The role of government financial institutions in a market-oriented financial system: The case of the Philippines

Added Title

Regulatory reform support program for national development

College

School of Economics

Department/Unit

Economics

Document Type

Report

Publication Date

3-15-2021

Abstract

The Governance Commission for GOCCs (GCG) was established in 2011 to act as the central policymaking and governing body whose primary roles are to promote financial viability and fiscal discipline in government-owned and controlled corporations (GOCCs). Among its major functions is to evaluate the performance and determine the relevance of the GOCC, to ascertain whether such GOCC should be reorganized, merged, streamlined, abolished or privatized, in consultation with the department or agency to which a GOCC is attached. Included in GCG’s list of GOCCs are two government financial institutions (GFIs), namely, the Development Bank of the Philippines (DBP) and the Land Bank of Philippines (LANDBANK). They are among the 44 universal and commercial banks operating in the country. GFIs are a typical feature in developing economies, but they also exist in developed economies. This study assesses the roles and performance of these two GFIs. The study asks the fundamental question: Why do GFIs exist despite the government’s explicit policy to adopt a market-oriented, private-sector-led development strategy? The reasons for their existence can help specify the mandates assigned to them and provide guides in assessing their performance. In the review of literature conducted by this study, three major themes have emerged that provide the reasons forthe existence of GFIs. These are: (1) to address market failure by filling up gaps left out by the private financial institutions (PFIs); (2) to conduct countercyclical role; and (3) enhance competition. These three reasons for the existence of GFIs are not necessarily mutually exclusive. The performance of the two GFIs are assessed on the basis of these three themes and compared it with those of selected PFIs. The results provide the basis for formulating recommendations to reform both GFIs.

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Disciplines

Finance and Financial Management

Note

At head of title: Regulatory reform support program for national development

Keywords

Government financial institutions—Philippines

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