Wednesday, November 14, 2018
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Commentary

What the gov’t is not telling us about debt

/ 05:16 AM November 08, 2018

The Philippines’ public debt reached an all-time high of P7.16 trillion (about $133 billion) in September 2018, an 11.1-percent increase from the September 2017 figure. Foreign obligations amounted to 36 percent of the total debt. The budget department projects the yearend debt to hit P7.33 trillion ($136 billion), and will breach P8 trillion in 2019. This will be a huge 33.33-percent increase from the time President Duterte took over in 2016.

Finance Secretary Carlos Dominguez attempted to dispel fears of an impending debt crisis by pointing to the debt-to-GDP ratio “holding steady” at 42.1 percent in 2017, “same as 2016.” Budget Secretary Benjamin Diokno argued that “the right metric is not the size of the debt itself, but the size of debt-to-GDP.” Diokno also compared the Philippine ratio to Japan (200 percent) and the US (over 100 percent) to ostensibly show that the country is in a better debt situation.

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Focusing exclusively on the debt-to-GDP ratio, however, is at best disengenuous, and at worst deceitful and misleading. There are many other indicators that the Filipino people should be made aware of regarding the country’s debt. Civil society organizations campaigning on the debt issue have long raised what they consider to be more important and meaningful indices that impact directly on the everyday lives of the people, particularly in developing societies.

In general, debts must be evaluated on whether they ultimately benefit the poor and marginalized populations and the less developed regions of the country. Debts that result in granting more privileges to the rich and propertied classes and favor more developed areas, while further exacerbating social inequalities, can be deemed illegitimate and may consequently be canceled or suspended.

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As I pointed out in an earlier Inquirer commentary (“Historic audit of illegitimate debts,” 2/9/2017), a debt can be regarded as “illegitimate” if it violates principles of “human rights and sustainable human development, justice and fairness, accountability and responsibility, sovereignty of peoples and nations, and democratic rights.” Illegitimate debts, therefore, are those that “violate procedures mandated by law such as bribery, fraud, coercion or misrepresentation; contain onerous provisions such as public guarantees of private profits; negatively impact on the environment, communities and people’s wellbeing, and on basic social services, human welfare and safety; waste funds through corruption, mismanagement and project failures; convert private loans into public debts due to sovereign guarantees; subject the economy to shocks, unreasonable creditor demands and financial market instabilities; and impose conditionalities that violate national sovereignty and democratic principles.”

Safeguard measures are needed to prevent large infrastructure projects from forcing the dislocations of affected communities and causing widespread ecological harm. Loan provisions must not bind the government to fiscal restraints on social protection measures. Tied foreign loans are self-serving and unacceptable, since they only revert to the donor country through feasibility studies, consultancies, procurement and project construction.

Under a Marcos-era automatic appropriations law, debt service has the first cut of the budget before any other item. This debilitating law should be repealed, as it prevents government from allocating more funds for underserved social development sectors such as health, education and housing. In the 2018 General Appropriations Act (GAA), the total debt service is P371 billion or 10 percent of the budget, an amount better utilized for human development programs.

To evaluate the debt in a more holistic manner, both pre- and post-audits of the country’s loan arrangements must be conducted along the above indicators. The Philippine government actually recognizes the notion of illegitimate debts, as the GAAs of 2017 and 2018 included a special provision calling on government “to conduct a debt audit to determine the legitimacy of 20 government-contracted foreign loans.”

In December 2016, Senators Risa Hontiveros and Aquilino Pimentel III jointly filed Senate Resolution No. 253 “directing the appropriate Senate committee to inquire… into the foreign loans contracted by the Philippine government within the last 15 years through the conduct of a debt audit.”

Obviously, there is much more to the debt issue than the mechanical and uncreative use of the single indicator of debt-to-GDP ratio, which government economic managers have continuously been drumbeating while turning a blind eye to more relevant and meaningful parameters.

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Eduardo C. Tadem, PhD, is convenor of the Program on Alternative Development, UP Center for Integrative and Development Studies, retired professor of Asian Studies at UP Diliman, and past president of the Freedom from Debt Coaliton (2014-2018).

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TAGS: Carlos Dominquez, Eduardo C. Tadem, Inquirer Commentary, public debt
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