by Lope Coles Robredillo, SThD
UNDER THE PROPOSED budget for 2006 that Malacañang submitted to the House of Representatives on August 24, 2005, the government will set aside P931 million daily in interest payment. The total budget is P1.05 trillion, and one-third of it, which is P340 billion, is earmarked for servicing the country’s debt.
However, Rep Rolando Andaya, chair of the House appropriation committee, is quoted by the Philippine Daily Inquirer (PDI) to have bared that the real debt service allocation would jump to P721.7 billion, which is P8,306 a year for every Filipino, if the proposed budget for principal amortization of P381 billion was included in the General Appropriation Act. Putting the figures in a different perspective, Cielito Habito said that next year the government will spend an average of P1.98 billion daily, which is enough to build 7,920 classrooms or 250 kilometers of road or P23 per Filipino per day!
If 1/3 of the 2006 national budget goes to interest payments on the debt of the Philippine government, it is because the country owes a lot of money from creditors. As of January 2005, the total debt stood at P4.01 trillion, of which P2.04 trillion came from domestic sources, while the remaining P1.97 trillion was secured from abroad. The debt increases every second, of course. By the end of February, the total debt has reached P4.08 trillion!
The figure alone boggles the mind! How does the government service its debt? Since it is part of the 2006 budget, funding for the debt service would come from the expected revenues of P968.6 billion and, since there is a revenue gap of P124.9 billion, from foreign loans. In other words, the government cannot avoid borrowing to pay its debt. And this has been the practice for many years. To keep the government afloat and service its debt, it resorts to borrowing from foreign and local creditors. No wonder, we continue to sink deeper in debt!
But, how come we incurred such a humongous amount, in the first place? The story behind it is too complex to present in a short space such as this, but at the risk of oversimplification, one can say that in 1961, departing from the nationalist policies of predecessor Carlos Garcia, Diosdado Macapagal embraced the virtues of free enterprise, and opened the door to foreign investment, gearing up the economy for global competition. In return, the United States, the International Monetary Fund (IMF) and the World Bank (WB) offered the government huge loans.. It was thought that foreign capital could be a catalyst of development. That embrace, however, was probably our entry into the debt trap. The pressure of the IMF and the WB was already being felt. When he became president in 1965, Ferdinand Marcos continued Macapagal’s economic liberalization policies. The outcome was that the total external debt rose from $277.7 million at the beginning of Macapagal’s presidency in 1961 to $840.2 million at the end of Marcos’ first term in 1969.
When Marcos imposed martial law, the trend toward economic liberalization accelerated in the absence of opposition from nationalists, like Tañada, Recto, Garcia, and Diokno, and he borrowed from outside to finance deficit. This resulted in the increase of external debt from a little over $1 billion in 1972 to $28 billion in 1986, when he was forcibly removed from power. But it would be wrong to blame Marcos for all our staggering debt. His successors, from Cory Aquino to Gloria Arroyo, were not able to rescue the country from the debt trap. When Aquino ended her term, the foreign debt stood at $30 billion. Fidel Ramos increased it by $15 billion in six years, Joseph Estrada by $7 billion in 1 ½ years. Almost twenty years after the end of the Marcos regime, the foreign debt has nearly tripled—from $28 billion to $69 billion. According to Sen. Joker Arroyo, “the borrowings of the three-year old [Gloria-Macapagal] Arroyo administration are bigger than the combined borrowings of the [Fidel] Ramos and Erap [Joseph Estrada] administration for eight years.”
As the figures indicate, the debt continues to snowball. There is no evidence that it will ever significantly decrease in the near future. The proof of the pudding is that the money saved for debt service balloons every year. The proposed interest payment next year, for instance, is P38.3 billion bigger than this year’s P301.7 billion. Correspondingly, the allotment of the country’s debt service in the national government expenditure keeps on rising—from 46% in 2002 to 81% in 2004. For 2006, it would probably be the same, though some would expect it to be at 85%.
