Business leaders, with their international credibility and business reputation, are in a much better position than government ministers to make the case for debt renegotiation in the Philippines.

For every P1,000 that the national government spends, some P300 goes to service past debts. This heavy burden has prevented the national budget from becoming the catalyst of growth we need it to be. Tragically, this burden looks set to become even heavier in the future.

Thus, as we suggested yesterday, perhaps, it truly is time to reconsider debt relief. It may finally be time to renegotiate-not merely to arrange longer payment periods or lower interest rates but to reduce-the national government’s overall debt stock.

But a crucial caveat: The worst thing that can happen is for the government to unilaterally announce that it will launch an aggressive renegotiation of the public debt, to reduce it.

There is no risk, however, that the Arroyo administration will suddenly abandon a 30-year-old faith and preach the gospel of debt reduction. This is just as well, because the initiative must start and proceed without official government sanction.

Thus, it seems clear that, in reconsidering this option, we must let the private sector take charge. The public letter several business leaders signed and released last week, appealing to the President to set in place a more active population control policy, offers an instructive example.

If the country’s business leaders spearhead the campaign to raise the possibility of debt renegotiation, they bring their international credibility, their business reputation, to bear on the matter. They will be in a much better position than government ministers to make the case for the Philippines.

And what is that case, exactly? That our debt burden prevents one of the largest economies in Southeast Asia from realizing its fullest potential; that as the 11 economists from the University of the Philippines have shown, we are at most three years away from fiscal or, perhaps, even economic collapse; that getting paid say 75 cents for every dollar of debt is better than not getting paid at all; that an economy relieved of a large part of its debt burden benefits not only its citizens but its creditors as well.

It is also important to highlight the precedents in debt relief. It is a matter of record that the world’s largest economies, thus almost by definition the world’s largest creditors, are being converted ever so slowly to the new faith.

To be sure, the beneficiaries of the Highly Indebted Poor Countries initiative are truly impoverished nations, mainly in sub-Saharan Africa. But the HIPC campaign is not a mere gesture of goodwill; it has already reduced the debt stock of the 30 or so poorest nations on earth by billions of dollars. Its example has also emboldened the United States to ask for as much as an 80-percent reduction in Iraq’s foreign debt. As an official of Oxfam, the development organization, noted last June: “Iraqi debt is around $126 billion and a large chunk of this is likely to be written off. This suggests that when it is politically convenient, large-scale debt relief is possible.”

A developing economy like the Philippines does not fit the existing categories for debt relief; but a private sector initiative led by some of the most reputable businessmen in this part of the world may lead to a new classification. Would it hurt to try?

Not least, it is vital to know that Argentina is not the end of the world. For many who follow the orthodox or mainstream economic persuasion, Argentina is a four-letter word; having fallen into the debt trap in the 1980s and then again in the 1990s, it is used to silence the arguments for debt relief.

If a government defies its international creditors or defaulted on its foreign debt, the counter-argument goes, it will suffer the Argentine scenario. In December 2001, Argentina defaulted on its $150-billion foreign debt – the largest ever default in history. The resulting recession was immediate and devastating. But to focus on what came after is to miss the essential: the debt crisis fed deep social unrest, and creditor-imposed austerity measures led to a one-day orgy of violence which killed dozens and injured thousands.

Now the new administration is offering (among other initiatives) to pay creditors about 25 cents for every dollar of debt. Has the Argentine economy stalled? After contracting in 2002, it grew last year by 8.4 percent. Has it turned into a pariah? Not exactly. Creditors are right in the middle of negotiations, bargaining for 30 cents on the dollar.

Philippine Daily Inquirer, October 24, 2004