Editor's
Note: This is a record of Maitet Diokno-Pascual, former chairperson
of the Freedom from Debt Coalition (FDC), on her phone conversation
with Jose Isidro Camacho, former Philippine Secretary of Finance,
prior to his confirmation as DOF Secretary in 2002. The FDC had just
published a statement opposing the confirmation of Mr. Camacho as DOF
Secretary for his involvement in the PEACe Bonds controversy. For a
more complete background and timeline of the PEACe Bonds controversy,
please refer to a previous blog post: “Revisiting the PEACe Bonds”
(http://systemisbroken.blogspot.com/2011/10/revisiting-peace-bonds.html)
This
is Dear All,
Last
Thursday afternoon while at a dialogue organized by the PRRM1,
I got a phone call from Finance Secretary Lito Camacho. According to
Malou he had called up earlier at the FDC office, and they gave him
my cellphone number. This rather long message (my apologies) is to
report our phone conversation. Thanks, Maitet
Mr.
Camacho told me he had read our statement and was very upset about
our view that he should not be confirmed. He expressed his
disappointment. So I told him that FDC firmly believes that what he
should have done was to object to the deal, not just inhibit himself.
Besides, based on the letter produced at the Senate hearing by John
Osmeña—it's Marissa and Dan2's
letter to BSP governor Rafael Buenaventura—it looks like Mr.
Camacho didn't exactly inhibit himself.3
(It now turns out that his inhibition letter to the President was
dated September 54,
after the deal was all ironed out. But I didn't know this yet at the
time he called or I would have raised it.)
So
Mr. Camacho explained the nature of his "participation" at
that meeting. He confirmed he was there (in other words no
inhibition). But he said he was there only for a while (so most of
the time he was inhibiting himself). And he said he was there to
support Edeza5's
position to hold a public auction rather than a negotiated
purchase/sale of the bonds.
The
latter point gets sticky. I say this because it means two things:
when Marissa and Dan wrote that incriminating letter (9 August 20016)
to Buenaventura, they already knew that the bond would be auctioned.
But they were talking as if it were still a negotiated sale, and I
guess that's partly because, as they admitted to us, they were still
hoping for a negotiated sale. I have read that letter and there is
even mention of how much will go to Treasury how much will go to CODE
NGO. In fact the purpose of the letter was to ask the BSP to broaden
the scope of the reserve eligibility to cover P35 billion of bonds
from the original P15 billion. The reason for this, they explain in
the same letter, is that the Treasury "haggled" for a
bigger savings which means that for them to get their targeted
billion peso profit they needed a bigger flotation. My question about
this is, did they know this would still be the case under auction
mode? Would it be the same under auction as under negotiation? Were
they so sure already then of snagging the auction?
The
second question I have has to do with Edeza. He wrote the BIR on
August 87,
seeking clarification over the tax exemption. But the framework he
used was that of a negotiated deal. But auction was already what his
boss the finance secretary said, at the meeting where his boss and
his boss's sister didn't exactly inhibit themselves. Why didn't Edeza
seek clarification from the BIR under an auctioned framework? Because
they wouldn't get the tax exemption? In the end, Bañez8
replied to Edeza's August 8 letter with a ruling of August 16,
reaffirming the tax exemption because there would only be one buyer.
But Bañez also put in his ruling that if the conditions are
different then this ruling becomes invalid. So what Edeza/Treasury
did was to limit the auction to 19 lenders. Why didn't he seek a
clarification from BIR under an auction? That's a very very very big
omission. Not only because of the tax loss, but because the 19-lender
limit paved the way for a MANUAL auction BY FAX. That enabled the
"silipan" to take place.
Let
me go back to Mr. Camacho's disappointment with FDC. He said, are
you saying I have no integrity. That's all I have in this job (and I
guess as a banker). So I said, precisely why you should have objected
to the deal rather than simply inhibit yourself. He went on to say,
isn't integrity about honesty. Are you saying I am not being honest?
I said it's about more than that. It's about knowing what's the
proper thing to do to protect your name and that of your family, to
protect your President, to protect the institutions you serve. I told
him, if I were in your shoes and I had a kapatid who wanted a deal
from the very agencies I was supervising, I would tell that kapatid
to choose, between me serving in government and the deal. No way you
can have both.