Quite apart from the ever increasing debt service and percentage in government expenditure, the country’s debt affects the life and death of every Filipino. The quagmire we are caught in is its best evidence. On the other hand, each Filipino taxpayer coughs up for the financing of debt service. The deterioration of the quality and quantity of service that the government delivers to the people is not without relation to the amount it apportions for debt service. One, then, finds it strange that such an important issue is removed from the agenda of public debate. It is not even mentioned in the major rallies by national candidates during the election period. Worst, in a country that parades itself to be democratic, the issue is not even known by most.
Various approaches to the debt problem have been adopted. Understandably, the government line is to honor the debt to preserve creditworthiness, even if economy is throttled. As Press Secretary Ignacio Bunye explained, the past and present obligations must be paid, if the country is not to face sanctions that would ruin the economy. To recall, Ferdinand Marcos issued Presidential Decree 1177 that automatically appropriates fund for debt servicing. Part of the reason why President Arroyo pushed for the passage of the value-added tax (VAT) reforms was to generate P60 billion to wipe out the budget deficit and solve its debt woes. In The Manila Times [March 12, 2005] report, World Bank country director, Joachim von Amsberg and Gabriel Singson, former Bangko Sentral governor, urged the government to hasten the enforcement of fiscal reforms, such as passage of value-added tax laws and step-up of tax collection efforts.
Others hold the exactly opposite view—Philippines must repudiate the international debt, considering that full compliance with the debt obligations pulls the country deeper into the quagmire of destitution.. The PAJCAD Visayas-Mindanao Jubilee Conference, for instance, urged the Philippine government “to repeal PD 1177 that provides for automatic appropriation for debt service,” pressed “for the immediate repudiation of all loans incurred by the Marcos dictatorship,” and demanded “the recall of the Philippine Ombudsman’s decisions exonerating Marcos and cronies on behest loans and economic crimes.” More recently, two Catholic bishops in the Philippines, according to Belinda Cunanan (“Political Tidbits,” PDI, May 5, 2005) “called on the administration to repudiate those policies [of liberalization, deregulation, and privatization], especially our foreign debts.”
Between these two extreme lie other options. Prof. Walden Bello, for instance, is quoted by The Manila Times (March 12, 2005) as urging the government “to consider freezing payments to the World Bank and the International Monetary Fund, freezing payments for illegitimate debts and negotiating to devalue the country’s debts like Argentina did,” in order to help “free up money that can be used by the government for capital expenditure to boost the country’s economic growth.” But as in the position of PAJCAD Visayas-Mindanao Jubilee Conference, he asked the government to “consider repealing the automatic appropriation mechanism for debt service under the General Appropriate Act.” which immunizes the appropriation from any debate in Congress. As is well known, Solita Monsod, former director of the National Economic and Development Authority (NEDA), wanted to limit service payment, since it was futile to follow the recovery program dictated by creditors, but her option was not accepted during the Aquino regime.
Another view advocates renegotiation. Typical of this position is that of the PDI editorial (Oct 24, 2004, “Debt Relief”), urging the government “to renegotiate—not merely to arrange longer payment periods or lower interest rates, buy to reduce—the national government’s overall debt stock.” Far from the government unilaterally announcing it would launch an aggressive renegotiation, the editorial had this suggestion: “If the country’s business leaders spearhead the campaign to raise the possibility of debt renegotiation, they bring their international credibility, their business reputation, to bear on the matter. They will be in a better position than government ministers to make the case for the Philippines.”
A Christian Once-Over at the Debt
But how is a Christian to look at the crisis of debt? Of course, the problem is quite complicated. A layman finds it difficult to grasp. As Edgardo Espiritu showed in his Manila Times (March 3, 2004) article, “Some facts about our foreign debt,” the size of the debt does not tell the whole story; it has to be understood in the light of what happens in the entire economy, and viewed in relation to the trends in global economy and financial system. Even so, our enormous debt is not independent of our human existence; it so much intertwined with the life and death of every Filipino that it cannot be looked at simply in terms of economics. So pervasive are its effects on the daily life of Filipinos that it cannot be left alone to economists or technocrats! All voices must be heard. It has to be examined from all angles. And a Christian looks at it in the light of his community tradition that is determinative of his existence and that of his community.
