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As of this writing, the Philippine peso is trading
47.95 to one US dollar. It is the strongest level the local currency
has reached in six years. Most financial analysts seem to agree that
the peso can only get stronger due mainly to burgeoning remittances
from overseas Filipinos and the robust performance of the
country’s commodity exports.
The strong peso translates to
numerous benefits, not just to the direct recipients of foreign
exchange from OFWs and exports, but just as important to the entire
country. Among the biggest beneficiaries is the government.
The challenge to the government
now is how to make this financial windfall benefit those Filipinos
who need it most.
The surging peso will reduce
interest payments on government debt this year by at least P8.8
billion. However, actual savings could reach P15 billion if other
factors—such as lower interest rates—are taken into account.
With the peso’s value rising
vis-à-vis the dollar, many officials are tempted to pay foreign
loans incurred by various agencies and government owned or
controlled corporations even before these obligations are actually
due.
The bean-counters in these
agencies and GOCCs are pressing policymakers and decision-makers to
opt for “prepayment” in order to achieve “early debt
retirement.”
They tend to dismiss two facts:
first, the debtor agencies and GOCCs have already made debt-service
provisions in their respective budgets and, second, there is the
real likelihood that the peso could appreciate even further in the
coming months and years.
The 2007 national
budget—officially known as Republic Act 9401—earmarks P318.1
billion for interest payments. “But that is a figure premised on a
faulty assumption,” Sen. Ralph Recto said during a recent huddle
with newspaper columnists.
Recto said the foreign component
of the P318.1 billion fund was computed using an exchange rate of
P53:US$1. However, for months now the peso has been treading below
or near the range of 49 to a greenback.
On Tuesday the exchange rate
broke through the P47 barrier.
The government is scheduled to
pay its foreign creditors $2.209 billion in interest this year. By
using a P53:US$1 exchange rate, the amount earmarked for this in the
national budget amounts to P117.06 billion.
Appreciation of the Philippine
currency would mean that every one-peso rise versus the US dollar
would reduce the interest payments on foreign debt by P2.2 billion.
“We can say that the amount for
debt service is over-appropriated,” Recto said.
“What the government can do is
re-channel the excess allocation to our hospitals and schools, or
even roads and agriculture, and not to remit this to our creditors
to pre-terminate our debts,” the senator explained.
“There is the temptation to
prepay some of our debts,” said Recto. “But let us not fall for
this. Let use the money saved on interest payments for our schools
and hospitals instead.”
True, allocations for the health
and education departments were raised due to better revenue
collection as a result of the expanded value-added tax and other
measures. However, Recto said the fund augmentation for DOH and
DepEd reflected in the 2007 budget of P1.126 trillion is “not
enough to meet actual needs.”
“Our DepEd budget will increase
by P15.4 billion to P128.6 billion this year but we will still end
the year with a backlog of 8,000 plus classrooms,” he said.
“The DOH budget of P11.5
billion translates to a P129 annual budget per Filipino,” Recto
explained. “Even if we double that amount to reflect total public
health sector spending this year the resulting per capita
expenditure for health is still measly.”
Recto asked: So why not augment
health and education spending from what we are sure to save from
debt service?
As stated earlier, projected
savings from reduced debt service payments due to the stronger peso
are projected to reach P15 billion.
“But with just P3.7 billion we
can wipe out the perennial backlog in classrooms in our public
schools,” Recto pointed out. “With just P2 billion we can fully
modernize the Philippine General Hospital.”
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