But
I also questioned him about his supposed inhibition. I raised Edeza's
memo of July 12 to him. In that memo, Edeza was not just asking for
technical decision, he was also asking for a policy decision. I told
that to Camacho. If you did not respond, then that means you left the
President open/vulnerable, because a subordinate cannot decide on a
policy matter. He says he referred Edeza back to Bañez re Edeza's
questions on the tax exemption. So I said can Bañez decide on when
to implement a policy and when not to? Kasi that's what Edeza was
asking. He reminded Camacho in his July 12 memo that in an earlier
case the exemption from capital gains tax was not implemented. So he
asked Camacho in his memo, alin ba talaga kuya? (words to that effect
of course). Mr. Camacho told me he could not remember that.
One
other thing Mr. Camacho brought up was the point we made about
RCBC/CODE NGO having an information advantage over rival bidders. For
one he was not denying that the rival bidders were not as well
informed as RCBC/CODE. His counter argument, which CODE NGO and Edeza
also use, is that dealers are familiar with these types of debt
papers and know very easily what features they have and have
experience in pricing these kinds of papers. All I asked him was as
follows: We all know that RCBC and CODE had a 7-month headstart over
rival bidders. RCBC and CODE knew very intimately the bond and all
its features. So are you telling me that it was sufficient to level
the information field by fully disclosing to rival bidders the
features of the bond one day before the auction? Hindi siya
makasagot. It now turns out that there was an October 2 memo9
of Edeza to the GSEDs (government securities eligible dealers) saying
that the bonds would carry a 20% withholding tax. That explains why
up to the day of the auction, the Treasury had to issue a memo
explaining the tax exemption and reserve eligibility features of the
PEACe Bonds. May nalilito pa rin na rival bidder. That's a level
information field according to Mr. Camacho.
At
some point Mr. Camacho asked me, who do you think is holding on to
those bonds right now. I said the Yuchengco Group of companies. He
said, no, it's RCBC. I said, no, that's not what Dan Songco told us.
Dan told us that it was the Yuchengco insurance companies that were
holding on to the bonds. He then said he had just checked the
Scripless Registry (that's the electronic record of who holds the
bonds, the record is kept by the Treasury) and according to the
Scripless Registry RCBC is holding the bonds10.
Apparently Mr. Camacho's purpose in telling that to me was to stress
that this was a purely private transaction between CODE and RCBC.
(Para hindi siya ma-plunder.)
But
his information also raises new questions. It shows that the DoF and
Treasury were both lying in their press release of December 13, when
they said that RCBC bought the bonds, RCBC sold the bonds to
CODE-NGO, and CODE NGO sold the bonds to RCBC Capital11.
Their stories do not jive at all, and the more they open their mouths
the more contradictions emerge.
Also,
if RCBC is holding on to the bonds, then CODE-NGO never figured in
the transaction and could not have earned the P1.4 billion profit.
Mukhang laway talaga.
Mr.
Camacho also brought up the matter of the auction. He said if the
auction was lutong makaw how come no dealer has complained. They are
the ones who should rightfully complain (hint hint hindi tayo sa
FDC). So I said, come on, how can the dealers complain? You've come
from a bank, tell me, how can a dealer complain? Di niya ma-gets or
at least pretend siya na di niya ma-gets. So I told him, let's not
fool each other here. We all know that may silipan sa auction na iyan
dahil nga by fax ang bidding. Of course he denied knowing anything
about that. I told him I have had communications from three banks.
One said, "RCBC and only RCBC was meant to win this auction."
Another one, and I almost told him it was his own bank Deutsche
Bank12,
said, halata naman sweetheart deal iyan. Another one told me, you
should know why there was no bid lower than RCBC's. If anyone
complained to the government they would be implicating themselves.
Alam nila may dayaan kasi kasama sila doon. Alam nila at 10 am, at 11
am, etc., kung ano ang pinakamababang bidded yield. Kaya walang
makapagtutol. And besides, in the end, the government saved money
diba so why should the losing dealer complain? Galing talaga.
Mr.
