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!
Brief History
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.”
Various Approaches
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.
Morality
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.
Theology
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.
Hope
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!*
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