(FDC Statement at the conclusion of the Global Week of Action against Illegitimate Debts and IFIs , October 8-15, 2013)

Amid the firestorm of protests and controversy over the pork barrel,  a far bigger and serious violation of transparency and accountability in public finance   has drawn little public attention and scrutiny.  This is about  Philippine public debts.



As of June 2013,  National Government debts amounted to P 5.45 trillion and total Public Debt as of the last official report  in end December 2011  reached P 7.65 trillion.

Just like the pork barrel,  the Philippine government has long justified its debts in the name of public welfare and national development. And yet, in both cases, transparency and public accountability have not been observed.  
Similar to the pork barrel,  an Executive-Legislative conspiracy has made possible public external and domestic debts to accumulate over several decades without a workable process to inform and involve the public in decision-making and without an effective audit of the terms and uses of these loans.  

This debt conspiracy has turned for the worse under the Aquino administration.  Since it assumed power,  debt issues were  stomped on the spot whenever they appeared in committee hearings and plenary sessions in both houses of Congress. A majority juggernaut oiled by massive pork  made this possible. The only argument forwarded was the desire of the President for the early passage of the national budget.  So far, media has only given scant attention to this.

The impact on public resource and governance are far worse than in the case of budgetary pork.   We speak of trillions of pesos in public debt compared to a few hundred billions of pork so far.  Major  cases  of violation of national sovereignty, violation of human rights, disregard of public welfare,  corruption and waste, inefficiency,  and complicity between the government and its creditors  which were rampant during the dictatorship  continue to appear or be exposed  during the past almost three decades of  post- EDSA  governments. 

Two laws are responsible for stifling open public discussion and  depriving the people of even the semblance of public hearings in the matter of contracting and paying public loans. The first one empowers the President to unilaterally contract loans without Congressional approval. Article VII, Section 20 of the 1987 Constitution merely requires the President to get the concurrence of the Monetary Board which is only obliged to report to Congress its decision to contract or guarantee loans within a certain period but not to seek Congressional approval.  

On the other hand, the Automatic Debt Servicing provision under Section 26 B, Book VI of the Revised Administrative Code as instituted by Executive Order  ( EO ) 292  obliges the Philippine Congress to automatically appropriate payments for the principal and interest on public debt. 

Way back in 2008,  Freedom from Debt Coalition  ( FDC ) denounced the emergence of a Fiscal Dictatorship of the President.  Now that the massive “porky” horse-trading and exchanges of favors between Malacanang and Congress have been exposed in unprecedentedly scandalous proportions , we get the whole  picture  of complicity between the two branches of government  both in committing present and future public money as in the case of debt and in  appropriating  and even allowing diversions and dissipation, even misuse of public funds for political purposes beyond the reach of public knowledge.

Illegitimate Debts 

The  recent dramatic rise in public awareness and standards of the principles of transparency, accountability and citizen participation in public finance and democratic governance should lead to renewed attention to and more public vigilance against the illegitimacy of debts incurred by the Philippine government.   

Opposition to illegitimate debts has gained currency in many countries during the past decade or so. Variously described as onerous, fraudulent, immoral, and odious,  the concept of illegitimate debts globally has gone beyond the misdeeds of the fascist or militarist regimes in many parts of the world.  The global campaign has firmly rooted the indebtedness of many countries and governments of the South, and now many others in the North as well,  to the exploitative character of global finance capital as expressed in the International Financial Institutions like the IMF-WB and the ADB, and the bilateral debt transactions of the leading capitalist states and multinational corporations.

The many facets of exploitation and fraud between states, between banks and corporations on the one hand and governments and peoples on the other hand,  between banks and peoples, and between governments and peoples are concerns that call into question the legitimacy of government-contracted debts and provide a  just and fair grounds for  sovereign repudiation and cancellation of debts. 

The expansive definition of Illegitimate debts have covered  a wider variety of questionable debts :  debt incurred by undemocratic regimes or undemocratic means, debt without transparency or participation by representative branches of Government or civil society,  debts whose servicing threatens the realization of basic human rights, debts with predatory repayment terms, debt converted from private to public debt in exchange for bail-out by creditors, loans used for morally reprehensible purposes and debts to finance projects that do not serve development and harm people and the environment. 

Most significant of these initiatives is the South-North Platform adopted in September 2009 by southern and northern movements, organizations, NGOs and networks working to end debt domination and build new financial and economic systems nationally and inyernationally. Among the proponents of the Platform is the Freedom from Debt Coalition ( FDC ) and the Jubilee South Asia-Pacific Movement on Debt and Development  ( JS-APMDD ) of which FDC is a member.

To quote the Platform :  “  This Platform  defines principles, rules and standards as basis for changing policies, processes and practices in financial transactions having to do with the accumulation of debt being claimed from countries of the South, in particular public lending and debt collection, public borrowing and debt payments, the issuance of public guarantees and accumulation of contingent liabilities. “

FDC has pioneered and sustained the fight against illegitimate debts in the Philippines, starting from the campaign against the odious debts contracted by the Marcos dictatorship like those for the Bataan Nuclear Power Plant  ( BNPP ), Cuenca’s Construction and Development Corporation of the Philippines ( CDCP ) and Disini’s Cellophil Reources Corporation ( CRC ) and all other behest loans.

This was followed a decade later by FDC’s campaigns against anomalous Official Development Assistance  ( ODA ) grants and loans , particularly the China-funded debts and the World Bank-funded National Roads improvement and management program 2( NRIMP-2 ).

