16 June 2009
Debt & Public Finance
– Amid the political noise against the plan of administration lawmakers to amend the Constitution through constituent assembly, economic experts, former cabinet officials and social movements asserted that the country’s economy needs more urgent attention than charter change.
In an economic forum organized by the Freedom from Debt Coalition (FDC) in Quezon City today, FDC President and Akbayan Rep. Walden Bello, University of the Philippines Economics Prof. Ben Diokno, former National Treasurer Leonor Briones and former Department of Budget and Management Secretary Emilia Boncodin all agreed that serious economic reforms must be implemented by the government such as curbing the country’s high levels of debt in order to abate the impact of the crisis. Less debts, less crisis
“Nothing short of a radical reduction of the country’s debt is needed to create necessary fiscal space to increase state spending to protect the most vulnerable sectors of our economy from the immediate effects of the crisis,” Bello said.
Citing government sources, Bello said as of March 2009, the National Government debt increased by 1.5 % or P65 billion from the end February 2009 level. Total outstanding debt stood at P4.229 trillion of which, P1.842 trillion or 44% is owed to foreign creditors and P2.387 trillion or 56% to domestic creditors.
He said the continuous payment of these debts many of which are reportedly challenged as illegitimate have caused spending compression which in turn has resulted in decreased social spending as well as making the economy more susceptible to the global economic crunch.
This was seconded by Diokno saying that expansionary macroeconomic policies have been associated with shorter recessions and stronger economic recovery. However, Diokno said the impact of fiscal policy (use of expenditure and tax measures) on the strength of the economic recovery is smaller for economies that have high public debt levels.
Bello said due to the crisis, there is a growing international trend towards debt reduction and/or cancellation. He cited the United Nations Conference on Trade and Development’s (UNCTAD) recent call for an immediate debt moratorium of all highly indebted countries to provide “breathing space in the current global crisis.” He also cited Ecuador’s decision last year to cancel payments of some $30M on foreign bonds which the government declared “immoral and illegitimate.” Recently, it was reported that Germany, Italy and Spain are offering debt swaps to the Philippines in an effort to reduce the country’s debt obligations.
“This is the perfect time for the government to repudiate illegitimate debts and/or demand from lending institutions and countries the cancellation of such debts. The message is clear. Less debts, less crisis,” Bello said.
For her part, Boncodin projected outstanding national government debt would be P 4.46 trillion by the end of 2009.
“For this reason alone, the government must seize the opportunities opened by the crisis particularly on debt reduction,” Boncodin said.
The former budget and management secretary said the government should restructure the country’s debt at the minimum and cancel some bilateral debts which have been proven to be flawed or outright failure.Recession years
On the threat of recession, Diokno said 2009 and 2010 would definitely be recession years.
“What we have is a rare combination of financial sector-driven and globally synchronized recessions. Past experience suggests that such recessions last almost two years and it takes three and a half years for economies to return to pre-crisis output levels,” Diokno said.
Diokno also said “the worst is yet to come.” “Due to falling remittances, low foreign direct investments (FDIs) and the strong possibility that the economies of the top 10 export markets, which account for about 85% of total exports will deteriorate this year will make matters worse for us,” Diokno warned.Human face of the crisis
For her part, Briones said the crisis is not only about banks, stimulus packages, tax relief and infrastructure.
“The human face of the crisis is reflected on the mothers who die while giving birth unattended by physicians, infants dying due to preventable causes, workers laid-off from jobs, graduates who have little job opportunities and millions of people suffering from hunger and limited access to adequate food,” Briones said.
“Hence, the demand for more additional social spending to address these issues is a necessity. However, we also assert, without substantial impact on the productivity of the economy, it will only fuel inflation and increase the deficit. The huge 2009 budget must not be wasted on irrational but politically motivated projects and expenditures as it will stimulate a larger crisis,” Briones said. Three scenarios
Diokno gave three scenarios concerning the country’s economy:
• Worst-case’ scenario – slow recovery due to low tax effort, high levels of public debt and poorly run 2010 elections which again raises the issue of legitimacy.
• ‘Muddling through’ scenario – a new set of leaders is elected in 2010 but the new administration remains ‘captured’ by vested interests and no real reforms are undertaken.
• ‘Best-case’ scenario – a new government is elected in 2010 in a relatively honest, open, and peaceful election with the new administration implementing a strong, forward-looking, reform agenda that includes tax and spending reforms to ensure fiscal sustainability.Teetering towards the ‘worst scenario’
“At the rate things are going, we are teetering towards the ‘worst case’ scenario with the government’s continuing denial of the crisis,” Bello observed.
However, Bello said the government’s denial is not just outright lying, but is also a symptom of a greater problem. He said the Arroyo government is an addict to debt together with flawed neo-liberal economic prescriptions.
“Thus, the only way to get to the ‘best-case’ scenario is for the country to immediately undergo a withdrawal program—away from Arroyo and her gang, away from flawed development paradigms, and away from illegitimate debts,” Bello said. -30-