As the world adopts a “wait and see” approach on the financial crunch
06 October 2008
Debt & Public Finance
– Instead of allowing the country’s resources go to waste in servicing the debt amid the uncertainty of the global financial crunch, Congress should immediately call for a moratorium on external debt payments and transform the said funds into an economic stimulus package, according to the Freedom from Debt Coalition.
In a rally outside the House of Representatives, the group urged lawmakers to realign the P200-billion foreign debt service earmarked for 2009 in order to boost spending on social and economic services that will contribute in shielding the Philippines from the global fallout.
“The global financial crisis, in effect, is now forcing the government to choose between the interest and welfare of its people, and the whims and greed of lending institutions,” FDC said in a statement.
As outlaid in the proposed 2009 national government budget, the country’s foreign debt service is P111.54 billion, while the off-budget payment for principal amortizations on foreign loans amounts to P88.835 billion.
“With its Constitutional power over the nation’s coffer, Congress should increase state spending relying on self-financing directed to social and economic services to pump up the blood of our economy,” the advocacy group said.Tight credit access
FDC also said that foreign credit will be harder to access next year as foreign interest rates are expected to jack up, with the U.S. government set to borrow $700 billion for financial bailout, and with foreign banks tightening credit in an effort to ward-off inflation.
Even Finance Secretary Margarito Teves himself announced that the government will be “pre-funding” its financial requirements for 2009, due to a more inaccessible credit next year.
The proposed P1.415-trillion total budget obligations would be funded by P1.393 trillion worth of revenues thus, creating a deficit of P21.66 billion. P302.650 billion will go for interest payments of outstanding debts.
However, the budget does not count the principal amortization for outstanding debt, which is pegged at P378.866 billion. In truth, this makes the real deficit to be at P400.53 billion pesos instead of P 21.66 billion, according to FDC.
“To cover for the deficit, the government will be borrowing a total of P437.086 billion pesos. This is on a period of tightening global credit as the U.S. government borrows massively to weather its financial crisis,” FDC said.
The group added that gross borrowings will not stimulate the economy; instead it would automatically go to ‘roll over’ the payment made for the principal amortization.
“In effect, while other countries are preparing for self-reliance and institutionalizing mechanisms for capital and resources to stay within their respective economies, we are doing the opposite. We are virtually helping rich countries such as the US bail themselves out of the crisis while we make our economy more vulnerable to the crisis,” the debt watchdog said.
“Obviously, the proposed 2009 budget as it is will not prepare us for the global financial crunch,” FDC said.
The reason for this is that the priority much more the momentum of the budget is still heavily dependent on the availability of foreign credit, the group claimed.
“Proof of this, we are still reeling from a serious financial outflow as large chunks of the debt we are paying are in dollars, and we are still paying for loan agreements, some if not most of which are blatantly illegitimate,” FDC said.
“Furthermore, we are still not spending enough on social services to prepare our labor force and the real economy survive the crisis while meeting the challenges in the future,” the group said.
On budget slash
FDC said that while they duly identify with certain groups and individuals who are calling for a radical slash of the budget, subjecting it to a resource diet to lessen the fat and to narrow the maneuverability in using it as an election campaign kitty without alternative reallocation is detrimental in the long run.
“Such measure is blind of the economic crisis, as it would run contrary to the need to spur needed economic mobility as well as providing socio-economic protection to the ordinary people,” FDC said.Ending fiscal dictatorship
“We also believe that calling for such a measure without demanding serious reforms in the budget to effectively trim the democratic deficit and to curb the incumbent president’s unassailable fiscal dictatorship is tantamount to the protection and perpetuation of such powers which were the autocratic legacy of the deposed Marcos dictatorship,” the group said.
FDC added that given the international economic climate, “the government should in fact realize the dual task of increasing fiscal spending on social and economic services and in ending the embarrassing yet enduring legacy of the dictatorship so encroached in budget process.”
The group also called for genuine budget reforms towards the institutionalization of grassroots people's participation and involvement in all stages and levels of budget development. -30-