foreign debt

At last, some sen$e!

Monetary officials have finally learnt how to deal with the rising peso–something I have been advocating they do since late last year.

When I flagged the problem of an appreciating peso back in November 2010 (see What Should be Done About the Rising Peso?) and suggested some ideas on how to remedy the situation (setting up a sovereign wealth fund), I was met with more than a little bit of skepticism by readers. At that time, our foreign reserves climbed to $44 billion from $33 billion a mere eighteen months earlier.

In January this year, I pointed out the strategies of similarly situated Latin American central banks and finance ministries (see What Should be Done with a $14.4 billion BoP Surplus?). My advocacy for us to turn to methods outside the traditional toolkit of monetary policy seemed far-fetched as Bangko Sentral officials then were expressing satisfaction with the effectiveness of their interventions in the currency market. Again, my ideas were met with a bit of scorn by some readers.

And then in July this year, when our gross international reserves for the first time exceeded our external debt obligations, I made the following policy pitch in Crediting the Upgrade:

To prevent the peso from rising, what the government could do is coordinate with the BSP so that it could issue treasury notes and have the BSP purchase them (much in the same way the US Federal Reserve bought US treasury securities under Bernanke). This would lower the borrowing cost of the government given the BSP’s views that the country is actually of investment grade.

The proceeds of this could either go to funding the fiscal deficit, or as we reach a balanced budget over the next two to three years be used to set up two funds. The first could be called the Philippine Enterprise Innovation Fund or PEIF. The second could be called the Regional Philippine Infrastructure Fund or RPIF.

I had honed the idea from suggesting a sovereign wealth fund that would look at investment opportunities both domestic and overseas to more inward directed investment opportunities. The channel through which the fund would be created was to be through the BSP purchasing sovereign debt issued by the National Government (in effect becoming a creditor of the government). This would reduce our need to borrow from abroad, which would lower the pressure on the peso to appreciate.

With this last pitch, I thought I had a winner, although not much in terms of reader response occurred. Also, as the storm clouds seemed to gather on the horizon, I found the BSP’s response to be similar to the government’s–a wait and see strategy, which I felt needed to be more pro-active (see Bullet-proofing the Economy and A Full-Blown Economic Storm). The government was still banking on its credit upgrade and private partnerships to save the day.

The policy space just seemed sterile with worn out mantras and textbook formulas. Then today, I gained some level of comfort in discovering that our officials might have finally “seen the light” by reading Benjamin Diokno’s column. In it, he describes the offer made by Bangko Sentral Governor Armando Tetangco to loan the government dollars and be repaid in pesos as a “Win-win Move“!

What might have tipped the conservative monetary authorities over was the Philippines attaining its full-year gross reserves target of $75 billion in the middle of the year. Diokno highlights the precariousness of maintaining current fiscal and monetary policies by saying,

(F)or every peso appreciation, BSP stands to lose P75 billion. Isn’t that awful? Hence, Mr. Tetangco is not offering the government out of the goodness of his heart; he’s doing it because it’s the prudential thing to do. It’s a win-win solution to our economic woes: it helps BSP in its war against peso appreciation and, at the same time, it helps the government pay for its foreign debt without incurring serious foreign exchange risks….

In hindsight, it was not even necessary for the Philippine government to borrow from the World Bank and the Asian Development Bank to finance its conditional cash transfer (CCT) program. Floating five-year Treasury bonds would have been a better way of financing the program.

At last, even traditional economists are beginning to realize what a golden opportunity the Philippines was sitting on! Ah, yes! There are times when it just feels good to be right. And this is definitely one of them. Let us hope our finance officials are able to learn the “policy catch-up” game just as our monetary officials have finally learned to. It’s about time they gained some sense.

Intellectual dishonesty in high court?

Intellectual dishonesty in high court?
By Solita Collas-Monsod
Philippine Daily Inquirer

ALMOST 40 YEARS AGO IT WAS, I WAS appalled, outraged, incredulous, despairing, forlorn, betrayed and, yes, deeply afraid, as I watched while our Supreme Court, “the last bulwark of democracy” gave its imprimatur first, to martial law, and then next, to a constitution ratified by some kind of viva voce vote at barangay or municipal halls. In short, the Supreme Court justices (not everyone—there were dissenters, like Justice Enrique Zaldivar) then sold themselves out, shifting their loyalties from the Constitution to the dictator, and prostituting their legal talent in order to provide a patina of constitutionality, if not respectability, to the Marcosian abuses. If memory serves, they were among the first to be tagged with the label “tuta.”