But what has Christian tradition to say of indebtedness that instead of helping the country prevents it from realizing its potential, in the end weakens and enslaves its economy? First of all, the Bible provides some basic orientation that can guide him in his reflection and attitude toward the gargantuan debt. It appears that in the Old Testament period, many people had little economic security. Even when families owned land, a drought, war or locust could interfere with harvest, and send people to lenders who could demand high interest rate. When they could not pay their debts, they sold their land or, worst, became slaves. This resulting social disarrangement, however, had to be corrected, because “there must be no poor among you” (Deut 15:4).
In order to forestall the establishment of slavery on account of indebtedness and poverty, God instituted the Jubilee, in which all lands went back to their original owners, and all Israelite slaves were freed. Monopoly of land by a few was contrary to the will of God. Debts were all cancelled. “The purpose of the Jubilee laws,” says biblicist Kathleen O’Connor (“Jubilee,” The Collegeville Pastoral Dictionary of Biblical Theology) “was to ensure justice in the community. Compliance with the Law would prevent the development of a landless class. By redistributing the land, the community would share it equitably, and theoretically at least, no one would be deprived of home and/or livelihood.” In the gospel of Luke (4:16-30), Jesus is portrayed as proclaiming the Jubilee Year! Biblical scholar Sharon Ringe, in her book Jesus, Liberation and the Biblical Jubilee, even goes to show that Jesus clothed his proclamation and ministry in terms of Jubilee Year implementation.
It is interesting to note that lending without interest is the Old Testament ideal. A few examples: “If you lend money to any of my people with you who is poor, you shall not be to him as a creditor, and you shall not exact interest from him” (Exod 22:25); “To your brother you shall not lend upon interest, that the Lord God may bless you in all that you undertake” (Deut 23:20); the righteous person is one who “does not lend at interest or take any increase” (Ezek 18:8). Of course, under the present economic structure, these cannot be cited as ground for a universal prohibition or interest, but the ground remains valid: the care—commented Bruce Chilton—for the community that God had liberated from slavery.
John Paul II’s Exhortations
In recent years, John Paul II adverted to the biblical theme of Jubilee in connection with the international debt. In preparation for the Jubilee Year 2000, he said, in his apostolic letter, Tertio Millennio Adveniente (no. 51), that “a commitment to justice and peace in a world like ours, marked by so many conflicts and intolerable social and economic inequalities, is a necessary condition for the preparation and celebration of the Jubilee. Thus, in the spirit of the Book of Leviticus (25:8-12), Christians will have to raise their voice on behalf of all the poor in the world, proposing the Jubilee as an appropriate time to give thought, among other things, to reducing substantially, if not cancelling outright, the international debt which seriously threaten the future of many nations(underscoring mine).”
In his apostolic exhortation, Ecclesia in Asia, he repeated the same theme: “The approach of the Great Jubilee of the Year 2000 is an opportune time for the Episcopal Conferences of the world, especially of the wealthier nations, to encourage international monetary agencies and banks to explore ways of easing the international debt situation. Among the more obvious are the renegotiation of debts, with either substantial reduction or outright cancellation, as also business ventures and investments to assist the economies of the poorer countries (underscoring mine).” In these and other documents, the late Pope did not address the debtor nations to make unilateral declaration of debt cancellation or to espouse the policy to faithfully honoring the debts.
Rather, he addressed the rich nations and world organizations to consider substantial reduction, if not outright cancellation of international debts. The reason for this is quite obvious. The poor nations are not in a position to do so. On the contrary, they are even scared to mention the words “substantial reduction” or “outright cancellation” lest they court the anger of the rich nations, the IMF and the WB. “The lion has roared, who will not fear?” (Amos 3:8a). Understandably, when the late Fernando Poe, Jr uttered the word “restructuring”, his critics called him reckless, equating it with unilateral repudiation.
