More voices for debt relief

I remain an advocate of debt restructuring for so many reasons that I have harped again and again in my past columns. One of our readers couldn’t have said it better in his most recent letter. Here’s what Juan Deiparine of Toril, Davao City has to say:

"You really hit the nail on the head with your column on confronting our debts. Lately, even the likes of Senator Manuel Villar agree that debt relief is a viable and necessary option in order to take the country out of the debt trap we are in.

"Debt is the single biggest culprit behind the Philippines’ woes. It is what is causing so much instability and political unrest. It is what causes the public mood to be so morose. It is what deters us from moving forward, while the rest of our neighbors are making economic gains.

"Please allow me to explain:

"1. You were correct to say that more than half of the budget goes to debt service. But you may be amazed to find out that 90 percent would be closer to the exact figure.

"The total debt service for 2005, which includes both interest and amortization of principal, is P646 billion. Of this amount, P301 billion is for interest and P345 billion for principal amortization. Total government revenues for 2005 are projected at P751 billion.

"Based on these numbers, the amount for debt service is actually equivalent to 86 percent of total projected revenues for the year 2005. These numbers are the latest from the Dept. of Finance and can actually be acquired from the DOF and/or BSP websites (www.dof.gov.ph or www.bsp.gov.ph).

"These figures tell us that about nine out of every P10 our government collects as revenue will just go to payment of public debt. Only P1 is left for keeping the government operating, much less invest in infrastructure and social services for our future development! This obviously is not a sustainable situation.

"2. Given the above situation, how can government spend for development? How can it pump-prime the economy? There is hardly enough cash for salaries of the bureaucracy. Is it any wonder that public school teachers and soldiers are so poorly paid? Or that civil servants are corrupt? Or that there is always unrest among the ranks of government employees?

"3. The only way for government to continue operating is to borrow some more. This is the debt trap. Consequently, government competes with the private sector for the cost of borrowing. Liquidity is tightened, economic expansion is limited. Less projects are available.

"Business is in the doldrums. Investments dry up. There are less employment opportunities. Taxes are tougher to collect. The Leftists rant more aggressively. Political opposition becomes noisier. Tension increases, fuses get shorter. Dissatisfaction, distrust, and disapproval become catch-words. What a vicious cycle!

"4. What makes the Philippine situation so precarious is that, in terms of debt to GDP ratio, it is the No. 1 sovereign debtor in the world. With majority of debt in foreign currency, the Philippines is very susceptible to currency devaluation.

"Another large devaluation will be disastrous for the country. Not only will there be more unrest, it could even lead to the disintegration of the country as we know it. Economics was the factor behind the dismemberment of the Soviet Union.

"Our country has enough problems already. But debt remains the biggest obstacle to progress. It prevents the economy from expanding and government from spending for needed infrastructure. It exposes the nation to so much instability and unpredictability. It robs our children of their future.

"I hope gentlemen like yourself and the good Senator Villar can raise awareness about our plight and make debt-relief a reality. It can be done. It has been done. It is the only practical way out of a never-ending debt trap."

Federalism’s Catch

On the other hand, Carl Cid S.M. Inting of Cebu City has reacted to a past column that tackled the economic impact of plans to shift to a federal form of government. Here is what he has to say.

"Great piece. Very pragmatic. I am all for federalism and would really like to have as little of "Imperial Manila" as possible. But now that you mention about what to do with the national debt, I am worried that there will be great resistance from Manila for a genuine federal system.

"The central government will try to pass off as much debt to the federal states as possible, even if the federal states may rightly claim to have nothing to do with those debts. It will be a very large bone of contention. The World Bank and the IMF may even have to step in.

"It’s a huge mess, I must admit. Ferdinand Marcos handed us that legacy of debt. Unfortunately, none of the Presidents after him confronted the debt problem head-on. They even continued what you mention as the "vicious cycle" of borrowing to simply stay afloat.

Now, debt has ballooned into almost unmanageable proportions and threatens our very way of life.

"As for the quality of leadership, I am confident federalism can produce a better crop of leaders. And the local leadership will have a stake in the local economy, so they will tend to work for its betterment. This is not a big problem, as far as I can see.

"It is really the national debt and what to do about it that I see as the biggest stumbling block to make federalism a reality. You once wrote about confronting our debts and the possibility of debt relief. Now, even Speaker JDV talks about debt relief. What you said today reaffirms the importance of confronting the debt issue.

"I really hope we manage to break through this cycle of debt."

New Economic Team, Same Tack

It was reassuring to note that despite the unending political brickbats hurled against President Gloria Macapagal Arroyo, she was clear-headed enough to hurriedly choose a credible and well-accepted head of her new economic team in the person of Secretary Margarito "Gary" B. Teves of the Department of Finance.

The new economic team, however, is no different from the previous one. It is steadfast in its view that debt relief is not a prime option in resolving our financial crisis. For Finance Secretary Teves, debt relief is the option of last resort.

As the tense political situation continues and with the specter of still another ratings downgrade looming over our heads, millions of Filipinos are hoping that the government will be open-minded enough to consider out-of-the-box solutions to lighten our debt load and allow the nation to nurse itself to some degree of fiscal health.

Surely, exploring some form of a debt restructuring will not hurt.

A debt restructuring that is mutually agreeable with our lenders would give us enough time and space to solve our fiscal crisis without exhausting our limited resources.

Why second-guess what the creditors would say and feel? Why can’t we stand up and face our creditors to say we cannot afford to pay now? We need some relief. Argentina and Nigeria did it. Why can’t we?

Join us in "BREAKING BARRIERS" on Wednesday, 10th August 2005, IBC-TV13 (11 p.m.) and gain insights into the views of Secretary Margarito "Gary" B. Teves of Dept. of Finance on issues related to the country’s current financial and economic difficulties. Watch it.

Should you wish to share any insights, write me at Link Edge, 4th Floor, 156 Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected] or at [email protected]. If you wish to view the previous columns, you may visit my website at http://bizlinks.linkedge.biz.