And now, the Supreme Court has done it again. It has placed people above principles, placed personal loyalty above loyalty to country and Constitution. And again, I feel appalled, outraged, etc., etc. As must millions of other people. If there was a Marcos Court (instead of a Concepcion Court or a Fernando Court, to name a couple of chief justices during the Marcos regime), we now indubitably have an Arroyo Court—depicting a Court led by the Chief Executive rather than an independent one. But while at least there was some excuse for the craven behavior of members of the Marcos Court—the fear factor was very strong, what with all those arrests and disappearances of people in both high and low places—the present Arroyo Court cannot even hide behind that excuse.

Also, at least the Marcos Supreme Court, when confronted with the fait accompli of martial law, were caught by surprise and had difficulty looking for precedents. The Arroyo Court, on the other hand, in order to arrive at its desired conclusion—that the President can make a midnight appointment—has ignored precedents, badmouthing them, as it were. This Court has found it not only fit to reverse a previous unanimous Supreme Court decision, but actually has the temerity and bad taste to say that such a decision (participated in by the likes of Hilario Davide Jr, Artemio Panganiban, Reynato Puno) “deserves to be quickly sent to the dustbin of the unworthy and forgettable”; it has put words in the Constitution’s mouth and the mouth of the 1986 Constitutional Commission proceedings, attributing to them intentions that are just not there; and it has done so with unnatural, if not unseemly speed.

Frankly, it smacks not only of mediocrity, but of intellectual dishonesty as well.

One example should suffice. The decision, penned by Justice Lucas Bersamin (of Radstock fame or notoriety—he insisted, in his dissenting opinion, that the Radstock compromise agreement, which would have stripped PNCC of all its assets and left the government holding a P36-billion bag of unpaid PNCC debt, was advantageous to the government and to PNCC), makes much of the opinion of former Justice Florenz Regalado, a member of the 1986 Constitutional Commission, who was quoted as saying that “on the basis of the Constitutional Commission’s records, the election ban had no application to the appointments to the Court of Appeals.” But Bersamin does not quote any of the records to support the assertion.

On the other hand, Justice Conchita Carpio Morales, in a dissent which makes mincemeat of the arguments of the majority decision, showing without mercy their weaknesses, quotes chapter and verse from the ConCom’s proceedings, particularly those pertaining to the deliberations on the president’s power to appoint. Apparently, it was Commissioner Hilario Davide (later to become chief justice) who was the author of Sec. 15 of Article VII of the Constitution, which is the ban on so-called “midnight appointments.” Specifically, the provision states: “Two months immediately before the next presidential elections and up to the end of his term, a President or Acting President shall not make appointments, except temporary appointments to executive positions when continued vacancies therein will prejudice public service or endanger public safety.”

As if that were not clear enough, Davide, during the ConCom proceedings, explained the concept behind that provision thus:

“MR. DAVIDE: The idea of the proposal is that about the end of the term of the President, he may prolong his rule indirectly by appointing people to these sensitive positions, like the commissions, the Ombudsman, the judiciary, so he could perpetuate himself in power even beyond his term of office; therefore foreclosing the right of his successor to make appointments to these positions. We should realize that the term of the President is six years and under what we had voted on, there is no reelection for him. Yet he can continue to rule the country through appointments made about the end of his term to these sensitive positions.”

And yet, flying in the face of such an explicit reference to the judiciary being included in the scope of Sec. 15 of Article VII, the majority decision of the Supreme Court insists on the position that either the judiciary (five justices) or just the Supreme Court appointments (four justices) are not included in the ban. As mentioned above, Justice Morales tears their arguments apart.

As a legal luminary observes, “For over half a century now, the ban on midnight appointments has always been understood, interpreted and observed by the Government and the Filipino people as applicable to the judiciary.”

Until the Arroyo Court came along, that is. There are none so blind as those who refuse to see. Shame on them.

Nation building on IOUs

Nation building on IOUs
By Juan Mercado
Philippine Daily Inquirer

Come June, Benigno Aquino, Gilbert Teodoro or Manuel Villar will be president. Whoever is elected will inherit three “inevitables,” Viewpoint asserted earlier. These are: death, taxes—and nearly 93.9 million Filipinos.

Please make that four “inevitables.” To the first three, kindly add a fourth: utang or debt.

