The PEACe bonds: ‘Not under Aquino admin’

Finance Secretary Cesar V. Purisima INQUIRER FILE PHOTO

The controversial PEACe bonds, or Poverty Eradication and Alleviation Certificates, “would not have reached first base under the Aquino administration,” according to Finance Secretary Cesar V. Purisima.

Such a deal would not be tolerated especially since the Aquino government is an avowed champion of good governance, said Purisima who was interviewed yesterday on the sidelines of the Philippine Investment Summit for Global Fund Managers at the Makati Shangri-La hotel.

“You cannot create something out of nothing,” he said of the deal which enabled the  Code-NGO, a network of nongovernment organizations, to make a profit of P1.2 billion from a single transaction of government securities without any capital of its own, allegedly because rules were bent by the previous Arroyo administration to accommodate the well-connected group.

The zero-coupon bonds matured last October 18, and the holders of the bonds are due to collect from the government some P35 billion for the matured securities.

However, a new controversy arose this month when a new Bureau of Internal Revenue (BIR) management has refused to observe a previous ruling exempting the PEACe bonds and attempted to slap about P5 billion in withholding taxes on the debt paper.

The bondholders, mostly banks, balked and went to the Supreme Court which issued a temporary restraining order against the BIR.

Purisima disputed allegations by the bondholders that the government had changed the rules of the game in midstream.

“They say that the government changed the game improperly in 2004, but it was Code-NGO that changed the rules,” Purisima said.

“Everything has been subject to the 20-percent withholding tax except for the PEACe bonds,” he said.

In 2001, the Code-NGO approached the new Arroyo government with a proposal for a zero-coupon bond offering that it had designed. The group lobbied the government to sweeten the bond with tax exemptions and eligibilities.

Armed with the latter, Code-NGO was able to buy the government bonds with the help of the Rizal Commercial Banking Corp. and then turn around and resell them to a sister company of the bank, RCBC Capital, making a profit of some P1.4 billion from the transaction.

Before the bonds were floated, the BIR issued rulings on the tax treatment of the PEACe bonds, stating that these are not subject to a 20-percent withholding tax.

However, the BIR issued contrary rulings in 2004 and 2005, which the revenue agency affirmed in further rulings issued earlier this month.

Asked about what Malacañang plans to deal with the matter, Purisima declined to comment saying he was legally barred from doing so on a case pending in court.