The proposed creation of a National Emergency Investment Corporation (NEIC), an “investment vehicle” that would enter into joint ventures or manage enterprises facing liquidity troubles due to COVID-19, had now become imperative.
House Ways and Means Chair, Albay Rep. Joey Sarte Salceda, a noted economist who also co-chairs the House economic stimulus recovery cluster has proposed the creation of a “national emergency investment vehicle” in his HB 6619, filed in early March. The proposal forms part of the Accelerated Recovery and Investments Stimulus for the Economy of the Philippines Act (HB 6619), which Salceda also principally authored and which the House recently approved.
HB 6619, titled National Economic Stimulus Plan, envisions the NEIC as “something like an asset resolution company of government that will rescue firms that are too important to be allowed to fail.” It proposed three structural measures to save businesses from losses: Negative Interest Loans or NIL credit mediation and refinancing service or CMRS and the NEIC.
Patterned around the ideas of Nobel economics laureate Joseph Stiglitz, Salceda’s measure got the backing of industry groups such as the Bankers’ Association of the Philippines (BAP) which commended Salceda for proposing the NEIC as basically an asset resolution company or ARC, organized and owned by the government. “We did our research, and we adapted the idea to the Philippine context. The result is a very flexible asset management system that will protect the jobs of people employed in companies in need of rescue,”Salceda said.
The economist lawmaker noted that the tourism and hospitality sectors are the “most obvious candidates for help” under the program. “If I were an investor, would I be bullish about buying up good hotels in the Philippines that are in trouble? Of course. The Philippines will never run out of beautiful tourist attractions in need of good hotels. Boracay won’t stop being beautiful even if its biggest hotel goes bankrupt due to COVID-19,” he pointed out. “Are hotels in trouble? For sure, they are. Will there always be business for hotels in the future? Certainly. For investments like those in good hotels in good locations, the NEIC may even make significant money in the future,” he assured.
He added: “Say one of the major airlines collapses. Do we need airlines, nonetheless? Yes, we’re an archipelago, so conditions exist that could make this vehicle not only very beneficial to our recovery, but also very profitable in the long run. If it makes sense to a private investor with limited personal capital, it should make better sense to government with its own sovereign credit lines,” said Salceda.
The proposed NEIC will operate as a government owned and controlled corporation or GOCC. It will be chaired by the Secretary of Finance, empowered to refinance loans, provide guarantees, and assume obligations of failing companies, in exchange for equity. It may also take in capitalization from government banks and financial institutions, and may likewise consolidate or merge businesses, whenever appropriate.
“You need to keep businesses as going-concerns. It is much harder to recreate something gone than to just keep it even with some costs. The economic cost of permanent shrinking of the private sector, via closures and bankruptcies, is essentially forever foregone growth. So, we need to preserve companies that would have otherwise been profitable, but which will go bankrupt because of this pandemic,” Salceda stressed.
“The NEIC will be like the government’s special purpose vehicle, except that of course you get a substantial ownership of an otherwise profitable firm. Imagine taking a company to a COVID-19 evacuation center. That’s what this is. You are mediating that period where the firm is in trouble due to temporary economic conditions, and then you can very easily sell it, for a premium even, once the worst is over,” he explained.
Salceda said NEIC “will ultimately deal with the bulk of the obligations of the newly- or partially acquired firms in one standard procedure, similar to what the PSALM did for our power sector debt, and what the Central Bank – Board of Liquidators (CB-BOL) did to Marcos-era debts of the Central Bank. Those obligations were truly existential threats to our economy, but because of these agencies, the average Filipino and the national balance sheet did not take too much of a hit.”
Congress has allocated up to P50 billion, over two years, for the national emergency investment vehicle. Salceda was a major figure in the investment banking community in Asia in the 1990s.