Debt relief

Debt condonation is something a government avoids because of its repercussions on a country’s financial and economic wellbeing. A country that expresses even the slightest hint of a request for debt condonation worries the international lending community.

However, an appeal two weeks ago by an independent expert tasked by the United Nations to monitor the effects of foreign debt on the enjoyment of human rights is worth looking into. Cephas Lumina, the UN independent expert, had voiced concern that the Philippines’ post-typhoon reconstruction efforts could be undermined by its heavy debt load. Independent experts are not UN staff and are appointed by the UN Human Rights Council with an honorary title to examine and report back on a country’s situation.

While noting the international support given the Philippines in the aftermath of Supertyphoon “Yolanda,” Lumina pointed out that the country needed about $22 million a day to service its foreign debts. “While around $3 billion has left the country to serve its debt since the typhoon struck [in November 2013], the country has received so far only $417 million [from] international and private donors, [or] about half of the total relief requested,” the expert added. To date, the World Bank has provided a $500-million support loan and a $480-million loan for rebuilding infrastructure and social services, and the Asian Development Bank has made available nearly $900 million in assistance. But these were mostly in the form of new loans, with only $23 million given in the form of grants. Loans for reconstruction cannot generate returns to allow the debt to be paid as these are spent only to rebuild damaged infrastructure.

This led to Lumina’s appeal to international creditors to cancel part of the Philippines’ debt and provide aid instead of new loans. The expert highlighted the importance of canceling debt to ensure the Philippines’ recovery from the devastation caused by Yolanda. Believed to be the most powerful storm ever to hit land, it displaced more than four million people, destroyed half a million houses, and had a catastrophic impact on the region’s infrastructure, hospitals, schools and public services. The cost of damage was estimated at $12 billion.

A plea for a cancellation of part of the Philippines’ foreign debt was actually made in December 2013, when the Jubilee Debt Campaign, the local Freedom from Debt Coalition, the Jubilee South (Asia) and the Christian Aid launched a petition addressed to official lenders. These nongovernment organizations had earlier launched the global jubilee movement to cancel developing-country debts, resulting in the condonation of $130 billion worth of obligations mainly of poor African countries. The Philippines was excluded from the scheme because it was deemed “too rich” for debt relief by the International Monetary Fund and the World Bank.

In their petition, the NGOs noted that the impact of a burgeoning foreign debt burden had been devastating for the Filipino people, with public services such as health and education persistently getting inadequate funding. They argued that while an estimated 16 million Filipinos were malnourished and living in poverty, more than 20 percent of government revenue, or almost as much as funding for health and education combined, was being spent annually for foreign debt service.

This was what Sarah-Jayne Clifton, director of the Jubilee Debt Campaign, had to say: “The Philippinesurgently needs funding for relief and reconstruction efforts, as well as to adapt to the unavoidable impacts of climate change and support communities who live in areas that are beyond adaptation. International lenders should put life before debt and cancel the Philippines’ foreign debt obligations as a matter of urgency.”

While the Philippines is classified as a lower-middle-income country and is disqualified from international debt relief programs, there should be exemptions such as when extreme disasters wreak havoc. Such was the case when Yolanda ravaged the Visayas late last year. The fact that a fourth of the Philippine population lives in poverty—a figure enlarged by people displaced by Yolanda—is also worth considering. Add to this the fact that for 2014 alone, the Philippines has to pay $8.8 billion in debt service, money that could otherwise be spent on basic social services.