Sunday, October 25, 2009

Response to 'Stimulus measures must not peter out ' editorial

My organization's (Freedom from Debt Coalition, FDC) response to the editorial piece written by The Manila Times on our calls for debt repudiation abroad. Can't pass the opportunity to spread the news and our response to more people.


The Manila Times

24 October 2009, Page A-4
http://www.manilati php/opinion/ 4581-response- to-stimulus- measures- must-not- peter-out- editorial-

Response to ‘Stimulus measures must not peter out’ editorial

This is in response to your editorial of October 22, 2009 with the title “Stimulus measures must not peter out.” First, we would like to commend the editorial staff of The Manila Times for discussing important issues surrounding government spending, the proposed P1.54-trillion national government budget and the unresolved question of the national debt especially in a time when the country is suffering from fiscal and climate crises.

We, from the Freedom from Debt Coalition (FDC) agree with many of the views shared by the editorial piece especially its scrutiny of the 2010 budget and its seemingly anemic budget allocation to capital outlay with appropriations amounting only to P183 billion compared to debt servicing which has total appropriations of P340.812 billion, or 22 percent of next year’s national budget. We also agree that in a time of an enduring economic crisis, the government must instead increase social and economic spending in order to maintain liquidity, widen the fiscal space and create more jobs. This proposal has been asserted by FDC numerous times under the Arroyo administration amid the backdrop of a then looming global economic crisis which was slowly manifesting itself within our domestic economy.

However, we would also like to take this opportunity to clear our position on the non-payment of debts or the call for debt repudiation which the editorial piece seems to disagree with. We strongly diverge with the opinion that debt instruments even if vastly overpriced and tainted with corruption should and must be “humbly and sacrificially swallowed as a bitter pill by succeeding administrations and the people.” We believe such an opinion is misplaced if not outrightly masochistic as it subscribes people to a slow and painful death transcending generations and governments.

We have witnessed the result of the decades-old policy of religiously servicing the debt over and above social and economic spending. Due to underspending, actual expenditures were lower than was programmed. In fact, health spending per capita from 1980 to 2007 never exceeded P100 while basic education spending per capita from 1980 to 2004 never surpassed P3,500, or less than a $100 dollars.

This year alone, actual spending (P355 billion) for the first quarter is P6.8 billion lower than the programmed (P361.9 billion). As such, the idiom “to swallow the bitter pill” to describe the government’s alleged unpleasant but necessary decision to service all its debts is an understatement. The truth is, we are not being forced to swallow small bitter tablets of medicine to cure particular illnesses, rather, we are forced to ingest ill-prescribed medicine that exacerbates our insatiable debt addiction.

Second, such a perspective brings out the worst in supposedly noble and admirable Filipino values such as utang na loob, delikadesa and palabra de honor. In an effort not to be seen as balasubas and a swindler in the eyes of the global community, even under the threat of extreme poverty, hunger and economic degradation, we would be chivalrous to a fault rather than be merciful and charitable to ourselves. This now becomes a case not of a virtuous assertion of values but a tragic affirmation of feudal ethical moorings mixed with plain and simple machismo. We would rather sacrifice our children and the future of their children than default from an obligation which was not of our own making alone. Where are the values, decency and dignity in that?

This brings us to the issue of accountability and responsibility. While we do agree with you that our national leaders are culpable for bringing us in this mess and must be replaced and held accountable for their transgressions, international and regional lending institutions are not so innocent as they want themselves to be perceived.

Again, we stress that the country’s debt problem must be understood from a broader historical, political and economic context to determine how they are used by creditors as instruments in distorting our economy as well as the exercise of power, and the use of this power against the interests and welfare of the people. Through this, we determine not only the unacceptability and unfairness of our debts or whether all debts are in fact “institutional,” we also extract responsibility and accountability from our lenders.

Furthermore, the debts which FDC wants cancelled and/or repudiated are debts which are, by their own merits, have been found to be evidently illegitimate due to lack of due diligence on the part of the lending institutions and the government. In fact, no less than the Senate and House of Representatives themselves recognized this and refused payments for such obligations during the 2008 and 2009 National Government Budgets. Sadly, the President, subscribing to the idea of “honor,” vetoed this.

Hence, our call for the repudiation and/or cancellation of all illegitimate debts are both addressed to our government and the international lending community. In the final analysis, while debtor countries’ governments must be held accountable for the acquisition of illicit, negligent if not illegitimate debts, lending countries and institutions must likewise acknowledge and accept responsibility for contributing in the making of such debts.

Now is the perfect time.

Secretary General
Freedom from Debt Coalition

Note: Original editorial piece posted below.


