Walden Bello
Business Mirror
October 21, 2009

A recent article in the Filipino broadsheet Business Mirror by Walden Bello—a Member of the House of Representatives—suggests that one way to spur the country’s economy would be to renegotiate some of its debts with creditors.  Mr. Bello says the mood for refusing to pay back odious debts or for declaring moratoria on debt repayments has never been higher. Because of this sentiment, the government should look for ways to either suspend debts payments, or seek ways to eliminate this debt, as some of it was taken under suspicious circumstances.

“If Mr. Bello is arguing for a full investigation into the Philippines odious debts, with forensic audits and international arbitration to investigate whether the debt claims are unenforceable, that would be a step in the right direction,” writes Patricia Adams, Executive Director of Probe International. But if he is calling these debts “odious” to encourage debt forgiveness, she adds, “that would be counterproductive.” Letting negligent and corrupt borrowers and lenders off the hook for the odious debts they contracted, Ms. Adams explains, “only encourages them to contract more. Debt forgiveness may seem to be the best way to relieve innocent citizens of odious debts contracted in their name, but it rewards the offenders.”

Needed: Economists, not accountants, to manage the Philippine economy

Why did I vote against the 2010 budget?  The main reason is that it violates economic wisdom. You don’t cut capital outlays when the economy is going down the tubes. You engage in countercyclical spending, that is, increase government expenditures to counteract the contraction of the private sector.

We will be lucky to grow by 1 percent this year.  We will be lucky, indeed, to escape negative growth in 2010. Yet this budget cuts capital expenditures by 22 percent from their level in 2009.  The recent typhoons are one more important reason why we must aggressively spend—to repair critical infrastructure that have been extensively damaged by Ondoy and Pepeng so the economy can get back on track.

Global recovery in 2010?

The cutbacks in capital outlays are justified by rosy projections about the recovery of the global economy in 2010.  The state of the global economy is critical since the Philippines is an export-oriented economy, with its international trade coming to about 30 percent of gross domestic product.

Now, if there is one very prominent feature of the current recession, it is the way the global economy has wrong-footed the analysts so many times.  Hardly any of the established institutions anticipated the recession before it began in 2008.  Since it began, they have been busy trying to discern “green shoots” of recovery globally.  These green shoots have turned out at every point to be false dawns, if I may be permitted to use a mixed metaphor.  If the US economy, like many other center economies, is contracting at a slower rate than six months ago, that is not a recovery, and it certainly does not portend a recovery in 2010.

During the budget hearings, I bet my monthly salary of P35,000 that the global economy would be flat or experience negative growth in 2010.  None of our economic managers—neither Mr. Gunigundo of the Central Bank, nor Mr. Teves of the Finance Department, nor Mr. Andaya of the Department of Budget Management, nor Mr. Santos of the National Economic Development Authority—took me up on this. The point I wanted to emphasize with this wager was that given the bleak prospects for real recovery in 2010, it is suicidal to cut capital expenditures.

30 years of starving the economy

The government is the biggest investor in any economy, and among all its expenditures, it is capital outlays that have the greatest multiplier effect.  Moreover, government expenditures “crowd in” private investors, that is, they serve as a kind of confidence-building measure that stimulates investors to take risks in a field of economic activity.

The savaging of capital expenditures is not unique to this budget. It is one of the reasons the last 30 years have been a period of economic stagnation for our country.  From constituting 26 percent of the budget during the Marcos period, capital outlays declined to 16 percent during the Aquino period to 11.9 percent today. In contrast, Thailand has raised capital spending to over 30 percent of the budget and Indonesia has maintained it at 45 percent and above.  Is it any wonder our Asian neighbors have grown while we have lagged?

We are told that we have to cut capital outlays because we do not have the resources and revenues to sustain them, that we would worsen the government deficit.  Yet, this coming year we are devoting 22 percent of the budget or P342 billion to debt servicing—far larger than the expected budget deficit of P250 billion!

Why this is the time for debt relief

The case for renegotiating our debts to lessen the burden of interest payments, for not paying odious debts or debts contracted under highly questionable conditions and circumstances, for declaring moratoria on debt repayments is stronger today than it has ever been.  We not only have to cope with a global recession but with a string of natural disasters.  The international community would be sympathetic to a move like declaring a moratorium of debt servicing at this juncture.  What is lacking is boldness on the part of our economic managers to take advantage of our moral ascendancy.

Those countries such as Ecuador and Argentina that have taken moves to substantially restructure their debt have shown that fortune rewards the bold.  Argentina, for instance, unilaterally decided to pay foreign bondholders only 25 cents for every dollar it owed them in 2002.  The result: most of the bondholders accepted the government’s terms and Argentina grew by 10 percent per annum between 2003 and 2008 owing to the re-channeling into the domestic economy of financial resources that would otherwise have hemorrhaged as debt payments.

Now, in the case of the Philippines, we are not talking about unilaterally making moves but about negotiating with our creditors as a first step.  But what are we told by eminent economic managers like Rep. Junie Cua, chairman of the House Appropriations Committee: that we should not even mention the word “renegotiation” because this would scare our creditors!

Maintaining the so-called “good debtor” policy and what Rep. Edcel Lagman has characterized as “the fetish for a small budget” are elements of an extremely conservative macroeconomic management that has straitjacketed the Philippine economy for close to 30 years now.

The great British economist John Maynard Keynes warned of the dangers of accounting substituting for economics.  What we have in the Philippines are economic managers that are accountants, who are preoccupied with balancing accounts.  The economist, on the other hand, sees the potential of an economy and takes the bold measures to make an economy reach its potential, knowing that dynamic growth will end up producing so much more than the resources initially expended to stimulate the economy. We need economists, not accountants, to manage the Philippine economy.

Walden Bello is a Member of the House of Representatives representing the party-list Akbayan, president of the Freedom from Debt Coalition, and senior analyst of the research and advocacy institute Focus on the Global South.

Source: The Business Mirror

Read more news stories on Odious Debts