The Greeks would understand

June 26, 2012 

ON DISTANT SHORE

By Val G. Abelgas

The decision of the Philippine government to pledge $1 billion to the $456-billion standby fund being put up by the International Monetary Fund (IMF) to help distressed countries in Europe has raised questions from several sectors.

Foremost of these questions is why lend $1 billion when the Philippines is drowning in debt? Another question that has been raised is why lend that huge amount when it can be used to finance programs that would help alleviate poverty and hunger in the country? Why lend $1 billion out of the Philippines’ foreign reserves and borrow billions of dollars at the same time to finance government infrastructure projects and social amelioration program? And why must the country have such huge foreign reserves and not have enough to fund important government projects?

Where is the logic in all these?

Presidential spokesperson Edwin Lacierda said the Philippines had been a recipient of IMF loans and funding for more than 40 years, and having now become a creditor country, it is time that the country come to the assistance of the IMF and needy nations. In other words, utang na loob, the same justification made by perennial presidential apologist Rep. Ben Evardonne of Eastern Samar.

And not only that, Lacierda adds, the country stands to benefit in the long run because the fund would help stabilize the world economy, echoing a stand by Bangko Sentral ng Pilipinas.

“This is a loan to the IMF and we will get our money back with interest. In effect, by extending a loan to the IMF that will earn money for the Philippines, we are also able to help other nations saddled with financial problems,” the BSP said. In other words, a wise investment, not a giveaway.

But let’s take a look at the “utang na loob” aspect first. Several economists have pointed out that there is no “utang na loob” to talk about because in lending to the Philippines, the IMF imposed strict impositions that, instead of helping the economy, have actually blocked its growth for decades.

The Freedom from Debt Coalition, for example, said: “These IMF prescriptions, which became impositions, took our economy down the road of debt-driven development. The objectives and policy conditionalities of IMF loans were directed towards producing more for export markets abroad than satisfying the basic needs of our people and developing both homegrown industrial and agricultural strength and a robust domestic market.”

It added: “The effects on our national economy and the welfare of our people have been devastating. Industry and agriculture have registered very sluggish growth with many industries disappearing.

“From a former rice exporter, the Philippines has become one of the world’s top rice importers. Unemployment and underemployment have risen under a regime of jobless growth. A large underclass of contractual and informal labor has become the majority of the working class and has given rise to huge colonies of poverty and homelessness in the cities.

“Poverty continues to rise in the rural areas where landlessness and lack of jobs persist, and where indigenous peoples reside. Around 22 percent of the country’s labor force – the educated, skilled and enterprising — are now abroad in search of jobs and a better future.”

As to the claim of BSP Governor Armand Tetangco that the Philippines would, in fact, earn interest on the $1-billion loan, former Budget Secretary Benjamin Diokno, a UP Economics professor asked: “Is the Philippine government getting better return on investment for its $1-billion loan to the IMF than what it is paying in interests for its loans from the World Bank, ADB, and other bilateral sources (China, Japan, and others)?”

Indeed, the loan would earn interest, but it would be very minimal because it would take the form of treasury bonds which yield very minimal interest as compared to the interests that need to be paid to the Asian Development Bank and private financial institutions from which the government borrows to fund its various infrastructure projects and social amelioration program.

This point brings us to the question of why the government must keep so huge foreign reserves.

Foreign exchange reserves are kept by nations, especially the big economies, to stabilize its own currency against speculative attacks and stabilize the foreign exchange rate and, therefore, provide a more favorable environment for its economy. However, maintaining a huge forex reserves can also be risky since market fluctuations can result in a big loss for the country.

The Philippines has foreign exchange reserves of almost $77 billion, ranked 32nd in the world. This is considered by many as too huge for a country whose majority of the population is suffering from extreme poverty and hunger and for a country that is still wallowing in foreign debts.

Only last Friday, the BSP said that the outstanding external debt of the Philippines in the first quarter rose to 62.9 billion U.S. dollars, up by 3.3 percent from 60.9 billion U.S. dollars as of the same period last year.

The National Statistics and Census Bureau, on the other hand, estimated that as of the end of last year, every Filipino owed 51,675 pesos (1,200 U.S dollars), to domestic and foreign creditors.

Indeed, with that kind of external debt, why not use the $1 billion to retire some of the country’s expensive public debts, as suggested by some lawmakers and economists? That would result in smaller budget deficits in the future since a bulk of the Philippines’ national budget goes to the servicing of these debts.

Or better, as is the common man’s logic, why not use the $1 billion to build more classrooms, hire more teachers, build more roads, create jobs, promote tourism, modernize the military, and finance other government projects that would redound directly to the benefit of the Filipino people?

I am not an economist, but my common sense tells me that that would have been the better move, instead of making “pasikat” to the world community. I’m sure the Greeks, the Spaniards and the Italians would understand. Mang Juan would. Even the ever-generous Manny Pacquiao would.

(valabelgas@aol.com)