Philippine foreign debt amounted to just $1 billion when Ferdinand Marcos pledged, at his 1965 inauguration, that he would make “this country great again.” “Bisag niwang bastang walang utang,” says the old Visayan proverb. No matter if you are skinny, provided you have no debts.

Marcos & Co. didn’t heed that counsel. When People Power drove him into exile, the IOUs had bloated to $28 billion. Much of that was squandered.

Export-Import Bank bankrolled the Bataan Nuclear Power Plant. Constructed by Westinghouse, it straddled an earthquake fault. It never generated a single kilowatt. But cronies, like pseudo Austrian “count” Herminio Disini, made a killing.

Dirt poor Filipinos paid for this mothballed plant until 2007, when the last installment fell due. “Sumin utang kay ambayaran,” Zamboangueños say. There is no debt that is not paid.

Ferdinand Marcos Jr. is running for the Senate. He has taken a sabbatical from his consuming avocation: tracking down debts of welshing presidential buddies.

These IOUs are assets parked by the dictator with cronies. After the Edsa Revolt, most denied squirreling such windfalls. Their ill-gotten wealth were ours to start with, Bongbong and family gripe.

Don’t look at me, snaps taipan Lucio Tan. All his assets were whistle-clean.

Today, total external debt towers at P1.93 trillion. About 10 percent of gross domestic product services those debts. Out of very peso in debt payment, 45 centavos will go to foreign creditors, says Rep. Teofisto Guingona III. Domestic lenders claim 55 centavos.

Every man, woman and kid here today is strapped with an IOU of P47,968. That reflects a population that quintupled since the eve-of-World War II census tallied 20 million Filipinos

There were 88,574,614 of us as of August 2007, the census claims. But this seven-year late head count is seriously flawed. Gunslingers dictated tallies in Maguindanao and much of the Autonomous Region in Muslim Mindanao. There were serious undercounts in other places.

President Gloria Macapagal-Arroyo signed the census proclamation in April 2008. That made statistical fiction official. The data are used for just about everything—from allocating schoolhouses, gerrymandering congressional districts, slicing slabs from the Internal Revenue Allotment to computing IOUs.

Unless the next census is conducted more reliably, the incoming president and his team will have an unreliable policy tool. Yet, from day one in Malacañang, the new president will be burdened by inherited debts.

The Philippines won’t wail “Don’t cry for me, Argentina” anytime soon. Remittances from overseas workers provide, for now, a safety net against default like Evita Peron’s country did on $140 billion in foreign debts.

The World Bank classifies us as a lower middle income country. That may soothe some egos. But it slams the door to access to, for instance, the Heavily Indebted Poor Countries Facility or the Multilateral Debt Relief Initiative. Look, meanwhile, at the pinched features of malnourished kids in slums or barangays.

The New Economics Foundation calculates that “the Philippines requires 63 percent debt cancellation.” Only then can government wipe out the backlog in unmet basic needs of its citizens, such as health, education and infrastructure.

Typhoons sapped tax collections by notoriously corrupt agencies like the Bureau of Internal Revenue and Bureau of Customs. We’ve also been peddling assets. That patches financial gaps but offers no long-time solution. And how do you tax four out of every 10 Filipinos who scrounge “below an ethical poverty line of $3 a day”?

Move beyond “motherhood statements,” the Freedom from Debt Coalition prods candidates. Sketch out, instead, concrete fiscal plans that will tamp down festering IOUs and address hunger, joblessness, etc. On her way to the exit, President Arroyo will leave a P290-billion budget deficit.

Fat chance. This remains a country where voters gawk at candidates warbling or dancing on the stage. FDC’s 12-point agenda won’t be debated in this campaign. The earliest these proposals will be dusted off is when the next debt crisis hits.

For now, the FDC proposals, like many thoughtful programs presented by NGOs and religious groups, can only be readied.

Among other things, FDC proposes a legislative overhaul, ranging from spiking automatic debt servicing, by repealing the Foreign Borrowings Act of 1966 and passing an alternative Official Development Assistance Act to regulating borrowings by local government units.

It suggests “automatic allocation measures”: six percent of GNP for education, as suggested by UNESCO; five percent of GDP for health, as recommended by the World Health Organization; and five percent for mass housing and settlement projects for the poor.

Other suggestions: Conduct an official debt audit. Scrap the R-VAT law. “Repudiate blatantly illegitimate debt cases.” “Rescind onerous contracts entered into by the national government.”

A country can’t be built on unpaid IOUs. “Never stand begging for what you have the power to earn,” the author of Don Quijote counseled.

(Email: [email protected])