The Philippines’ debt hole
11:34 pm | Sunday, November 3rd, 2013
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The embarrassing and scary government shutdown in the United States won’t happen in the Philippines. The reason? We don’t have a debt ceiling, unlike in America. Here, the sky’s the limit for public borrowing. The president is authorized to borrow money as much and for as long as he/she wants.
Under Sec. 20, Art. VII of the 1987 Constitution, the president has the power to “contract or guarantee foreign loans on behalf of the Republic of the Philippines with the prior concurrence of the Monetary Board, and subject to such limitations as may be provided by law.”
Also, under Republic Act No. 7553, the New Central Bank Act, all internal and local borrowing by the national government and its political subdivisions, including cities and municipalities, shall be subject only to the approval of the Bangko Sentral ng Pilipinas. All seven members of the Bangko Sentral, including five from the private sector, are appointed by the president, and so what he/she says goes.
This is despite Sec. 24, Art. VII, which states: “All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills, shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments.”
Presidential Decree 1177, issued by Ferdinand Marcos in 1977, provides for the automatic appropriation in the national budget of the payment of the principal and interest of the public debt. Marcos signed the decree to bolster his authoritarian “New Society.” Our foreign debt rose from $7 billion in 1965 when Marcos was first elected to $27 billion in 1986 when he was ousted. As of the first quarter of 2012, our foreign debt was $62.9 billion, up by 3.3 percent from that of the previous year (Inquirer, 6/22/12), constituting 50 percent of our gross domestic product (GDP).
Because of PD 1177, the international credit rating agencies have always given the Philippines a favorable rating. Unlike the United States and other countries, the Philippines cannot default because it has guaranteed debt payment from our taxes. As our borrowings go up, more and higher taxes are imposed to pay for them—thus the onerous 12-percent VAT and higher taxes on cigarettes and liquor.
According to the Department of Finance, the government is allocating P791.5 billion for public debt servicing in 2014, which is 34 percent of the proposed P2.2-trillion national budget for next year. Every P34 of every P100 in our budget goes to payment of the public debt.
The appropriation for debt payment in the 2014 budget is more than the combined allocation for the Departments of Education (P336.9 billion) and of Public Works and Highways (P213.5 billion).
Total public debt as of May this year was P5.36 trillion. It is expected to rise to P5.78 trillion by the yearend, equivalent to 48 percent of the GDP. By Dec. 31, every Filipino man, woman and child will owe P55,195.65 in government debt (estimating the population at 92 million), up from P51,675 just two years ago.
The Philippines’ bottomless debt hole perpetuates our annual budgetary deficit that requires us to borrow more money and raise more taxes, bonding us like feudal peons to financial landlords for as long as the current debt policy persists.
In their 1991 petition questioning the constitutionality of the automatic appropriation of the debt service, then Senators Teofisto Guingona Jr. and Aquilino Pimentel Jr. pointed out that it was in violation of Sec. 5, Art. XIV of the Constitution which mandates the “highest budgetary priority to education.”
Voting 8-4, the Supreme Court dismissed the petition, citing Sec. 3, Art. XVIII of the Constitution which states: “All existing laws, decrees, executive orders, proclamations, letters of instructions and other executive issuances not inconsistent with the Constitution shall remain operative until amended, repealed or revoked.”
Thus, a decree issued by a dead dictator remains in force more than three decades after his overthrow. PD 1177, introducing the “budgetary reforms” of the “New Society,” is the same vicious decree that originated the pork barrel, now the Priority Development Assistance Fund and the Disbursement Acceleration Program, which have ravaged our national finances and diverted billions of pesos in public money to private wallets.
Associate Justice Edgardo Paras wrote a strong dissenting opinion to the high court’s majority decision in the 1991 Pimentel-Guingona challenge: “I dissent. Any law that undermines our economy and therefore our security is per se unconstitutional.”
Justice Isagani Cruz, also dissenting, affirmed: “I think it is a mistake for this government to justify its acts on the basis of the decrees of President Marcos. These are on the whole tainted with authoritarianism and enfeebled by lack of proper study and draftsmanship, let alone suspect motives.” Justice Abraham Sarmiento concurred.
Justice Teodoro Padilla, likewise dissenting, said: “[T]hese decrees issued by President Marcos relative to debt service were tailored for the periods covered by said decrees. Today it is Congress that should determine and approve the proper appropriations for debt servicing…”
Unless PD 1177 is repealed by Congress, the Philippines will always be overburdened by debt, especially the foreign debt which drains our national resources, including the remittances of more than a million overseas workers. Despite their remittances of more than P1 billion a month, our debt burden continues to balloon.
Doubtless, international banks and even local banks are happy with our automatic payment of debt service, for their lending to our government is practically risk-free. So long as PD 1177 is in the books, they will never suffer the jitters of China and Japan, the biggest creditors of the United States, when they faced the prospect of a US default due to the debt-ceiling impasse between President Barack Obama and the US Congress.
Yet we are less capable of paying, because our nominal per capita GDP is just $2,614, while that of America is a whopping $49,999.
Manuel F. Almario (email@example.com) is a veteran journalist and spokesman of the Movement for Truth in History, Rizal’s MOTH.