Debt activists calls for an end to automatic debt service and “fiscal dictatorship”

MANILA, Philippines – As the House of Representatives starts the plenary deliberations on the proposed P 1.415 trillion 2009 budget today, a debt watchdog said that the “debt-driven” appropriations bill makes the country more vulnerable to the global financial crisis.

The Freedom from Debt Coalition (FDC) said that a budget policy that is dependent on foreign credit only facilitates more ‘coupling’ with the rich nations in distress, and thus more exposure to the global crisis. Likewise, the group also said that a budget policy that prioritizes outflow of money to foreign lenders rather than the needs of an ailing public only weakens our capacity to withstand any external shocks.

“Unfortunately, we have both,” FDC said. “We are only facilitating the continuation of financial hemorrhage at a time we needed the money the most.”

“It is as if we are helping the US and other rich countries in crisis bail themselves out by giving our money to them, while our country is under threat from a possibility of a global recession,” FDC said, referring to the efforts of the US and European governments rescue their ailing banks and investment houses amid global financial slump.

FDC blames automatic debt servicing, contained Section 26(B), Book VI of the 1987 Revised Administrative Code, as copied en toto from Section 31(B) of Presidential Decree (PD) 1177, for the “still debt-driven” 2009 National Government budget, says that it “is responsible for the fact that for all post-EDSA governments, from 1986 to 2008, debt service for interest payments alone already averaged around 25.72% of the national budget,” FDC said.

“In this budget, P302.65 billion, or 21% of the P1.4-trillion budget will go for interest payments of outstanding debts,” FDC said, citing the Budget of Expenditures and Sources of Financing (BESF) for 2009 submitted by Malacañang to Congress for review.

FDC said that there will be another P378.87 billion earmarked as off-budget allocation for principal amortization of debts, which will “rolled over” by P437.086-billion worth of new borrowings.

“Thus, even the level of borrowings, is effectively set by the automatic debt service law, since principal amortization is not part of the budget but instead automatically deducted to new borrowings of the government,” FDC said.

“Given that loans will be more expensive year after year as the US government borrows more from the credit market and banks jack-up interest rates to combat inflation, the “Ponzi-game strategy” of automatically ‘rolling-over’ debts through new borrowings is simply unsustainable,” FDC stated.

The debt watchdog whose members attended and observed the plenary deliberations thus called for the repeal of the automatic debt servicing provision, saying that retaining the provision in the budget law is bound to have “severe developmental ramifications” in a time of a global crisis.

Debt Service as “Source of Financing” for Economic Stimulus

The debt advocacy group said that on the light of an impending crisis, the government should seriously look into debt service as a “source of financing” for an economic stimulus package – a boost in spending for social and economic services – to shield the Philippines from the global fallout.

The group lamented that while we will be earmarking P681.52 for interest payments and principal amortization of our outstanding obligations for 2009, we will only be spending a total of P 335.69 billion and P255.54 billion for social and economic services respectively.

But the group said not all obligations should be paid.

“Loan agreements challenged as fraudulent, wasteful and useless by both the Senate and the House of Representatives in 2008 will still be paid for in 2009 – a total of P2.88 billion in interest payments. We are also earmarking interest payments for loans yet to be transacted, amounting to P10.698 billion. Not paying for these would save Congress a total of P13.57 billion, which it can use to pump-prime social services in a time of domestic economic crisis,” FDC said.

Last year, FDC called for reduction of interest payments through suspension of payments for “illegitimate debts” and proposed loans and the adjusting of foreign currency exchange rate to more realistic levels during the 2008 budget deliberations. The Bicameral Conference Committee on the 2008 General Appropriations Act concurred and included a provision that reduced debt service by P25.9 billion, but the provision was vetoed by Malacañang.

“Fiscal Dictatorship”

FDC described the veto as an exercise of “fiscal dictatorship” on the part of an incumbent president wielding enormous powers on the national coffers.

“Mrs. Arroyo had only been able to do this because our budget law, the Book VI of the 1987 Administrative Code, inherited the undemocratic budget process of the Marcos regime, as defined by PD1177,” FDC said.

FDC lists the following presidential powers that constrain the Congressional “power of the purse”:

• The Power of Impoundment - Section 38, Book VI of the budget law as derived from Section 43 of PD1177 ensures that the President can refuse to allocate the money Congress appropriated.

• The Power to Reallocate “Savings” - Section 39, Book VI of the budget law as derived from Sections 44 and 45 of PD 1177, empowers the President to channel savings to cover deficits of other items in the budget.

• The Power to Line-Veto - Article VI, Section 27(2) of the 1987 Constitution, which is similar to Article VIII, Section 20(2) of Marcos’ 1973 Philippine Constitution, guarantees the power of the executive to veto specific items of the budget while retaining the others.

• The Power to Reenact Budges through Vetoing - Article VI, Section 25(7) of the 1987 Constitution, which is similar to Article VIII, Section 16(6) of Marcos’ 1973 Philippine Constitution, allows the President to reenact budgets should Congress fail to override a presidential veto of the budget.

• The Power to Unilaterally Contract Loans - Article VII, Section 20 of the 1987 Constitution, which is similar to Article IX, Section 15 of Marcos’ 1973 Philippine Constitution, allows the presidency to raise as much money as she can, using future revenue-generation capacity as collateral.

“Clearly, more than the debt-induced ‘budget deficit’ we are facing, we are also facing a much bigger problem of ‘democratic deficit’ in our budget process,” FDC stated.

FDC said one of the best ways to correct this huge democratic deficit in the budget process is for Congress to reclaim its lost constitutional power of the purse by curbing the executive department's unregulated fiscal powers.

“Thus, we call for the clipping of presidential powers by amending the Revised Administrative Code of 1987. We specifically call for the removal of the automatic appropriations for debt service and the presidential powers of impoundment and realignment of savings,” FDC said.

FDC is also calling Congress to put limits and parameters on the unilateral contracting of loans by amending the Foreign Borrowings Act of 1966 and the Official Development Assistance Act of 1996. The group is likewise calling for the institutionalization of grassroots people's participation and involvement in all stages and levels of budget development. -30-

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