22 November 2009
Debt & Public Finance
It is undeniable that the Philippines is in crisis. Mainstream economists still debate whether or not the country had actually been resilient enough to survive the global economic recession. Government technocrats still dispute that the massive unpopularity of the Arroyo administration is indicative of the current economic state. But after the onslaught of tropical storms Ondoy, Pepeng, and Santi, there was no more room left for doubt. The Philippines is in crisis. We are in desperate times.
We in the Freedom from Debt Coalition (FDC), for two decades now, have insisted that one of the fundamental problems that need to be addressed is the continuing and ever-growing debt problem. It is intrinsically linked to the problems we are facing right now – the problems of why we are structurally unprepared for climate disasters, why we are economically weak and vulnerable to external shocks, and why the government is politically incapable to deal with pressing social problems. In fact, the Philippine debt problem has become a quintessential “elephant in the living room” – an undeniably obvious predicament that is continually ignored by our national leaders and policy-makers. Yet, it is a predicament that puts undeniable constraints and strain to their very decisions and policies.
As of December 2008, the country’s Outstanding Public Sector Debt was recorded at P4.7 trillion, equivalent to 63.7 percent of the P7.4-trillion gross domestic product (GDP). As of August 2009, the National Government Outstanding Debt was recorded at P4.23 trillion, while its Contingent Liabilities was at P585.19 billion.
In desperate times, it is indeed high time for new and transformative solutions, and indeed, resolving the Philippine debt problem is one of those. In fact, that the government needs to stop paying financial debts claimed to it by its lenders in order to address its humongous social debt to the Filipino people is so rational, reasonable, and commonsensical. We need money and resources for reconstruction and relief – why not withhold payment for debts and address the people’s needs first? Isn’t it one of the fundamental reasons for being of any government?
Taking a look at next year’s budget alone, House Bill 6767, or the General Appropriations Bill (GAB) for fiscal year 2010, we see P119.582 billion being earmarked for interest payments of foreign debt and P221.230 billion for interest payments of domestic debt. And this is just tip of the iceberg, as we are also set to spend P133.877 billion and P271.486 billion for principal amortization of foreign and domestic debts, respectively. Compare these humongous figures to spending on health (P48.34 billion), natural resources (P13.32 billion), agriculture (P55.37 billion), and water resources development and flood control (P14.6 billion).
Thus, FDC’s challenge to politicians today is clear: Make history doing what the four post-EDSA administrations failed to do. Make history by committing to decisively resolve the Philippine debt problem. Make history by giving millions of Filipinos the future they deserve.
Filipinos are known to make history during crucial junctures. Efren Peñaflorida did it, through twelve years of bringing education to street children on his Kariton Klasrum (Pushcart Classroom), when he qualified to become a finalist in the CNN Heroes list. Manny Pacquiao did it, when he out-boxed Puerto Rican hero Miguel Cotto to gain an unprecedented seven world titles in seven different weight divisions. Muelmar Magallanes, an 18-year-old construction worker, did it, when he braved rampaging floods to save more than 30 people, but ended up sacrificing his life in a last trip to rescue a baby girl who was being swept away on a styrofoam box.
In the crux of national destiny, leaders and candidate-leaders are now being called to make history, and to pave the way towards achieving genuine development and social justice.
Resolving the debt problem, while a historical feat, is not insurmountable. What is required for politicians is only enough political will to side with Filipinos at a time when they need them the most. For this, we propose a two-step approach: to declare a moratorium on foreign debt payments, together with an audit of all public sector obligations, and to commence the process of selectively repudiating illegitimate debts.Foreign debt moratorium
As first step, declaring a moratorium on foreign debt payments, together with an audit of all public sector obligations, will give the government a free the hand to address the economic crisis and climate disasters. A foreign debt moratorium requires the repeal of the automatic debt servicing provision, stipulated in Section 26 (B), Book VI of Executive Order 292, also known as the Revised Administrative Code of 1987. This law was copied en toto from the dictatorship-era law Section 31 (B) of Presidential Decree 1177. The executive must express its intention to repeal Section 26 (B) of EO 292 by certifying as urgent bills filed for this purpose. The legislative branch, on the other hand, must speedily pass bills such as House Bill (HB) 329 filed in the 14th Congress.
