'Tap LGU income potential, develop
municipal bonds market' -- Angara

In light of the decreasing Official Development Aid (ODA) the Philippines receives from foreign governments, Senator Edgardo Angara urged the National Economic Development Authority (NEDA) to help develop a municipal bonds market which shall tap the financial market potentials of the income of Local Government Units (LGUs).

A municipal bond market is a kind of financial market where bonds[1] issued by an LGU are bought and sold.

Decreasing ODA

Back from attending the United Nations High-Level dialogue on Financing for Development, Senator Angara noted that the ODA Philippines receives from foreign governments has decreased at 29% from US$13.3 billion in 2000 to US$9.5 billion in 2006.

"ODA is given according to the need and income of the recipient country. The decreasing ODA may be considered as good news, as it means that our income is increasing compared to other developing countries," said Senator Angara.

"But a decrease in ODA also means less money for developmental projects. That's why we have to find local ways of financing these projects."

According to NEDA Director General Augusto Santos, The government needs Php2 trillion to finance its current infrastructure program. Forty percent of this will come from the national government budgetary appropriation and 20% from Government Owned and Controlled corporations, both of which are sourced from ODAs and domestic revenues[2].

Municipal bonds market

"One of the means to augment government funds for developmental projects is through a municipal bond market. This will generate greater income than the US$9.5 billion ODA we received in 2006," said Senator Angara.

In a municipal bond market, lenders ranging from financial institutions, companies to individuals buy bonds issued by the LGU, which shall be used to finance developmental projects. The Internal Revenue Allotment (IRA) of LGUs, which is now worth Php134 billion this year, will serve as collateral.

"Imagine, this IRA can be expanded ten times through a municipal bond market," said Senator Angara. "This is definitely more productive than spending the IRA in non-earning projects such as bulldozers and waiting sheds."

"Through this, public markets, roads, schools, and other LGU projects can be better financed," Senator Angara pointed out.

"The municipal bonds market can also be a vehicle for savings and investment of our Overseas Filipino Workers. OFWs can invest in these bonds, get income from it, and at the same time finance a development project in their hometown," explained Senator Angara.

"Through a municipal bonds market, LGUs will be able to leverage their assets and finance more projects," said Senator Angara.

The Local Government Unit Code allows LGUs to enter into loans with local financial institutions for developmental projects.