• Soon everyone will be choking on ‘operative facts’


    In my previous column (“DAP fallout will lead to economic and political paralysis,” July 5), I complimented the Bangko Sentral ng Pilipinas (BSP) for largely keeping itself above the fray created by the enormous DAP scandal and for doing a reasonable job of keeping an important part of the Philippines’ economic and institutional framework—the banking system—in sound shape in the face of what very well may turn out to be a chaotic collapse of the government.

    It seems I may have been a little too quick with the praise, however. Over the weekend, one of The Times former reporters, Jhoanna Ballaran, jogged my memory about an article she had researched and written in early December last year, wherein she was able to detail what was then known about the beneficiaries of the condemned Disbursement Acceleration Program and the amounts those beneficiaries had received.

    And in one of those “How in the world could I have forgotten about this?” moments, I was reminded that the BSP was, in fact, one of the biggest beneficiaries of DAP funds, having received a total of P30 billion in two tranches in 2011 and 2012 under the “Budgetary Support to Government Corporations (BSGC)” line item.

    Although I was never able to satisfactorily confirm it, I was able to determine after a couple weeks’ worth of patient research and analysis and not-so-patient attempts to wheedle information out of people who would know that, in all likelihood, the DAP funds received by the central bank were a major part of the BSP’s recapitalization program, authorized by the New Central Banking Act of 1993 but never completed (the BSP had only received some P10 billion of the P50 billion budgeted by the law). The recapitalization became critical in 2011-2012 as a result of the BSP’s aggressive—and in reality, ultimately not very effective—effort to control the value of the peso through foreign currency purchases, which left the bank with big foreign reserves but a record of working losses.

    So it would seem that the BSP is not “above the fray” at all, but up to its neck in it. Or is it?

    It turns out the BSP is an excellent example of “the doctrine of operative fact,” a legal concept that was discussed at length in the Supreme Court ruling that found the DAP unconstitutional, and a phrase we’re probably all going to be sick of hearing by the time this whole mess is finally sorted out. The doctrine of operative fact, in simple terms, means that while a law that is ultimately deemed unconstitutional is in force, the parties who benefit from it or are otherwise obliged to abide by it should not unjustly suffer from the law’s eventual nullification.

    Using the BSP as an example, the central bank was in no position to question the validity of the DAP; in fact, because the BSP is an independent institution, it would not need to ascertain the source of the funds at all. The recapitalization was in a certain amount, specified by an existing (and completely unchallenged) 20-year-old law to be paid by the Executive branch, and beyond that the central bank had no legal concern. One could argue that the management of the BSP is certainly well versed enough in government finance and law that it could have questioned the source of the funds, but legally it didn’t have to, and politically it would have probably been a bad idea. The BSP has no audit or oversight power over government spending or budgeting, and as an independent institution, stepping over those bounds would infringe on the decision-making independence of the Executive branch, and therefore put the bank’s own independence at risk. Taking all of that into consideration, the doctrine of operative fact applies: The BSP is, thus, held faultless for having been involved in something that was later found to be illegal.

    The effect of the doctrine is to allow some judgment in undoing the results of an unconstitutional act, and the Supreme Court ruling uses the simple example of a road to explain it: If a road was built using DAP funds, a strict adherence to the nullification of the DAP would mean that the road should be torn up and removed. That would obviously be a greater burden on the people than the original harm done by the DAP (the taxpayers would have to pay for having the road demolished, after all, plus the people who have come to rely on it would suffer), so the doctrine of operative fact is invoked—the road stays where it is. But the Supreme Court was also careful to point out the doctrine is highly conditional, lest it be used to validate unconstitutional acts as faits accompli, which is basically what the Aquino Administration is trying to do now. What the ruling specifically says is, “It can be invoked only in situations where the nullification of the effects of what used to be a valid law would result in inequity and injustice; but where no such result would ensue, the general rule that an unconstitutional law is totally ineffective should apply.”

    And this is where every attempt to resolve the DAP controversy will create paralysis: Whether or not ‘undoing’ the outcome “would result in inequity and injustice.” In the case of the BSP, it raises the interesting question of whether or not it should return the P30 billion (or more) it received from DAP funds to the National Treasury. Under the Central Banking Act the BSP is actually entitled to the money, but it must come from a legal source. Would returning it “result in inequity and injustice?” Probably not; but it would do some interesting things to the value of the peso and the country’s overall credit standing. Even raising the question might have an effect, and experience has taught us that is never positive in this kind of situation.

    “Done in good faith” does not even begin to excuse the sheer incompetence that created this big a mess.



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