But why did John Paul II keep harping on the theme of forgiveness of debts? In Ecclesia in Asia, he said: “in many cases, these countries are forced to cut down spending on the necessities of life such as food, health, housing and education, in order to service their debts to international monetary agencies and banks” (no. 40). The proposed budget for 2006 clearly illustrates this. Rep Andaya said, for example, that the total debt payment of P721.7 billion was 80% of what the government plans to spend; on the other hand, education has an allocation of only P134.88 billion, health 10.6, environment and natural resources 6.3, and justice 5.3, to mention a few. Does anyone wonder that he is not offered cotton or syringe for free in government hospitals?
Sen. Miriam Defensor Santiago hit the nail on the head, when she observed, “the Philippines is caught in a debt trap. Last January, when we were deliberating over the 2005 budget, interest payments forced the Senate to divert most of the meager Philippine funds that should have been allocated to health, education and food security.” No wonder, she could say that the main source of poverty among poor countries, including the Philippines, is debt servicing. According to the Holy Father, “many people are trapped in living conditions which are an affront to human dignity” because of debt servicing.
The debt morass that traps the Philippines is immoral because it condemns people to hopeless poverty and misery. In making debt servicing the top priority of the budget, the government practically ignores the welfare of the people. If it is not moral to demand payment from a person who cannot pay without harming his life, neither is it morally correct to service a country’s debt by compromising the vital needs and the welfare of its people. Asserted Jean Somers, Coordinator, Debt and Development Coalition Ireland, in “Cancelling the Third World Debts,” Irish Times (Aug 3, 2002): “It cannot be right, nor does it make any sense, to demand debt repayments from countries such as those in southern Africa facing severe famine… The debt crisis has been draining desperately needed resources from African countries over two decades, weakening their economic and social infrastructure and therefore their ability to respond to crises such as HIV/AIDS, draught and famine. It is time these debts were cancelled.”
The problem with international debt is that, instead of making the debtor countries economically self-reliant, they wind up more dependent on the rich nations, because the loans are usually intended for projects that make them buy more goods and contract more debts. Pedro Salgado, OP, in his commentary on Centesimus annus, argued that the Philippine request of loan for the construction of an integrated steel factory was never approved, for with it Filipinos would not be importing steel from the wealthy nations. It is easier for them to give loans for roads and irrigation projects, for roads would insure the sale of their cars and trucks, at the same time facilitating the entry and sale of foreign goods into what were, before the roads were constructed, hinterlands. With irrigation, on the other hand, they could sell their tractors, fertilizers, pesticides, driers and mills.
Last March 2005, some senators and congressmen denounced the World Bank’s warning that international agencies would not increase their aid to the country unless the government speeded up the passage of fiscal reform measures, like the value-added tax (VAT) bill. According to the Manila Times report, Juan Ponce Enrile said that they cannot tell the lawmakers how they would pass the law, for they would do so according to their judgment of what the law should be. That might be well, but the truth is, ever since the foreign debt increased in the 1970s, Marcos and the technocrats had to agree to the IMF and the WB guidelines for restructuring the various aspects of Philippine economy.
Wrote David Wurfel in his book, Filipino Politics: Development and Decay: “Bank influence has always pushed policy in the direction of ‘freeing the market of controls’ and ‘removing barriers to free trade.’ IMF pressure imposed devaluation on Marcos in 1970, a severe blow to Filipino manufacturers for the domestic market who mainly imported foreign components. In 1976, the Marcos regime committed itself to three years of ‘close economic supervision’ by the IMF in exchange for a $280 million loan. A 1979 loan of $190 million to cover a balance-of-payments shortfall had similar restrictions. The Philippines was required to abolish price controls, tighten credit, and sharply reduce tariffs, which helped cause unemployment. Similar conditions were attached to loans in the 1980s.”