The Manila Times
22 October 2009
http://www.manilati php/opinion/ 4433-stimulus- measures- must-not- peter-out

Stimulus measures must not peter out

On today’s front page there’s a story about the International Monetary Fund (IMF) warning Asian countries against prematurely slowing down their fiscal stimulus measures. The IMF thinks the signs of global economic are still too obscure. People must not discount the possibility of the recovery coming to a halt. The IMF had to issue its cautionary remarks because some Asian countries—mostly the richer, export-dependent economies that have suffered much more than the poorer economies—taking an overly optimistic view of the faint signs of global recovery now plan to stop their stimulus measures next year.

“These plans should proceed cautiously until the recovery seems assured,” Deputy IMF Managing Director John Lipsky warned.

The IMF message is directed largely to countries starting from relatively high debt levels, such as Japan, India, and Malaysia, and those empty-cradle countries beset by aging-related fiscal pressures, such as Japan, South Korea, Singapore, Hong Kong and Taiwan.

But the message to continue taking strong measures to stimulate the market and trigger more consumer spending applies to us Filipinos as well.

Yet, our economic managers seem to have decided to be so sanguine about the global recovery and the resiliency of our economy that they do not find it wrong to spend less on capital outlays next year than what is budgeted for the present year.

Out of the P1.54-trillion budget in the 2010 General Appropriations Act, which is 8 percent bigger than this year’s budget of P1.44 trillion, the Arroyo administration plans to spend only P183 billion on capital outlays—infrastructure and other big ticket items. These capital outlays, on roads, bridges, ports, schools, etcetera, provide employment and therefore salaries and wages that give workers’ families money to spend and keep our consumer-driven national economy humming.

Where will the bulk of next year’s P1.54-trillion budget go? The money will go to increase the salaries of government employees, which is normal in an election year. The salary increases will also end up being used by families to buy what they need. Therefore they will contribute to market activity, which will help improve Gross Domestic Product statistics.

But an even bigger chunk of the 2010 budget will go to debt servicing—or payment of loans that are maturing next year. The debt-payment share of the budget will be the same or bigger than this year’s share, which is 22 percent of the entire national budget.

The reduced capital outlays and the huge debt servicing budget made several congressmen, albeit ones known not to belong to the massive majority of Palace allies in the House of Representatives, call the administration’s priorities in the budget “weird.”

Rep. Walden Bello (Akbayan) says those who drafted the 2010 General Appropriations Act seemed to have been wrongly convinced that the global recession has ended or will surely end in 2010. But, most cautious economists would recommend caution (which the International Monetary has done).

“We will still need to resort to counter-cyclical spending,” Bello explained. “The public sector, meaning the government, needs to intervene in the economy in order to counterbalance private sector collapse.”

Basically Keynesian counter-cyclical policy means government should always be ready to counteract the bad effects on the population of the boom and bust cycles of an economy. So, government should encourage spending, and in fact do a lot spending, during downturns but tighten credit and restrict the money supply during inflationary periods.

Especially with our economy having been badly hurt by Typhoons Ondoy and Pepeng and the horrible floods in Central Luzon, particularly Pangasinan, and in Metro Manila, and the destruction of farms in Northern Luzon, the government must spend billions to stir the economy back to life. But the Arroyo administration will be taking the opposite tack in 2010.

The budget cut on infrastructure spending next year “is a suicidal move,” Bello says, “for our fragile economy is projected to grow by only one percent this year.” And “the international economy . . . is still in crisis.”

Bello describes the capital outlays that the administration is reducing next year as “the very element of the budget that has the greatest multiplier effect.”

Postpone debt payments

We do not necessarily agree with the Freedom from Debt Coalition when it calls for the repudiation of debts abroad, especially those that are for projects that are vastly overpriced and tainted with corruption.

When a Philippine government signs a debt instrument, even one that gives a huge kickback to the president or some economic manager or another, it must be humbly and sacrificially swallowed as a bitter pill by succeeding administrations and the people. These debts are institutional. And we cannot make cafeteria choices of the obligations the Philippine government is saddled with. It is our, the people’s, fault for having placed in power crooks to handle our government. If we do not want them to continue office because they are corrupt and will incur debts we don’t want to acknowledge, then we must revolt or in other ways boot the rascals out.

But there is a middle way. Especially in times like these—when we have been affected, though not severely, by the global recession and are still laid low by Ondoy and Pepeng, and now face the prospect of, God forbid, more disastrous natural calamities—why don’t we make a strong case with our creditors for postponing our debt payments. The World Bank and the IFC have made some happy noises about possibly agreeing to a deferment of payments from damaged economies.

The administration should not hesitate to take that route.

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