CONTROVERSIAL DEALS

Not enrolled in the Congress list are the recent concessional loans from the Export-Import Bank of China for projects deemed illegitimate as these were contracted under allegedly unfair and onerous provisions, and attended by bribery and overpricing. 

These consisted of the North Luzon Railways Project (NLRP), South Luzon Railways Project (SLRP), the already scrapped National Broadband Network (NBN) Project, and Cyber Education Project. Including the US$329-million NBN project, the Chinese loans amount to US$2.2 billion (or P91.1 billion).

Table 3: Loans Challenged as Fraudulent, Tainted and/or Useless in the 2008 Budget *Computed using an exchange rate of US$1 to P41 Source: 2008 GAA; FDC ITEM LOAN AMOUNT PESO EQUIVALENT* OWED TO Austria Medical Waste Project US$19.1 million P503.65 million Bank Austria AG Small Coconut Farms Development Project (SCFDP) US$121.80 million P4.99 billion International Bank for Reconstruction and Development (IBRD) Second Social Expenditure Management Program (SEMP2) US$100 million P5.21 billion IBRD Secondary Education Development and Improvement Project (SEDIP) US$116.71 million P4.56 billion Japan Bank for International Cooperation (JBIC) and Asian Development Bank (ADB) Philippine Merchant Marine Academy (PMMA) Modernization Project US$20.93 million P858 million Kreditanstalt fur Wiederaufbau (KfW) of Germany Telepono sa Barangay Project US$24.99 million + CHF44.24 million (Swiss Franc) P999.60 million + P1.21 billion Export Development Corporation (EDC) of Canada and Credit Comm’l de France Power Sector Restructuring Program US$300 million + US$300 million P12.3 billion + P12.3 billion ADB and JBIC Power Sector Development Program US$450 million + US$300 million P18.5 billion + P12.3 billion ADB and JBIC Angat Water Supply Optimization Project US$80 million P3.28 billion JBIC Procurement of Search and Rescue Vessel from Tenix Defense Pty Ltd. Aus$109.90 million P3.08 billion Export Finance and Insurance Corporation (EFIC) of Australia Pampanga Delta Development Project ¥7.54 billion P1.98 billion JBIC Plus remaining unsecuritized loans incurred during the term of former President Ferdinand Marcos

Arroyo has maintained that the constitutionality of treating debt service as automatically appropriated is both established and unequivocal. “Servicing of public debt, whether foreign or domestic is automatically appropriated to ensure that the required amounts are available when they become due,” she said.

But while legislators expected the veto considering the continuing effectivity of automatic appropriation for debt service, Albay Rep. Edcel Lagman, chair of the House of Representatives committee on appropriations, laments how the Executive forefeited the “strong political endorsement from Congress for the renegotiation or condonation of odious and wasteful loans.”

Justifying the provision, Lagman says these loans are “in the improvident league of the Bataan Nuclear Power Plant (BNPP) indebtedness which the government has fully paid despite the mothballing of the nuclear facility which was errantly supplied and installed from a tainted loan.”

The mothballed nuclear plant cost the country a total of P64.8 billion — P43.5 billion as principal amortization and P21.2 billion in interest payments — from 1986 up to last year.

'SPENDING COMPRESSION'

With the huge amounts flowing out of the country in debt-service payments, it is therefore no surprise that in the last seven years there has been what Diokno calls a spending compression — the underfunding of education, health, and public infrastructure.

Education, which should receive the highest budgetary allocation as mandated by the Constitution, only got more than a fourth (P164.1 billion) of what the Arroyo government automatically appropriated for debt service (P612.8 billion) in 2007. Spending on health was even more atrocious — at P18.4 billion, this corresponded to a measly three percent of what the government spent on debt payments.

For this year, the education budget was even lower at P138.2 billion, while health got only a meager increase at P19.8 billion.

Many are wont to blame Arroyo, an economist, for the problems besetting the economy, but Dr. Walden Bello, FDC president, would rather put things in perspective. Arroyo, she says, is “not the problem, but part of a bigger problem that extends far into the recent past.”

A noted critic of the current economic globalization model, Bello assigns collective responsibility on the last five administrations for the Philippines's economic malfunctioning, noting the stark difference between the country's economic growth record from 1990 to 2005 and the rest of Southeast Asia.

Within that period, the country's GDP per capita growth averaged 1.6 per cent per annum, according to the latest Human Development Report of the United Nations Development Program (UNDP).

“(It's) the worst in the region,” says Bello, pointing out how even all the so-called lower-tier ASEAN [Asssociation of Southeast Asian Nations] countries have significantly outstripped the Philippines — Vietnam (5.9 percent), Laos (3.8 percent), Cambodia (5.5 percent), and Myanmar (6.6 percent).

Bello rejects overpopulation, corruption, strong protectionist policies, and the issue of higher, non-competitive labor wages as explanations advanced by some analysts for the country's continuing underdevelopment. Instead, he says the real culprit is the crisis of investment that begun in the mid-1980s, out of which the economy has never really recovered.

The ratio of investment to GDP plunged to 17 percent during that period, from nearly 30 percent in the early 1980s, and stayed at 20-22 percent in the early part of 2000. The impact of the World Bank and International Monetary Fund-imposed structural adjustment programs in the 1980s and 1990s — decades of international recession — marked by radical tariff liberalization coupled with monetary and fiscal tightening measures further led to the downward spiral of private investment.

But instead of picking up the investment slack, the fledgling government of then President Corazon Aquino succumbed to pressure from international creditors to a “model debtor strategy” in order for the country to continuously enjoy access to the global capital markets.

By virtue of Executive Order No. 292, Aquino affirmed “automatic appropriation” for foreign-debt service from the government budget every year as laid out in a Marcos decree, Presidential Decree 1177.

Aquino's executive order institutionalized the said policy in the Revised Administrative Code of 1987, in particular, Section 26 (B) Book 6, allowing payments for both principal and interest on public debt to be automatically appropriated sans any comprehensive review to determine if these debts were legitimate.

Bello could only describe the huge financial resources — amounting to US$30 billion (eight to 10 percent of GDP) between 1986 and 1993 — that flowed out in debt service payments as a “catastrophic failure.” This, Bello says, made the country a “net exporter of capital to the North.”

From seven percent in 1980, interest payments as a percentage of total government expenditures rose to 28 percent in 1994. Under Arroyo, the share of interest payments has hardly changed, averaging 27 percent and registering highs of 31.1 percent in 2005 and 29.7 percent in 2006.

Table 4: Annual Interest Payments vs Government Expenditures (in billion pesos) * as of April 2008 Source: Bureau of the Treasury 2001 2002 2003 2004 2005 2006 2007 2008* NATIONAL GOVERNMENT EXPENDITURES 714.5 789.1 839.6 893.8 962.9 1,044.4 1,149.0 401.3 INTEREST PAYMENTS 174.8 185.9 226.4 260.9 299.8 310.1 267.8 119.0 AS % OF GOVERNMENT EXPENDITURES 24.5% 23.6% 27.0% 29.2% 31.1% 29.7% 23.3% 29.6%

If payments for principal amortization, which are off-budget items, are included, debt-service payments actually have taken up almost 60 percent of national government expenditures in the last seven years.

Why paying off principal amortization of our debts does not form part of expenditures boggles the minds of anti-debt advocates. In Arroyo's "perverted logic," the FDC says, what she is telling the public is that the government has to refinance its old debts through more borrowings.

To the detriment of social spending, post-Marcos governments from Aquino to Arroyo have made debt servicing the topmost national economic priority, but which has taken a more vicious turn under the present dispensation.