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Dec 09th
Home Sections I2D2-International Debt & Development The Philippine Government’s Credit-Card Type of Existence
The Philippine Government’s Credit-Card Type of Existence PDF Print E-mail
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Sections - I2D2-International Debt & Development
Monday, 17 September 2007 04:55

Part One of "How to Prevent the Philippines from Becoming an ‘IOUgoslavia,’ the Asian Version of Yugoslavia"  Series

This writer came up with "Restoring the Dignity in the Filipino Mind (Part Two of "Reinventing the Filipino Psyche" Series)" and discussed the foreign borrowings of the Philippines.

 

QUOTE. And the national policy since the 1960s was to finance government spending with foreign borrowings and depend on the remittances of its foreign workers and expatriates to pay for the foreign debts. Alas, the various Philippine administrations simply mortgaged the future of the coming generations by getting foreign loans that now estimate to exceed $70 billion. Right now the first six to seven billion dollars of Philippine exports simply go to servicing the foreign debts (payment of interest alone). In short, had the Philippines been a household in America, it would have filed for bankruptcy protection a long time ago. Nevertheless, countries cannot resort to the protection of bankruptcy courts. UNQUOTE. To read the article in its entirety, please go to

http://www.mabuhayradio.com/content/view/158/90/

In 2003 I wrote also in my "Daily B.R.E.A.D." column in the www.PinoyOnBoard.com of New York about how the Philippine Government funded its activities by undertaking a credit-card type of financing. Just like a typical credit-card holder, the Philippine Government has maxed out its credit lines and was borrowing more (from other credit cards or equity lines) to settle the monthly minimum payments – often paying only the interest and rolling over the principal. I said also then that if the Philippine Government were an individual consumer, then it would seek the protection of the bankruptcy court. But then countries are not allowed to declare itself bankrupt in the world’s economic system. In retrospect, the foreign and multilateral creditors of the Philippines would capitalize even some of the unpaid interest (by adding the interest due to the principal amount of the loan). It is a practice of not only compounding the interest but also compounding the misery of the Filipino taxpayers and consumers.

It seems that the borrowing-and-more-borrowing syndrome of the Philippine Government has become a trademark of Philippine Presidents since the 1960s. This series of articles will present (again) the litany of essays (as updated) that I wrote, starting in 1988, on how the Philippines might be able to become totally debt-free in a matter of 10 to 15 years. But the national policy makers and decision makers of the Philippines refused to listen to my proposals. But as the adage goes, it is better to try (educating the homeland’s leaders and people) than not to try to all. And perhaps the organizers of a planned Overseas-Filipino Workers-led Political Party may be able to make operational the suggestions in this series if they win the 2010 national and local elections in the Philippines.

In short, this series of articles will answer the query of millions of Filipinos and Overseas Filipinos that an online acquaintance, Ramon Ramirez, asked: "How do we get out of that vicious circle" (Debt Trap)?

Here is one of the latest postings of the ever-active Internet activist Mon Ramirez:

Editor's Note: Please visit the blogspot of Ramon Ramirez at http://monram.wordpress.com/

QUOTE.

Parang tayo rin itong gobyerno. Nabubuhay sa utang.

Next year it will pay about P600B (billion) for the debts:

(a) P300 billion is for the principal amount, and this is automatically appropriated from the annual budget of about P1,000 billion plus.

(b) P295 billion will be for the interest payment. Where will the money come from? Yearly this comes from borrowings (umutang para bayad sa utang, ika nga).

Next year it will take a loan again of about P346 billion and most of it, about 95% will be used to pay the interest of the debt for that year.

How do we get out of that vicious circle?

Parang tayo rin, di ba? Or at least yong hirap pagkasyahin ang maliit ng kinikita.

Mon

UNQUOTE.

------------------------------------------------

Then Mr. Ramirez reproduced an article that appeared in the Inquirer, to wit:

QUOTE.

Gov’t allots P624B to service debts in ’08

 

Interest payments to account for P295.8B

By Michelle Remo

Inquirer (Last updated 01:23 a.m. Manila time, 09/05/2007)

The government will spend P624.1 billion next year to settle maturing obligations, 1.8-percent higher than the allocation for debt service of P612.8 billion this year, documents from the Department of Finance showed.

The amount of debt service next year is equivalent to 8.6 percent of the projected gross domestic product (GDP) of P7.28 trillion for 2008.

The debt service-to-GDP ratio of 8.6 percent will be lower than the 9.3 percent programmed for this year. The drop in the ratio, despite an increase in the absolute amount of debt service, is a result of the expected increase in economic output.

GDP is expected to rise to P7.28 trillion from the estimated P6.61 trillion this year.

The government’s allocation for debt servicing has been consistently on the rise since the government started incurring budget deficits in the late 1990s. The deficits have forced the government to borrow heavily here and abroad.

The government’s outstanding debt has ballooned to P3.78 trillion as of June this year.

Finance officials explained that the government’s debt, and consequently the amount spent for debt servicing, would only begin to drop once the government starts posting a surplus in its budget.

The finance department documents – presented Monday to Congress at a hearing on the proposed 2008 national budget – also showed that of the amount allotted for debt service next year, the larger share of P328.3 billion will be for principal obligations. Interest payments will eat up P295.8 billion.

Only interest payments are automatically appropriated in the government’s annual national budget. The allocation for payment of principal debts is usually from borrowings. The amount for payment of principal debt next year will eat up 95 percent of the P346.1 billion that the government intends to borrow in 2008.

The amount of principal payments for next year is 6 percent higher than the P309.5 billion set for this year. The increase in principal payments is consistent with the government’s aim of hastening debt reduction.

The government wants to reduce its debts to levels considered "sustainable" by credit-rating agencies. According to international standards, a debt is considered "sustainable" if it is 50 percent or less of GDP.

The government’s outstanding debt is projected to reach P3.95 trillion next year, equivalent to 54.2 percent of GDP. This will be a slight improvement from the 59.4 percent estimated for this year.

Finance officials said the government could easily reduce its debts to sustainable levels after posting a balanced budget next year.

The government’s target of balancing the budget next year is anchored on the expected increase in revenue collection arising from tighter audit of tax collection and the sale of government assets deemed better run by the private sector.

Copyright 2007 Inquirer. All rights reserved.

(To be continued . . .)



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Last Updated on Sunday, 02 December 2007 03:43
 

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