But what is wrong with international debt does not only come from its heavy and deleterious consequences. In some cases, debt itself is odious. The term “odious debt” comes from Alexander Sack, world’s pre-eminent legal scholar, who gave shape to its legal doctrine. According to him, “If a despotic power incurs a debt not for the needs or in the interest of the State, but to strengthen its despotic regime, to repress the population that fights against it, etc., this debt is odious for the population of all the State.” The odious debt is not an obligation of the people; it is the regime’s debt. It was incurred without the people’s consent, it did not benefit them, and the lenders must have been aware of those two conditions. The United States used this doctrine to repudiate Cuba’s debt to Spain.
Some have suggested that some portions of our foreign debt are odious, and therefore they should be cancelled. In an article, “Fiscal Crisis Takes a ‘Creative’ Turn in the Philippines,” by Lisa Peryman (Odious Debts Online, March 4), Manuel Villar seemed inclined to make such classification under his proposed debt relief act. Wrote Peryman: “The Philippines’ staggering debt load is largely attributed to economic policy under the corrupt administration of former President Ferdinand Marcos. According to the PDI, foreign loans were a ‘rich source of funds’ for Marcos and his cronies who used monies generated in loans to line their own pockets.” Indeed, a significant part of this debt is known as behest loans which Marcos granted to his cronies, and which later on were assumed by the government.
Moreover, some of these loans are immoral because of their inherent deceit and corruption. They are illegitimate. The classic example is the Bataan Nuclear Power Plant, which accounts for 5% of the total debt of the country. It was constructed in 1975 and completed in the mid-1980s. However, in 1986, a team of international inspectors declared it unsafe and inoperable. Without producing a single watt of electricity, it costs $2.3 billion, which is three times the price of a comparable plant in South Korea. Marcos is accused of making $80 million in kickbacks, according to Jojo Robles, in his article, “Debt, Power and Imee Marcos,” Manila Standard Today (Aug 26, 1965).
Robles quoted a respected British publication that cites the plant as an example of a debt that should not be repaid: “First, it was a grand scheme of the late dictator that never benefited the people and is thus an ‘odious debt’ under international law. Second, the children of the Philippines are being asked to pay for bribes to Marcos and excess profits of the contractor. Third, the company should take the responsibility for building a nuclear power plant station just 60 miles from the sprawling capital Manila, near several earthquake fault lines and at the foot of a dormant volcano.” Understandably, Supreme Court Associate Justice Reynato Puno, speaking on April 19, 2005 at the 10th national convention of the Integrated Bar of the Philippines, urged the government to consider stopping payments for loans that Marcos barrowed to build it.
Quite aside from the moral point of view, our debt has to be seen also from a theological vantage point. For one thing, wealthy nations and those who hold international bodies could consider them as an opportunity and a challenge, in the words of John Paul II in his Ecclesia in Asia, “to value the human person and the lives of millions of human beings more highly than financial or material gain (n 41).” The 1998 CBCP Pastoral Exhortation on Philippine Economy singled out the principle on the primacy of the human person in economic development (nn. 40-41), on the basis of which one can ask for the cancellation of debts because its servicing violates the right of millions of human beings to be more (cf John Paul II, Centisimus annus, n 44). Profits over the broken bones of humanity are simply immoral!
In this connection, one may quote the US Catholic Bishops in their pastoral letter, Economic Justice for All. “The [debt] crisis, however, goes beyond the system; it affects people. It afflicts and oppresses large numbers of people who are already severely disadvantaged. That is the scandal: it is the poorest people who suffer most from the austerity measures required when a country seeks the IMF ‘seal of approval’ which establishes its creditworthiness for a commercial loan (or perhaps an external aid program). It is these same people who suffer most when commodity prices fall, when food cannot be imported or they cannot buy it, and when natural disasters occur. Our commitment to the preferential option for the poor does not permit us to remain silent in these circumstances. Ways must be found to meet the immediate emergency—moratorium on payments, conversion of some dollar-dominated debt into local-currency debt, creditors’ accepting a share of the burden by partially writing-down selected loans, capitalizing interest, or perhaps outright cancellation [n 274].”
