Redeeming national debt and achieving unity through retail bond

Two ground zero economic realities are behind mass poverty, the sky-high government debt, annual deficit spending, and the lack of preparation for natural and man-made disasters, among other perennial problems. And these are: one, the lack of job opportunities for a growing population; and, two, our humongous debt that totals 63.7 percent of our gross domestic product as of September 2022, way beyond the 60-percent fiscal prescription by the International Monetary Fund (IMF) for borrowing countries. Empirical data show how spotty national leadership in more than half a century has kept us lagging economically, overtaken by our neighbors in the region.

On the first issue, we can generate jobs by changing our mindset, moving quickly to implement amendments to trade liberalization and our export industry. We should learn a lesson or two from behemoth China on opening ourselves to foreign direct investments (FDIs) which, according to the IMF’s research department, “… saw average real growth of more than 9 percent a year with fewer and less painful ups and downs [in China]. In several peak years, the economy grew more than 13 percent. Per capita income has nearly quadrupled in the last 15 years…”

The IMF report also predicted that the Chinese economy will be larger than that of the United States in about 20 years. “By welcoming foreign investment, China’s open-door policy has added power to its economic transformation. Cumulative foreign direct investment, negligible before 1978, reached nearly $100 billion in 1994.” In comparison, the Philippines FDI was only $6.2 billion in 2020.

On ground zero problem No. 2 or government debt, Finance Secretary Benjamin Diokno said our foreign debt has been slashed to 28.6 percent of our total debt of P13.2 trillion. Presumably, maturing debts were recycled to domestic peso-denominated borrowings with higher interest rates, because total debt has, in fact, risen by P600 billion from the amount left by the Duterte administration. Defaults, if any, would then be more manageable with domestic lenders.

Lately, more than P100 billion of domestic loans in maturing treasury bonds were converted to P5,000-denominated retail bonds of 5.5 years maturity and a 5.75-percent coupon rate. This is an excellent way to bridge foreign debt maturities and a new way for the government to tap the potential of small Filipino earners, and government and private employees. If half of the country’s estimated 70 million workforce can each invest P5,000 to P10,000 in these retail bonds, at least P350 billion could be generated. It would also teach our people to start setting aside small investments for their families. Our savings rate of 20 percent in the latest survey among 16 Asia Pacific countries is one of the lowest in the region.

With retail bonds, small taxpayers directly help in bailing out the government while earning returns on their small investments on the side. They can also be made tax-free with a 1-percent higher rate for family and individual investors, up to a limited investment ceiling.

Can the lowly employee wage earner become savers, too? Yes. As some in social media have suggested, the country can consider establishing a national savings welfare fund (NSWF) from savings in unnecessary/optional expenditures. Since all government employees are compulsory GSIS members, except those in the armed forces, and presumably all private employees are SSS members, the NSWF would be their savings equity, to be paid out upon retirement at 65. The NSWF can also be invested in the proposed Maharlika Investment Fund, ideally incorporating national savings and becoming a source of long-term national economic development, thus bailing us out of borrowing.

Lastly, but equally important, the retail bond idea might just be the spark for unity among us, giving real meaning to bayanihan the way the Thais trooped to their banks to surrender their foreign exchange to bail out their battered economy in the late 1990s. After all, the per capita public debt will inevitably fall on us all, like it or not.

Marvel K. Tan,[email protected]