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By the Freedom from Debt Coalition
This is what Mrs. Gloria Arroyo and her economic
managers want us to believe. In a show of absolute technocratic
certainty, the administration declared that it has solved the
economic and fiscal woes of the country. We, at the Freedom from
Debt Coalition are completely baffled as to what she means by this
claim.
Has there been any significant reduction in
the country’s outstanding debt?
As of end-August 2007, the National Government
(NG) Outstanding debt was pegged at P3.871 trillion, or US$81.91
billion. The bigger part of this debt was acquired domestically
(55.98 percent), with Treasury Bonds debt pegged at P1.55 trillion.
This is worse when Mrs. Arroyo acknowledged that the country was
suffering from a fiscal crisis. In 2004, National Government debt
was P3.81 trillion.
As of mid-2007, the total National Government
debt per Filipino is P43,649.57 with each individual coughing P7,
012.12 just to service the debt.
Our situation is rendered even more precarious
with National Government contingent liabilities reported as having
reached P537 billion by 2007, much of it foreign currency
denominated. Contingent liabilities are commitments by the national
government, expressed or implied, to directly assume the liability
of another entity should it be unable to honor its obligations.
Thus, contingent liabilities are potential debts.
The apparent slight decrease in our total debt
stock is because of two factors:
The weakening of the US Dollar worldwide.
The Arroyo administration keeps describing this phenomenon as the
strengthening of the Philippine peso. The more accurate term is the
weakening of the US dollar against nearly all other currencies. In
fact, the Philippine peso is one of the last to appreciate against
the US dollar. The change in the dollar-peso exchange rates
logically resulted in a lower peso equivalent of the country’s
foreign debt.
Pre-payment of debts. Taking advantage of the
low dollar-peso rates and claiming that the country is “awash with
dollars,” the government prepaid at least US$220 million of debts
claimed by the International Monetary Fund (IMF) and US$72 million
claimed by the Asian Development Bank (ADB). The government alleges
that this move is good because it saves the country several millions
in interest payments. The irony is that the country continues to
borrow in huge amounts. The truth is this: the government again
chooses to prioritize its commitments to foreign lenders over that
of its people’s urgent needs. The funds used to prepay these debts
could have been used to expand health services, build classrooms and
low cost housing, guarantee affordable access to clean water,
provide support services for our farmers and raise the efficiency
and sufficiency of the country’s food production.
Are we paying significantly less for debt
service?
In truth, the total debt service is higher, not
lower, contrary to the Arroyo administration’s claim.
A close look at the proposed 2008 budget will
reveal that payments for the principal amortization of debts
actually went up by 6 percent, or P18.842 billion. Combined with the
total of interest payments and principal amortization, debt
expenditure actually went up by P11.296 billion, belying any claim
of less expenditure for the debt.
So where do we get the money for this? One of
the sources is from taxes.
In principle, governments collect taxes from its
constituents to generate revenues to finance its projects and
programs. Yet, in the Philippines, the politics of taxation takes on
a different meaning—it goes to debt service.
Tax measures are implemented amid strong
opposition to it. People are generally suspicious where their taxes
really go as succeeding governments fail not only in its
responsibility to be transparent but also because our tax measures
do not translate to increased social spending.
Without doubt, the real enthusiasm of the
government in heavily taxing the people is to achieve fiscal balance
at all cost, made more difficult by the sheer volume of onerous
debts it is honoring, while maintaining our country’s
creditworthiness.
This is the reason why the government is
hell-bent in defending an aggressive consumption tax measure (R-VAT,
or Republic Act 9337) in order to beef-up revenues. The Department
of Finance (DOF) itself admitted that 70 percent of the revenues
generated from R-VAT would go to debt service in the first six
months of implementation, with only 30 percent going to social
services and infrastructure programs.
Truly, the poor are being made to pay for our
colossal debt stock. This appalling situation also reinforces the
institutionalization of inter-generational suffering.
Are we borrowing considerably less than
before?
