Ill effects of foreign loans and the need to borrow against future taxes to support local business

(First of two parts)

President Arroyo has announced that we must institute reforms or perish. And she is right. The country is in such a dire strait that urgent and immediate reforms in all aspects of national life are urgently needed. However, in order to be able to effect meaningful and effective reforms in other areas, it is a requirement, sine qua non, that reforms on the most vital facet of the economy must first and foremost be instituted, and that is MONETARY REFORM.

Without undertaking the primordial monetary reforms in the country, we shall remain stagnant forever. For everybody knows that in order to build roads, highways, ports, airports, schools, hospitals and telecommunications facilities all over the country, money, in sufficient amount, is the foremost ingredient.

It is disheartening to note that since the grant of our independence in 1946, government has not properly exercised its sovereign duty of creating its own level of money supply that is in consonance with all the financial needs of the country. Notwithstanding the fact that all currencies since the 1970’s are now managed or fiat money, the government did not ascertain for itself the correct money level to endure development and prosperity. Worse, all through the years, government did not support our local businessmen and companies with access to long-term and low-interest credit facilities using local money. This devastatingly resulted to their inability to install the infrastructure and utilities of the country. This has been the major cause for the continued backwardness of the country and the economy.

Instead, government adopted the monetary policy of borrowing foreign money to finance local development projects. This brought about disastrous consequences to the budget in the form a gargantuan budget deficit. It likewise resulted in the utter detriment of our local businesses which were continuously deprived of capturing opportunities as they were always given to foreign companies which were tied-up to the foreign funders, and to the tragic loss of our own workers who could not be employed on account thereof.

The most urgent of all monetary reforms then is the need for government to float long-term, low-interest bonds which shall be sold, not to foreign funders, but to our very own Central Bank. Our Central Bank shall be mandated to correspondingly create the new money to be infused into the economic mainstream to finance all the country’s development projects. The revenues collected by government in the form of transaction taxes from the newly created money would then be used to eventually retire the bonds.

Another equally urgent monetary reform that cries for institution is the creation, by law, of 16 independent Central Banks corresponding to all the 16 regions of the country. This is a reform take-off from the Federal Reserve Act of 1912 of the United States of America which created its own independent Federal Banks that took charge in funding and developing the areas under each bank’s jurisdiction so that the entire America is what it is today – a highly developed and advanced country. We must follow said lead and ourselves legislate into existence these regional Central Banks that can jumpstart the total development of each region without dependence to and reliance upon financial support from the National Government based in Manila.

We wish President Arroyo well in her sincere attempts for reforms and success in her heroic efforts. But we must stress that all her intended reforms will come to naught unless monetary reforms are put in place. Either we institute monetary reforms now – or we perish.

(You may write your comments/suggestions at 15/F Equitable Bank Tower Paseo de Roxas, Makati City or through e-mail at [email protected])

(Editor’s note: Atty. Roxas is writing a limited series of articles dealing with financial matters and other important business topics. His next article will explain the vital need to adjust our money supply to keep it abreast with our financial needs. – Ed.)