MANILA, August 15, 2003  (STAR) By Des Ferriols  - The Bangko Sentral ng Pilipinas said yesterday it will appeal the decision of the Court of Appeals (CA) imposing a one-year suspension on BSP Governor Rafael Buenaventura and Deputy Governor Alberto Reyes for the closure of Urban Bank of the Philippines in April 2000. BSP officials Maria Dolores Yuvienco, Candon Guerrero and Tomas Aure were also suspended.

News of the suspension shook the currency market temporarily but the peso-dollar exchange rate recovered shortly before the end of the trading day, with the peso closing at 54.93 to the dollar.

Banking industry leaders saw the CA ruling as a signal that BSP officials could be similarly punished for "performing their duties and protecting the interest of depositors."

The ruling also added to investors’ worries since less than a week earlier, rumors resurfaced that Finance Secretary Jose Isidro Camacho was under pressure to quit over his support for anti-corruption "lifestyle checks."

Camacho noted he served at the pleasure of President Arroyo but said he had not tendered his resignation.

Buenaventura, who is currently in the United States to attend a world economic convention, is the first BSP governor ever to be ordered suspended by the CA. If this is upheld, the disciplinary action would suspend him and his co-accused for one year without pay.

He was recently named as one of the top four central bankers in the world by US-based Global Finance magazine, who praised him for his deft handling of interest rates and money supply to support the peso and spur economic growth "in an extremely difficult market."

The 19-page decision was penned by Associate Justice Eugenio Labitoria, who said the BSP should have exercised due diligence in accordance with the procedure on ordering the closure of banks as outlined in the New Central Bank Act of 1993.

In its decision, the CA reversed a ruling by the Office of the Ombudsman when it found Buenaventura "administratively liable of gross neglect of duty" when the BSP ordered the closure of Urban Bank.

The medium-sized financial institution was closed in April 2000 after a series of massive withdrawals.

"The closure of Urban Bank Inc., Urbancorp Development Bank and Urbancorp Investments Inc. was done in an arbitrary manner violative of fair play and committed with grave abuse of discretion," the CA said in the ruling it issued last Wednesday.

The CA said the BSP ordered the permanent closure of the three companies and placed them under receivership just one day after Urban Bank informed monetary authorities it had declared a temporary closure after suffering liquidity problems.

The BSP had offered an emergency loan of P800 million — equivalent to $14.6 million at current exchange rates — to Urban Bank at the height of its liquidity problems.

But the bank’s management turned down the offer and decided to declare a bank holiday. At the time, Urban Bank was in merger talks with Banco de Oro Universal Bank.

Urban Bank has since been bought by Export and Industry Bank Inc.

Just before it declared temporary closure, Urban Bank had withdrawals of around P5 billion in about a month from a deposit base that had stood at more than P9 billion.

The BSP, on the other hand, stood pat on its opinion that Urban Bank was shut down in full accordance with the required procedure.

BSP acting governor Armando Suratos told reporters yesterday that Buenaventura and Reyes have not been formally served the decision of the CA but he said the BSP has every intention of appealing the ruling.

"In the end we believe that we have a good case and the respondents will be found innocent," Suratos said.

He said the market should not take this as a source of uncertainty, expressing confidence that the BSP would ultimately be able to prove its position.

"Notwithstanding this court ruling, there will be continuance and regularity in BSP functions, and the governor as well as the other officials named in the case would continue serving their functions until this order becomes final," Suratos said.

He added that he has spoken with Buenaventura, whom he quoted as saying he intends to "exhaust all legal remedies available" to resolve the case.

However, BSP legal counsel said they expect the case to drag on for more than a year if the CA should decide to reject the BSP’s appeal.

The case could then be elevated to the Supreme Court and it may be more than a year before the final ruling could be issued.

Buenaventura, whose term ends in July 2005, may no longer be in office by the time the Supreme Court issues its final ruling.

Suratos, when asked, said he had no recollection of any other BSP governor being suspended from office since the agency was created.

"Quite frankly, we don’t know why the decision went that way," he said.

At Malacañang, Presidential Spokesman Ignacio Bunye said there is no reason for Buenaventura to leave his post since the CA ruling is not yet final and executory.

"This is a decision by the CA. So we anticipate that the governor will be elevating this case before the SC. So we’d rather just wait for the judicial process to continue and await the final outcome of this case," Bunye said.

The Bankers Association of the Philippines (BAP), for its part, said the banking industry views the court order "with grave concern," adding that banks were monitoring it closely because of its potentially damaging repercussions to the fragile local economy.

"The court decision could weaken the existing regulatory body by threatening its members of similar punishment for doing their job and protecting the interest of depositors," the BAP said in a statement.

Dilip Shahani, head of fixed income research for Asia Pacific at HSBC in Hong Kong, said the judgment would dampen investor sentiment, particularly after the failed mutiny by more than 300 elite soldiers in Makati’s business district on July 27.

"People’s focus will turn towards more and more on the politics now," Shahani said. "It will offset any favorable news that comes up off the economic front."

Sameer Goel, market strategist at Bank of America in Singapore, said the fact Buenaventura and the others would remain in office while the appeals were heard had lessened the impact, although there was some pressure on the peso on Thursday morning.

The peso fell as far as P54.94 per dollar in early trade, just shy of Tuesday’s five-month low of P54.97, but soon pared its fall and recovered most of its losses.

Buenaventura, 65, was appointed governor in 1998 under the administration of ousted President Joseph Estrada. He has won numerous plaudits for his current role and as a private banker for three decades with PCI Bank and US-based Citibank. — With Reuters, AFP, Marichu Villanueva

Reported by: Sol Jose Vanzi

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