Mrs. Arroyo is proud to have “trimmed” the
borrowing program, from P394 billion in 2007 to P346 billion as
proposed in 2008 as her “commitment to narrow the budget gap” in
order to “reduce our dependence on borrowings and reallocate more
resources to the needs of the people.”
However, her borrowing program is yet to dip at
the level of her predecessors:
Biggest borrower, largest payer
The towering declaration that the debt problem
is over falls flat when one considers the Arroyo administration
broke two major fiscal records—first, for being the most
aggressive if not the most addictive borrower, and second, for being
the largest payer of debts.
From 2001 to 2006, Mrs. Arroyo borrowed a total
of P2.83 trillion shaming the total P1.51 trillion combined
borrowings of the Aquino, Ramos and Estrada administrations spanning
14 years.
This is not surprising. Borrowings during the
Arroyo administration always exceeded the budget deficits.
Who suffers?
Due to the government’s standard policy of
prioritizing debt payments, administrations have been spending much
less in social services in terms of percentage. The share of its
economic services allocation dropped considerably compared to that
during the last years of Marcos regime.
In contrast, the percentage of the current
government’s interest payment is second only to that of former
President Corazon Aquino, who took it as a policy to honor and repay
all debts of the dictatorship.
This decrease in allocation for social services
is more evidently seen in the per capita and for every student
spending of the administration for health and education,
respectively. From the Estrada administration’s P201.00 per capita
on health, it radically dropped to P184. Furthermore, for every
pupil spending dropped from Estrada’s P5,830 to P5,467.
Consistently, the Arroyo administration’s top
priority remains to be debt servicing. The sector, which is supposed
to receive the highest budgetary allocation, education, is merely a
third of what they will be spending on debt (P181.86 billion
compared to P624.09 billion). The situation for health is much more
horrendous—it is only 4 percent of what we will be spending on
debt (or P22.9 billion). Even if one total proposed spending on
education, health, agriculture, agrarian reform and the environment,
they will still be less than interest payments alone by as much as
P39.75 billion.
This nightmarish trend results in state
abandonment of the disadvantaged, hungry, uneducated, homeless and
landless. Beyond doubt, this lack of concern to strategic social and
human investment will fall hardest on the next generation
The mad dash of illegitimate debts
The debt problem is not just a question of
amounts. There are more fundamental questions to be asked. Were
these loans contracted through proper procedures? Are the terms
fair? Did we benefit from these loans? What was the
impact of the projects and policies financed by these loans? How are
the officials and corporations responsible for illegitimate and
questionable loan contracts and loan-financed projects made to pay?
What about lender responsibility and culpability?
Recently the government celebrated our
“freedom” from almost 30 years of paying for the Bataan Nuclear
Power Plant (BNPP). However, the staggering payments made to the
loans that financed the onerous and fraudulent contract to build the
unsafe and useless plant is just the tip of the iceberg. The problem
of illegitimate debts definitely did not end with the Marcos regime.
We define illegitimate debt as
“obligations,” claimed to us by lending institutions and
northern countries, which only managed to finance flawed and
antipeople development projects and programs. Loans conceived by
illegitimate regimes to further their rule and debts that undermine
genuine social, economic and ecological development are also
considered illegitimate.
Two examples of illegitimate debts contracted in
recent years are the Austrian Medical Incinerator project and the
$100-million World Bank-funded textbook project.
In 1997, the Austrian government inked an
ATS199.96 million (equivalent to P503.65-million) loan agreement
with the Philippine government for the purchase of Austrian medical
waste incinerators for the use of 26 government hospitals under the
control of the Department of Health (DOH) in the Philippines.
Yet, the incinerators brought to the Philippines
were substandard, not even measuring up to the emission levels the
supplier guaranteed. In 2003, all 26 incinerators were mothballed to
comply with the provision of the Philippine Clean Air Act of 1999
against dirty technologies. Despite this, the Philippine
government continues to pay US$2 million (P100 million) a year to
the Austrian government for the medical waste project.