Official recognition the problem of illegitimate debts in the Philippines was established when the 14th Congress in 2008  approved a special provision in the 2008 General Appropriations  Act ( GAA )  suspending, pending loan renegotiation and/or condonation, interest payments to debts challenged as “ fraudulent, wasteful, and/or useless “ , including but not limited  to 11 debt cases presented by FDC amounting to P 25.9 billion.   But then President Gloria Macapagal-Arroyo , herself implicated in anomalous loan-funded projects like the ZTE-NBN deal and the Northrail, vetoed the provision. 

To repeat,  the Aquino administration did worse than Arroyo.  Budget Secretary Butch Abad, pork in hand, whipped into line a big majority in Congress to scuttle,  at the outset, all attempts to revive the illegitimate debt issues and the call for a comprehensive congressional debt audit.

Successes Against Illegitimate Debts 

Notable successes have been gained by the global campaign against illegitimate debts in the past decade or so. These must be carried forward across countries and in the major international institutions and bodies.  

Illegitimate debts have been accepted as a major  subject of discourse for crafting international guiding principles  in the main bodies of the United Nations.  In the 2008  Report to the UN General Assembly  of the UN Independent Expert on  the Effects of Foreign Debt and related International obligations  of States on the full enjoyment of all human rights , he  recognized the historical and current relevance of the concept of illegitimate debts  to the just an fair resolution of the debt crisis of which human rights must form an important part.  

The  UN Human Rights Council in June 2012 endorsed a document titled Guiding Principles on Foreign Debt and Human Rights.  This document includes among its foundational principles the primacy of human rights, equality and non-discrimination,  independent process of national development, transparency and accountability and the shared responsibility of creditors and debtors.  This document also advances three criteria to take account in ascertaining the illegitimacy of a particular external debt : 1) the absence of consent by the debtor State’s population, 2 ) the absence of benefit by the debtor State’s population and 3) the creditor’s awareness of the above facts. 

While the criteria spelled out are limited and rather vague for operational purposes, the foundational principles can be invoked to challenge  States and IFIs  on illegitimate debts.  Besides, the UN process is still a work in progress.  It should be noted that the Independent Expert recognized   the expansive definition of illegitimate debts by various initiatives of the global debt movement  as a reasonable starting point for the definition of illegitimate debt in more precise and operational terms.  

We also should take note of the on-going work of the United Nation’s  Conference on Trade and Development  ( UNCTAD ) on developing a set of Principles on Responsible Sovereign Lending and Borrowing in relation to the urgent need for a structured mechanism for resolving sovereign debt crises.

Cutting edge success stories came from national initiatives.  Ecuador in 2008 was first in undertaking a critical examination of the legitimacy of its foreign debt and its impact on its people  by setting up an independent debt audit commission.The debt audit  had shocking revelations. Many loans violated Ecuador’s domestic laws, US Securities and Echange Commission regulations , and general principles of international law.  From 1989 to 2006,  only 14 percent of the foreign loans were used for social development projects; the rest,  86 percent, went to pay previously accumulated debt, resulting to a negative net transfer of capital of $ 13.5 billion.  

The Ecuadorian government  employed illegitimacy of debt as a legal argument to default on its loans and restructure its debt.  The default drove down sharply the value of its debts such that when it decided to settle accounts with many of its creditors, its  buyback cost only a third of the total value of the former debt.

Paraguay,  Bolivia and Venezuela followed suit in establishing their own respective debt audit commissions.   In Africa,  Tunisia after the first of the successful Arab spring revolts took the first major steps to legislate a debt audit to challenge the legitimacy of its inherited debts.  A setback came when the new government in February 2013 withdrew the bill that was filed in July 2012.  Once Tunisia overcome the tremendous pressures coming from IFIs and credit ratings agencies,  it will set a precedent for all of Africa.

Fresh new winds have blown recently from the credit countries’ side as well. In a trail-blazing initiative,  the Norwegian government  commissioned an independent audit of the debts owed to Norway by its debtor countries.  The audit, undertaken by a financial services firm,  studied whether the debts followed national policy and the international principles set by  a UN Working group in April 2012 under the auspices of the United Nations Conference on Trade and Development ( UNCTAD ).

The audit findings showed that  Norway violated UN principles on responsible lending in 4 of its 34 loan contracts with Egypt, Indonesia, Burma, Pakistan, Somalia, Sudan and Zimbabwe

Once Again,  a Call for a Comprehensive Debt AuditAnd This time ,  a Call for a Comprehensive Public Finance Audit
Questions about to what extent and at what costs should the Philippines remain a borrower country, why these debts have to be incurred,  how they are used and why payments for them should be a priority over other national concerns have long been a major divisive issue in public finance and national development discourse.

Cutting across these questions is a fundamental one for Philippine democracy:Who decides on these debt and the parameters for incurring and paying them? Are the Filipino people  informed, consulted and given the rightful and effective participation in these decisions?

It is about  time to confront and resolve these questions in favor of the Filipino people.

Once again,  FDC is calling for a comprehensive debt audit.  We ask Congress to conduct an official Congressional Debt Audit where citizen participation is fully and effectively guaranteed.  We ask this in accordance with its constitutional lawmaking powers and its duty to exercise the power of the purse.  

At a time when public confidence in government is severely shaken by themassive pork barrel and other budget scams , we believe that a Comprehensive Public Finance Audit is also in order.  We ask for a thorough review of all debt and all public revenue and expenditure transactions during the entire term of President Gloria Macapagal-Arroyo and the first three years of the Aquino administration. If possible, we should go as far back as 1987  when the first government under the present Constitution was installed. 

FDC  is fully aware of the difficulties and complexities, the challenges and the threats that face a comprehensive audit of this kind.  FDC has experienced them in its long battle against debt-dependence and illegitimate debts.  Pressures of all kinds are expected to be made to bear on official  processes  by powerful forces ranging from the IFIs to corporate interests  to those in state power who benefited and  would want to continue benefiting from these debts.  An independent citizen audit to parallel the official audit is thus needed.

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