The moratorium must be implemented together with an official audit of all public sector obligations and contingent liabilities which will scrutinize and examine not only the figures or sums of money involved concerning the debt; but also evaluate the policies, existing laws and institutions that perpetuated the debt problem. The audit will likewise assess the costs and impacts of the debt problem and hold accountable the responsible and culpable parties, institutions and personalities alike. Debt audit joint resolutions such as House Joint Resolution (HJR) 4 filed in the 14th Congress must then be passed for this purpose.
It is important that the moratorium on debt payments should be implemented with the non-recognition of any accruement of interest and other penalties on the part of the lenders. Honoring these interests and penalties will defeat the purpose of imposing the moratorium in the first place.Repudiation of illegitimate debts
Repudiation of loans that are “challenged as fraudulent, wasteful, and/or useless” can be done by the Congress via a House or Senate Resolution (HR/SR), or by the Executive through an Executive Order (EO). The government can even start with the 11 illegitimate debt cases which interest payments were suspended by the Bicameral Conference Committee Report for House Bill 2454, the then proposed 2008 General Appropriations Bill. Unfortunately, the President vetoed the said provision as she signed and transformed HB 2454 into Republic Act 9498 or the 2008 General Appropriations Act.
This can be done even while Section 26 (B) of EO 292 is in place because by repudiation, the government begins to withdraw recognition of its obligation to pay for particular debts. In the case when a particular lender threaten to exercise cross-default clauses, the government must then begin sending the message that it is ready to repudiate other debts claimed by the lender should the lender begin to do so.
In the case of cross-collateral default clauses, wherein the lender seizes assets collateralized for another loan, the government must in turn exercise its sequestration powers against the assets of the lending institution or country in order to stem any loss.Bargaining power
We believe that the Philippine government, at this point in time, has a stronger bargaining power, now that the banks and other financial institutions had been battered by the recent global financial and climate crises. The lenders and financiers, struggling to prevent borrowers from defaulting, will be more than eager to go to the negotiating table should we ask them to.
The need for a debt moratorium cannot be more underscored by the fact that even aid agencies are themselves cash-strapped. The United Nations Office for the Coordination of Humanitarian Affairs (UN-OCHS) appeal for $74 million in aid last October to help 1 million Ondoy victims fell short by as much as $48 million, with only $26 million raised. Now that UN-OCHS is raising the figure to $144 million, we ask: where will it get the money?
A better UN solution already came months ago, even before the Ondoy, Pepeng, and Santi crises. The United Nations Conference on Trade and Development (UNCTAD) has already called for an immediate debt moratorium for highly indebted countries to give them “breathing space in the current global crisis”. This, as President Rafael Correa of Ecuador just last year cancelled payments of some $30M on foreign bonds he calls “immoral and illegitimate” as recommended by the result of a 14-month official debt audit, and the President of the Chamber of Deputies in Brazil signed an act creating a “Parliamentary Commission of Inquiry” which aims to investigate the public debts of the federal, state, and municipal governments; the payment of interest of these debts; the beneficiaries of these payments; and, “their monumental impact on the social policies and sustainable development of the country.”
The mounting calls for debt moratorium and debt audit in the Senate and Congress, specifically by Senate Minority Leader Aquilino Pimentel and House Committee on Appropriations Vice Chair Edcel Lagman, and the openness of their colleagues on the idea of debt reduction should convince our would-be leaders that resolving the debt problem is a politically feasible and viable solution to our present fiscal and social imbroglio. The time for resolving the Philippine debt problem is now made ripe not only by the confluence of climate, social, and economic crises that made it necessary, but also by the growing public clamor for more decisive solutions to our chronic national problems.
It is indeed time for our leaders to be decisive and to make history. It is time to once and for all resolve the Philippine debt problem. -30-