Another illegitimate debt is that incurred for
the World Bank Textbook project. Meant to fund 17.5 million
educational textbooks and teachers’ manuals, the project has been
riddled with accusations of alleged high-profile fraud and power
play issues involving rigged bidding processes and
corporate-government collusion if not manipulation involving the
World Bank and an allegedly monopolistic publishing group.
However, the most ominous thing about the
project was that it produced defective textbooks. Sen. Panfilo
Lacson during a legislative inquiry exposed that at least 60,000
textbooks funded by the project were found to have serious errors
and inverted pages.
As if these were not enough, the anomalous
$329-million ZTE National Broadband Network (NBN), an expensive and
ill-conceived project of supposedly providing government with an
alternative communications infrastructure burst out in the open. The
project would have led to another illegitimate debt if not for the
strong public outcry that eventually sealed its coffin.
Then again, the government is now training its
eyes in pursuing the equally controversial $500-million Cyber
Education Project (CEP).
Truly, the stampede of illegitimate loan
agreements dwarfed to the point of embarrassment the original poster
boy of illegitimate debt—the BNPP.
Freedom from debt
This debt dilemma forced to us by foreign
lenders in tandem with our past leaders should end now. However,
while resolving the debt problem will involve wholesale
restructuring of our economic framework, we can begin introducing
pockets of important progressive reforms to give our people palpable
gains.
Fortunately, things are slowly turning around.
Due to the strong campaigning of social movements, the 14th House of
Representatives reduced debt payments by suspending interest
payments to loans challenged to be anomalous while pegging the
foreign exchange rate at a more realistic level resulting to the
augmentation of important expenditures like education and health.
These initiatives however, while commendable,
are not enough. Decisive steps must be undertaken to free the people
from their long incarceration to illegitimate debt.
The call for comprehensive investigation of
public debts
First, there is a need to audit all our debts to
have an accurate, comprehensive picture of all our debt to promote
critical study, analysis and exchanges on the problem. The auditing
must go beyond amounts in order to decipher the Web of illegitimacy
surrounding unwanted debt by identifying and correcting the flaws
and weaknesses in the structures, policies and processes related to
borrowings, payments, guarantees and contingent liabilities.
This can be done by pushing for a Congressional
Investigation and Audit of Public Debt and Contingent Liabilities
and by initiating a parallel, independent Citizens’ Debt Audit
process involving social movements, civil society leaders, political
analysts and respected economists.
Why the automatic debt service provision must
be repealed
Second, the real culprit here is not only our
government’s addiction to debt, but also the institutional
mechanisms that dictate and aggravate our reliance to more
borrowings to pay our debts. Section 26 (B) Book 6 of the Revised
Administrative Code of 1987 is the mother of all these debt-creating
laws.
Because of the automatic debt servicing
provisions, payments for both principal and interest on public debt
are automatically appropriated. This is done without the benefit of
a comprehensive review or at least public scrutiny, which resulted
in paying dubious if not illegitimate debts while sacrificing social
spending.
While some argue that automatic debt
appropriation enhances the country’s creditworthiness, it
nevertheless creates a huge democratic deficit by limiting the
participation of the greater public. Not only does it take away the
Congressional power of the purse, it also transforms the Executive
Department into an authoritative institution wielding enormous
fiscal powers particularly in managing the country’s debt
payments.
Furthermore, it opens the floodgates to corrupt
public officials to borrow on behalf of the government, use the
loans unproductively and/or rechannel the funds to their private
businesses, and eventually pass the debt burden to the people. This
was grossly evident during the time of Marcos, then taken to new
heights by succeeding corrupt government officials.
Yet, despite the populist noise and rhetoric of
our politicians and sometimes even by our government regarding the
debt problem, the automatic debt servicing law is still in full
effect.
This must stop.
This early, we are entering a fiercely contested
2010 electoral contest. We say, the debt problem and its resolution
must become a central issue in deciding who will be the worthy
leaders of this country. Our aspiring national leaders must go
beyond lip service and political posturing. The time to act is now.
In the final analysis, if there is something we
truly owe, it is what we owe to the next generation of Filipinos: To
perform the paramount task of liberating ourselves from debt
domination.
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