MANILA – The government rejected all bids for treasury bills yesterday (July 4) because the Supreme Court’s suspension of the expanded value added tax law coupled with the troubled political situation prevailing in the country had pushed banks to seek high risk premiums.

“The market is trying to digest all of these developments,” said National Treasurer Omar Cruz. The rate for the 91-day T-bills issued by the government had gone beyond acceptable limits and accepting the bids would have had a serious effect on the government’s ability to honor the bills.

Last Friday, the SC issued a temporary restraining order on the eVAT, which the finance department contested yesterday via a motion for reconsideration.

The Arroyo administration had been banking on the eVAT law to produce the revenues needed to address the budget deficit, estimated to hit P160 billion this year.

COMMENT: There are many instances when economics and law do not meet, and this is one of those times. Although the SC issued the TRO based on technicalities of the law, it still interfered in a matter best settled by economists. The best legal minds may not necessarily understand the laws that govern economics. In this case, the SC looked at the legal wordings of a taxation law passed by Congress, rather than understand the spirit in which that law was passed.

If the TRO is not lifted soon, the market would have a hard time believing the government can still push through with its fiscal reform agenda. This will cause investors to pull back. The entire economy could collapse. While this could not possibly be the intention of the SC, it could still happen and there would be no one to blame but the country’s highest tribunal.