 4 to 5 years ago, is now so successful in Hong Kong, Shanghai, Kuala Lumpur and Thailand.