End to the Philippines’s ‘automatic debt payments’ urged

A budget watchdog is demanding an end to the country’s automatic debt payments that give priority to debt servicing over allocations for vital social and economic services.   

The Freedom from Debt Coalition (FDC) has started an online petition to persuade President Duterte and Congress to repeal the Law on Automatic Appropriations for Debt Servicing and to conduct a comprehensive audit of all public debts. The country’s outstanding obligations hit P5.95 trillion at the end of this year’s first semester, according to the Bureau of the Treasury (BTr).

FDC said the Automatic Appropriations Law (AAL), a relic of the Marcos era, forces the government to set aside a substantial portion of its annual budget for debt servicing “before allocations are made for vital social and economic services.”

The provision for automatic debt servicing is contained in Section 26B, Book VI of Executive Order 292 or the 1987 Revised Administrative Code and was copied en toto from Section 31(B) of Presidential Decree 1177 or the Budget Reform Decree of 1977 of former President Ferdinand Marcos.

In a report to Finance Secretary Carlos Dominguez III, National Treasurer Roberto Tan said the government’s total debts climbed by P62.41 billion compared to the end-May level of P5,886 billion, as a result of foreign exchange (forex) adjustments and domestic net issuance.

“Filipino taxpayers’ money and all public funds should be spent for people’s needs and welfare such that provisioning for essential public services and immediate post-disaster rehabilitation for victims of calamities are assured and in place,” FDC said in its letter through online petition platform Change.org.

“In the course of 30 years since 1986, automatic debt appropriation has resulted in an average of 27.21 percent of annual public revenues automatically earmarked for interest payments, while principal amortization has eaten up an average of 67.61 of government’s borrowings,” part of the letter read.

FDC also called for an “immediate moratorium on repayments for questionable loans” pending the results of its proposed audit to stop the further bleeding of public coffers for servicing of debts challenged that have been challenged as “fraudulent, wasteful, and useless.”

FDC said that out of the P214.5 billion scheduled debt servicing for foreign liabilities of the government in 2016, P3.78 billion will go to interest and principal payments of five “questionable” loan-funded projects: Power Sector Development Program, Sixth Road (Tullahan), Pampanga Development Flood Control, Bohol Irrigation II, and Angat Water Supply Optimization.

In 2008 and 2011, FDC lobbied Congress for a moratorium on P25.9-billion interest payments for “illegitimate debts” and for an audit of all public debts. However, its efforts were blocked by the administrations of Gloria Macapagal-Arroyo and Benigno Aquino III.

FDC said it is urging the President to break from the practice of his predecessors and to develop “debt-management policies and strategies that ensure provisioning for human life in all its fullness, integrity and dignity.”

The online petition could be accessed through this link: www.change.org/p/president-rodrigo-roa-duterte-repeal-of-the-automatic- appropriations-law-for-debt-servicing-audit-all-public-debts.

The petition said the Philippines “could be the only country in the world that has an Automatic Appropriations Law (AAL) that compels the government to set aside a substantial portion of its annual budget for debt servicing before allocations are made for vital social and economic services.”

It added that AAL severely compromises the congressional “power of the purse” since it significantly reduces the budget left for congressional reallocation and Congress is prohibited by the Constitution from increasing the budgetary ceiling.

“The level of borrowings is also effectively dictated by the amount of principal amortization to debts that are to be ‘rolled over’ since it is not part of the budget but instead deducted from new ‘financing’ of the government. The government borrows not just to finance the budget deficit but also to cover its amortization,” it said. “The impact of four decades of prioritizing debt payments over ensuring sufficient budgetary allocation for essential social and economic services has been borne by generations of Filipinos for far too long.”

FDC noted that poverty and inequality have worsened with the Philippines registering with the second-highest income inequality ratio among Asean members, based on the Gini coefficient index as of 2013. Social Weather Stations reported that 50 percent of Filipinos (11.2 million families) rated themselves poor as of December 2015, while the joblessness average for 2015 was 21.9 percent.

Based on BTr figures, total domestic debt amounted to P3,828 billion, an increase of P31.25 billion or 0.8 percent from the previous month’s level of P3,797 billion and accounting for 64.4 percent of outstanding liabilities.

Based on BTr data, the net issuance of government securities in June and the depreciation of the peso against the US dollar contributed to the growth in domestic obligations equivalent to P31.12 billion and P0.13 billion, respectively.

Nevertheless, the domestic debt level has fallen by 1.4 percent or P55.88 billion since the beginning of the year.

On the other hand, NG external debt stood at P2.120 trillion, 1.5 percent or P31.15 billion higher compared to the end-May 2016 level of P2.088 trillion.

The increase in external liabilities was the combined effect of currency fluctuations on US dollar- and third currency-denominated debt that raised the peso value of outstanding obligations by P12.65 billion and P21.64 billion, respectively, the BTr said. Currency adjustments outstripped net repayments amounting to P3.14 billion, it added.

To date, the external-debt stock has increased by 2.4 percent or P49.35 billion over the last six months.

Meanwhile, NG guaranteed debt was adjusted to P563.28 billion as of June 2016,from its previous level of P448.20 billion in May 2016.

“The change is primarily due to the adjustment and reconciliation of outstanding guarantees extended by the NG,” Tan said.

Fluctuations of currency rates against the US dollar and third currencies further increased the peso value of external guaranteed debt by P1.85 billion and P9.70 billion, respectively.

This was tempered by net repayments on NG’s domestic guarantees with that of the National Food Authority (NFA) amounting to P1.58 billion from its credit line with the Land Bank of the Philippines (LandBank) and the Development Bank of the Philippines (DBP) and repayment on external guarantees amounting to P1.26 billion, BTr said.

NG guaranteed obligations have gone up by 28.6 percent or P125.40 billion from the end-2015 level of P437,888 billion.