The underlying principle involved is the solidarity of all peoples. In his encyclical letter, Solicitudo rei socialis (n 26), John Paul II noted: “Today perhaps more than ever in the past, people are realizing that they are linked together by a common destiny, which is to be constructed together, if catastrophe for all is to be avoided. From the depth of anguish… the idea is slowly emerging that the good to which we are all called and the happiness to which we aspire cannot be obtained without an effort and commitment on the part of all, nobody excluded, and the consequent renouncing of personal selfishness.” The world is the big family of God, and we are all our brothers’ keepers. It would be immoral for rich nations to enjoy the blessings of the world while poor countries wallow in misery.
That is why, John Paul II declared in his encyclical letter, Centesimus annus ( n 35): “The principle that debts must be paid is certainly just. However, it is not right to demand or expect payment when the effect would be the imposition of political choices leading to hunger and despair for entire peoples. It cannot be expected that the debts which have been contracted should be paid at the price of unbearable sacrifices; in such cases it is necessary to find—as in fact is partly happening—ways to lighten, defer or even cancel the debt, compatible with the fundamental right of peoples to subsistence and progress.”
On the other hand, in cancelling a huge amount of debt, one imitates God who generously forgives. In the Matthean parable of an Oriental sultan who audited the operation of his governors, one was found to have defrauded him P50 billion. It was expected that as a despot he would inflict the most degrading punishment—imprison him and sell his family into slavery. When the defrauder offered a proposal for restitution, he got the surprise of his life—his debt was generously forgiven! As Douglas Hare in his book, Matthew, has correctly commented, the theological center of the story is the astounding magnanimity of the king. “So it is with the kingdom of heaven. Those who wish to be part of that kingdom must imitate the incalculable patience and generosity of its sovereign.” If God is rich in mercy, so must the rich countries and international institutions toward the poor humanity.
Looking at the history and nature of our international debt in the light of his tradition, a Christian cannot but hope that all our debt is forgiven. But is cancellation of billions of dollars that the Philippines owes to wealthy nations, the IMF and the WB impossible? It is interesting to note that last June 2005, the world’s leading industrial nations—Britain, United States, Canada, France, Germany, Russia, Japan and Italy—agreed to write off the multilateral debts that the world’s poorest nations, mostly African, owed to the tune of $40 billion. In the next 18 months, 11 more countries will be included in the list of beneficiaries to bring the total debt forgiveness to $55 billion. Some leaders have, of course, reservations about the debt relief, knowing too well the possibility that the program could be subject to some conditions that would undermine the sovereignty of the debtor-nations.
Still, this augurs well for poor nations like the Philippines, even if the sum is paltry. At least, one is beginning to wonder if indeed creditors have a human heart, after all. “It may be too much,” says the PDI editorial (June 16, 2005, “Debt relief”), “to expect the country’s creditors to write off all its debts. If the rich nations were to extend this privilege to every debtor nation, the IMF, the World Bank and other international financial institutions would probably have to shut down. But now that they have seen the urgency of extending debt relief to the poorest nations, they should consider a similar program for other heavily indebted nations. It doesn’t have to be a complete write-off. In the Philippines, for instance, a good start would be the condonation of loans tainted with fraud, like the financing for the construction of the Bataan Nuclear Power Plant that has never been used.”
And yet, who knows, such a small beginning could wind up with total cancellation of debts? Who knows, representatives of the First World and the leaders of IMF and WB will finally sit down with the Vatican and heed the Pope’s call, in his Ecclesia in America (n 59), to “seek ways of resolving the problem of foreign debt and produce guidelines that would prevent similar situations from recurring on the occasion of future loans?” Who knows, guided by the Christian tradition and reflection on debts—not by pragmatic and selfish interest—the wealthy nations and financial institutions will eventually correct what is wrong with the international economic order and set up a system and mechanisms capable of ensuring an integral development of the poor countries? Then, the Philippines can really start a new economic policy, no longer import dependent and export oriented, no longer tied to foreign interest and to the unjust economic order!*