Where did RP debt go?

MANILA – All borrowings under President Arroyo’s term–that racked up the country’s outstanding debt to a whopping P4.2 trillion as of 2008 from only P2.2 trillion in 2000–were necessary, her economic managers argue, amid accusations the President was responsible for the country’s deepening financial woes.

The question now is: Where did all the debt go?

Finance Secretary Margarito Teves said bulk of the present administration’s borrowings were used to settle debts, which were not its own. He dded some went to interest payments while some were used to pump-prime the economy to highs in the recent past.

But President Arroyo’s critics, including University of the Philippines economist and former budget chief Benjamin Diokno, beg to differ.

Diokno said while the Arroyo administration paid off debts, it also nurtured an appetite for overspending and corruption that filled up the pockets of a few.

Paying off debts with debts

Insisting that the President should not be blamed for the growing national debt, Teves said in recent interviews that Mrs. Arroyo’s predecessors actually started the debt problem.

Of the Philippines’ P4.2 trillion debt, Teves said the chunk of P2.7 trillion was paid for principal maturing obligations of the past administrations of Cory Aquino, Fidel Ramos and Joseph Estrada.

He said P1.2 trillion of the amount was used to pay interests on existing loans, and P300 billion for the government’s cash build-up program.

“Anywhere between P300 to P320 billion annually is used for interest payments. The portion that was used to pay for principal maturing obligations amounts to P2.7 trillion or 64% of the P4.2 trillion total national debt,” he said.

Nonetheless, the figures don’t change the fact that the country’s debt stock more than doubled under Arroyo’s watch.

Data from the Bureau of Treasury showed that Mrs. Arroyo contributed P2.06 trillion to the P4.2 trillion debt stock, exceeding the aggregate amount of debts of the 3 presidents before her. (Read: Lower RP debt: Truth or spin?)

Even when new debts incurred by all post-Marcos administrations are adjusted to 1985 prices (to eliminate inflation and other aspects), the Arroyo administration’s P923.76 billion was still the highest, according to data from anti-debt group Freedom from Debt Coalition.

Spending for debts vs investments

Diokno said paying off the past administrations’ debts also won’t pass as an excuse for the enormous borrowings the Arroyo government alone incurred.

Although he acknowledged the need to honor the previous debts, he said this should be balanced with sound spending to boost the economy.

Normally, when a government spends more than what it takes in through taxes or other means of generating funds (such as privatization), it must make up for the shortfall through borrowings. This shortfall is known as the deficit.

Ideally, according to Diokno, borrowings should be spent on public investments in infrastructure or social services, “which would pay for [themselves]” or generate funds enough to cover the government’s expenditures and debt payments in the future.

“There’s nothing wrong if the money you’ll borrowing will be used for investments in, for example, roads and education, which would help expand the economy,” he said.
But what happened during Arroyo’s term was far from the ideal.

Statistics have shown high economic growth rates in the previous years, particularly the 30-year peak of 7.1% in 2007, but the increase in government revenues remained modest, Diokno said, noting that “tax collections are still not enough.”

Measly revenues, coupled with what he said was Arroyo’s bad habit of overspending, resulted in a yearly deficit of P200 to P300 billion for the government, which in turn, resulted in the pileup of debts, he added.

Overspending and corruption

Diokno said he, and the public, could not help but suspect that the yearly deficit is going into some people’s pockets.

“Every year there is a deficit. Where does it go? We don’t see any projects that are actually going to the people,” he lamented.

Mrs. Arroyo’s more than 8 years of stay in office has been marred by a series of corruption scandals (Read: Scandals!), which economists said very well explain the leakage of public funds.

Recently, the Arroyo government’s excesses were highlighted in media reports after the President and her huge entourage reportedly incurred huge bills from expensive dinners in a recent visit to the United States.

Malacañang had admitted that Mrs. Arroyo’s trips abroad went over budget, but insisted that the Office of the President did nothing illegal.

Deputy Executive Secretary for Administration and Finance Ching Vargas said that from 2001 up to this year, the government has already spent P2.5 billion for Mrs. Arroyo’s travels, way above the allocated budget of P1.4 billion.

Clean balance sheet

In fairness to the President, Teves said she tried to keep her fiscal house in order, paying down debts to clean the government’s balance sheet, and implementing fiscal reforms to trim the deficit.

He said this was the only way to earn the favor of the country’s creditors and avail of funds needed to keep the wheels of the economy running.

“We really need to honor these debts so we could borrow again for the economy,” he said.

“The government has also implemented reforms to bring down the deficit. But the global financial crisis bloated the deficit again,” he added.

The Arroyo administration has implemented a series of fiscal reforms aimed at achieving a balanced budget by 2010.

The sweeping reforms, particularly Republic Act 9337 or the Expanded Value Added Tax Act of 2005, helped the Philippines trim its budget shortfall to P12.4 billion in 2007 from a record P210.7 billion in 2002.

However, adverse external developments brought about by high food and oil prices in the first half of 2008 and the much-felt economic slump later on forced the Arroyo government to abandon its goal of balancing the budget.

The deficit swelled to P68.1 billion or 0.9 percent of gross domestic product (GDP) last year and is expected to reach a record high of P250 billion or 3.2% of GDP this year.

• ABS-CBN

• Pinoyweb.

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Tags: Margarito Teves, RP dept