Camacho said he would look into the matter. I told him, perhaps by
now the data has been corrupted. And I cautioned him about the
possibility of alerting anyone involved in the silipan before he can
discover what happened. But I also suggested to him to produce a
schedule, from the 1st fax in to the last fax in, indicating time
received, dealer (by code if not by name), amount and yield bidded.
He seemed very willing to disclose this data. I suggested he disclose
it to the public, not just FDC. But I'm not sure if the data would
have been corrupted by now.
Anyway
our phone conversation ended rather abruptly because the hi-tech
cellphone battery conked out. That's how long we talked. That's also
how hi-tech my cellphone is!
So
I get home and recharge cellphone only for it to ring again. Mr.
Camacho calling again, to give me the cellphone number of Mr. Edeza
(who heads the National Treasury, Liling's13
former job). Mr. Edeza is willing to give us a tour of the auction
room etc and show us the blotter, whatever that is.
I
have not yet called Edeza, as suggested by Camacho. I will do so
soon. Anyone wants to come along, let me know. But first I have to
find that little piece of paper where I wrote down Edeza's number.
That's how hi tech I am!
That's
all I can remember for now. Whatever else I can remember I will post
anew. Thanks, Maitet
1Philippine
Rural Reconstruction Movement
2Marissa
is Maria Socorro Camacho-Reyes, sister of DOF Secretary Jose Isidro
Camacho. She was also the chairperson of CODE-NGO, a primary
proponent of the PEACe Bonds. Dan is Danilo Songco, CODE-NGO's
managing director.
3In
July/August 2001, Secretary Camacho hosted a meeting between
CODE-NGO and the Bureau of Treasury. He and his sister were present
at the meeting.
4Secretary
Camacho writes to President Arroyo requesting for permission to
inhibit himself from having to make any decision, approve or sign
the proposed debt issue of the PEACe Bonds.
5Edeza
is Sergio Edeza, Treasurer of the Philippines
6On
August 9, 2001, CODE-NGO wrote BSP Governor Rafael Buenaventura
asking for an expansion of reserve eligibility of the PEACe Bonds
from PHP 15 billion to PHP 35 billion. The Monetary Board
Resolution No. 1261 granted CODE-NGO's request. The resolution
quotes directly from CODE-NGO's letter.
7On
May 31, 2001, BIR Commissioner Rene Banez issues BIR Ruling No.
020-2001 stipulating that the PEACe Bonds are tax-exempt
certificates of indebtedness. On July 12, 2001, Treasurer Edeza
wrote a memo to Secretary Camacho questioning the legal personality
of CODE-NGO to enter into negotiated purchase/sale of Treasury
Notes, as well as some aspects of BIR/Banez Ruling of May 31, 2001.
On August 8, 2001, Treasurer Edeza writes BIR Commissioner Rene
Banez for further clarification of his May 31 ruling.
8Banez
is Rene Banez, Commissioner, Bureau of Internal Revenue (BIR)
9On
October 2, 2001, the Bureau of Treasury announced a trial auction
for the zero-coupon bonds subject to a 20% final withholding tax.
10Not
true. A later report from PCIJ's blog “Vanishing trade in PEACe
Bonds: The truth, the banks, and the BIR”
http://pcij.org/blog/2011/10/25/vanishing-trade-in-peace-bonds-the-truth-the-banks-the-bir
shows that a portion of the PEACe Bonds (around PHP 11.3 billion in
face amount) had definitely been sold down by RCBC as shown in the
Bureau of Treasury's Registry of Scripless Securities. PCIJ's chart of PEACe Bond sales can be found here: http://pcij.org/blog/wp-content/uploads/2011/10/seeking-full.gif In addition, RCBC
Treasurer Jaime “Jimmy” Panganiban also confirmed that the bank
had sold 10% of the PEACe Bonds in 2001: “Raid on the Treasury -
JPE on the PEACe Bonds Scandal, by Butch Fernandez and Erik de la
Cruz, Reporters, February 13, 2002, Today Newspaper.
12Prior
to his government service, Secretary Camacho was Chief Country
Officer of Deutsche Bank, AG Manila
13Liling
Magtolis Briones was a former Philippine Treasurer
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