ROXAS PROPOSES SENATE INQUIRY ON REPEAL
OF MALACAÑANG ORDER ON SME CREDIT ACCESS

Senator Mar Roxas filed a resolution directing the appropriate committees of the Senate to inquire into the impact to small and medium-scale enterprises of President Gloria Macapagal Arroyos executive order that overturns a standing policy on rationalized credit programs.

P.S. Resolution No. 560 also directs the Senate to review existing policies and programs, and to draw new measures for the further development of SMEs, particularly their access to credit.

The resolution arose from the issuance by the President of Executive Order No. 558 on August 2006 repealing Executive Order No. 138 issued on August 10, 1999.

E.O. No. 138 addressed SMEs access to credit and, at the same time, rationalized the governments inefficient directed credit programs. The order adopted a policy of greater private sector participation in providing financial services and the non-participation of government non-financial agencies and government-owned and controlled corporations in the implementation of government credit programs.

According to the Foundation for Economic Freedom, E.O. 138 helped earn for the Philippines a recognition from the United Nations for having the best micro-finance policy in the world, and was successful in encouraging private financial institutions to participate in micro-finance, Roxas said.

The Foundation had reported that nearly 200 banks are engaged in micro-finance today from just 55 before E.O. No. 138 took effect. They said it came as a surprise that President Gloria Macapagal-Arroyo overturned such lauded policy.

The repeal of E.O. 138 effectively resulted to the return of directed credit programs, Roxas explained.

Directed credit programs are those implemented by the governmentparticularly by non-financial agencies and government-owned and controlled corporationsand funded out of budgetary allocation, special purpose funds, loans, or grants from donor agencies. They are lent out at subsidized interest rates.

Roxas said that multilateral funding institutions, such as the International Monetary Fund, the World Bank, and the Asian Development Bank, have frowned upon directed credit programs as these tend to go to unprofitable projects or to borrowers who tend to default.

Failure to reach the intended beneficiaries, misallocation of resources, fiscal hemorrhage, and damp economic growth are some of the ills of directed credit. Instead of repealing E.O. 138, there is a need to assess current lending and livelihood programs and to reconcile all existing laws to effectively establish an environment responsive to SMEs problems, he said.

He also cited a study of the National Credit Council showing that such directed credit programs in the 70s and the 80sas the Masagana 99 rice production program and the Kilusang Kabuhayan at Kaunlaranhave led to massive government losses estimated at P40 billion in cheap, state-subsidized loans.

Roxas said that at present, 99.6 percent of all registered companies are SMEs, accounting for 69.1 percent of the countrys total employment. However, these only contribute 32 percent value-added to the economy, the senator from Capiz explained.

SMEs and indispensable to the countrys overall economic growth. We have to push for their development by improving their access to financing through credit guidelines and programs. We also need to push for an enabling environment for the efficient functioning of the market and the participation of the private sector in SME lending, he explained.

The senator, who is a former Trade secretary, said among numerous problems being faced by SMEs said one the most prominent is access to credit. Instead of junking policies programs that have been tried and tested, the government should explore and craft new measures, guidelines and programs that will improve SME financing.