29 June 2009
Debt & Public Finance
– Responding to the World Bank’s projection of “outright recession” of 0.5% of Philippine economy by the end of the year, the Freedom from Debt Coalition today called on the Bank to “walk the talk” and begin processes for debt cancellation, saying that it is “the best way the Bank will be able to help the country survive the global recession.”
In a statement, the debt watchdog said that due to automatic debt service law, and government’s under-spending amid low revenues and unabashed borrowings to fill in the deficit, the possibility that the country will sink deeper into a recession is becoming clearer.
“We all know that deficits cause debts, but we also have to accept that we are in deficit because we pay so much in debt service,” said FDC secretary general Milo Tanchuling.
“International financial institutions like the World Bank can help highly-indebted countries like the Philippines by starting to act like a development institution rather than a commercial bank and by cancelling loans it is claiming from us,” Tanchuling added.Debt stock
Citing government data, FDC revealed that with the country’s debt rising to P4.229 trillion as of March 2009, and with the country’s deficit soaring 556.2% year-on-year from January to May, the country’s economy will be in a more precarious situation should the government increase its deficit further.
According to the Bureau of Treasury (BTr), from January to April, the government already paid a total of P320.19 billion in debt service – P122.16 billion in interest payments and P198.03 billion in principal amortization. Interest payments alone already ate up 26.3% of government disbursements over the same period.WB loan
FDC said that of the country’s total debt stock, $2.54 billion or P122 billion is owed to the International Bank for Reconstruction and Development (IBRD), or the World Bank.
“We are scheduled to pay $299 million to World Bank this year, or about P14.15 billion, of which P9.8 billion will go to interest payments alone,” Tanchuling said. “Imagine the results our country can achieve if the P122-billion World Bank debt be cancelled and used to fund development programs and projects.”Government spending
“While we are automatically paying for debt service, we are compressing other spending further because of low revenues. Actual spending for the first quarter, pegged at P355 billion, is P6.8 billion lower than the programmed pegged at P361.9 billion, with actual cash expenditures being as much as P9.1 billion lower than the programmed. Deduct from spending debt service, and you will see how little is spent for development programs and projects,” Tanchuling explained.
FDC added that government spending would have prevented the 10-year low 0.4% growth had it increased expenditures.
“Sadly, Government Consumption Expenditure (GCE), pegged at about 9.6% of GDP in nominal terms as of the first quarter, posted a real growth of only 6.3%, despite the much-hyped ‘Economic Resiliency Program (ERP)’ which is intended to spur growth amid the crisis, ” the group said.Lender Audit
FDC said that should the World Bank heed its suggestion for debt cancellation, it should start with auditing its own loan-financed projects.
“It can start to consider loans for fraudulent, wasteful, and non-beneficial projects under its name, specifically the loan for the ‘textbook scam’ and the ‘original fertilizer scam’,” FDC said, referring to the Second Social Expenditure Management Program (SEMP2) and the Small Coconut Farms Development Project (SCFDP).
SEMP2 was funded by US$100-million World Bank loan, US$40 million of which was earmarked for the procurement of 17.5 million Social Studies textbooks and teachers' manuals for public elementary and high schools. The project allegedly underwent a rigged bidding process involving a monopoly and was reported to have produced at least 600,000 defective textbooks.
Government officials from both the administration and the opposition already called for investigation on the SEMP2. Local Waterworks and Utilities Administration (LWUA) Chair Prospero Pichay, then as a member of the House of Representatives, was the first one to call for a legislative inquiry on the issue, followed by opposition Senator Panfilo Lacson and Citizen’s Battle Against Corruption (CBAC) Representative Joel Villanueva.
FDC said that we are scheduled to pay this year $5.5 million or P260 million, all of it for interest payments, for the SEMP2 loan, which we will be paying until April 15, 2019.
SCFDP, which was revealed by FDC as “the original fertilizer scam,” was financed by a $121.8 million World Bank credit facility loan agreement entered by the Philippine government on June 4, 1990. An estimated 40% of the funds intended for the project’s fertilizer deliveries had been reported to be malversed, with Commission on Audit (COA) raising questions concerning insufficient documentation pertaining to the distribution of fertilizers.
FDC said that we are scheduled to pay this year a total of $11.46 million or P540 million, both for interest and principal, for the SCFDP loan, which we will be paying until September 15, 2010.
If it was able to investigate the case of NRIMP (National Roads Improvement and Management Project) 1 and 2, then it can also do so for SEMP2 and SCFDP,” FDC said.-30-