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Vol. IV,  No. 34                       September 26 - October 2, 2004               Quezon City, Philippines


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The Philippine Financial Crisis and the Neo-Colonial State

The Filipino masses have seen one president after another come and go without the least improvement in their lives even in times of government budget surplus and supposed economic growths of GDP and GNP. In fact, the plight of the masses has worsened through the years. Thus, one fiscal crisis after another - and there had been several in the past, though the present is the most severe - have become of no concern anymore to the long-suffering masses.

By Edberto M. Villegas

The fiscal crisis that the Philippine government is presently undergoing is the worst ever in the history of the country, and is caused by its own doing. And yet the government would pass the burden of solving this crisis to the people, with increases in taxes and prices like those for electric power and petroleum. It has even put up a so-called Bayanihan Fund so that ordinary citizens can contribute their shares for the government to weather the storm.  

Anakpawis activist caries placard shouting people's rage, in contrast to an ad behind him that tells passers-by to "Have a good day."

It must be emphasized, however, that the fiscal crisis that the government is experiencing was bound to happen based on its heavy indebtedness to foreign and domestic creditors, the latter also affiliated with foreign capital like Citibank and the Bank of America from which the government heavily borrows. The country’s external debt alone as of September 2003, already stood at P1.5 trillion, of which 51percent is direct government debt from international financial institutions, like the IMF and World Bank, and bilateral creditors, and 49 percent from foreign bonds.[1] By January, 2004, total outstanding debts of the government already exceeded P3 trillion, surging particularly in the second half of 2003. It is Gloria Macapagal Arroyo who has borrowed the most among all Philippine presidents, with her borrowing binge, mostly from the United States, from 2001 to 2003 “more than the combined borrowings of Presidents Ramos and Estrada for eight years, 1992 to 2000.”[2]  The Arroyo administration has been accumulating debts to the tune of P1.2 billion daily.  

Chart 1. Outstanding National Government Debt

Source: Bureau of Treasury

The heavy debt of the government has thereby brought about its current huge fiscal crisis, with budget deficit nearing P200 billion, since revenues from taxes and other non-tax sources have been greatly largely overtaken by its galloping debts to foreign and local creditors. Even with the heavy budget reduction for social services through the years, mandated by memorandums of agreements with the IMF [3] to assure debt payments, the continuous increase of the national debts, especially during the Arroyo administration, has made all the cost-savings measures of the government meaningless but debilitating to the Filipino people, who have to suffer poor government social services such as in education, health and housing.

Table: Real Per Capita National Government Expenditures on Social Services, 
1996-2004 (2000 Prices)

  1996 1997 1998 1999 2000 2001 2002 2003
Total Social Services 2,188 2,487 2,417 2,323 2,302 2,035 2,002 2,016 1,999
Education 1,534   1,789 1,761 1,675 1,608 1,515 1,505 1,455 1,415
Health  230   266 221 223 202 166 171 151 141
Soc. Security, Welfare, & Employment 317  392 387 364 376 331 327 392 418
Housing & Com. Devt. 107 39 48 61 115 22 19 19 29

Source: Rosario G. Manasan, Fiscal Reform Agenda: Getting Ready for the Bumpy Road Ahead,

Table 2, p. 5.

The debt of the national government has already reached 78 percent of GDP at the end of 2003. And if you add the debts of the government-owned and -controlled corporations, (GOCCs), the  GFIs (government financial intermediaries), LGUs, projects under BOT, and those of the  SSS and GSIS,[4]  debts the government assumes, total consolidated public debts at end of 2003 amount to P5.9 trillion or 137 percent of GDP! This indeed is alarming and is creating grave apprehension to the country’s foreign creditors and potential investors. In fact, Standard and Poor, an international credit rater for countries, has downgraded the Philippine long-term currency rating by a notch to BBB-minus. The Philippines has already surpassed all other countries in Asia in the size of its consolidated public debts.[5]

The Napocor Debt

But where do all the money go? A great portion of these debt go to the payment of the interest and principal of the national debt, for instance, 49 percent, 33 percent interest, 16 percent principal[6] for the year 2004, and another big chunk is lost to corruption of bureaucrat capitalists. Among such big cases of bureaucratic corruption is the sweetheart deal that Napocor made with independent power producers (IPPs). Under Executive Order (EO) 215, the IPPs were funded by foreign loans secured by a government guarantee and most contracts with the IPPs even included a “take or pay” onerous (but profitable to the bureaucrat capitalists) provision, which required Napocor to pay for 70 percent to 100 percent of the output of an IPP whether or not the electricity is actually used by the public. For 2004, Napocor will pay to the IPPs P19 billion worth of power which is not yet consumed.[7] On the average, Napocor only utilized 20 percent to 40 percent of the power it buys from the IPPs. Such shady goings-on of course enriched former President Ramos and his cohorts but Napocor is now saddled with a $7.4 billion debt which the government through the so-called Electric Power Industry Reform Law (EPIRA) has the gall  to allow power distributors like Meralco to pass on to the ordinary consumers. Meralco owes Napocor P13 billion but was allowed by the Arroyo government to rescind its contract with Napocor and to purchase power from its own IPPs. In order to defray its past obligations to Napocor, Meralco has been allowed by the government to pass these debts to the consumers. Notice the Purchased Power Cost Adjustment (PPA), the Fuel Cost Adjustment (FCA), and other such euphemistic terms in your monthly electric bill.[8]

All these nefarious deals within Napocor, including its infamous contract with Westinghouse during the Marcos regime to build the now defunct Bataan Nuclear Power Plant, which has not produced a single watt of electricity,[9] has pushed its debts to $23.5 billion (P1.3 trillion) more than a third of the national debt of P3.32 trillion as of October 2003. And now the national government has the temerity to ask the people to practice austerity and contribute their small pittance to the “Bayanihan” Fund, when all the fat cats in the bureaucracy together with their foreign partners have already long been feasting on the blood of the people. And when we consider other anomalies at other government corporations, Public Estates Authority (Amari scam, Diosdado Macapagal Boulevard scam, Expo Filipino scam) and the GSIS (BestWorld scam), no one will wonder anymore where a great bulk of all the borrowings of the government are disappearing to.

Arroyo and the Group of 11 UP Economic Professors’ Proposals to Solve the Fiscal Crisis

To confront the magnitude of the fiscal crisis, the Arroyo government is again resorting to transferring the burden of solving it to the people by introducing eight new tax measures to raise an additional P84 billion. As usual, these follow the prescriptions of the IMF which is constantly worried that the Philippine government may not be able to pay its foreign loans. Among these onerous tax measures which will hit the lower-income middle-income classes more adversely are an increase of value-added-tax or sale taxes (note that it was the IMF that imposed on the Philippines the adoption of VAT during the Aquino regime) and an increase in petroleum taxes.[10] Malacañang also would reduce the IRA for local governments, but refuses to cut its huge pork barrel, the so-called presidential discretionary fund, which amounts to a hefty P3 billion.

The government is especially alarmed with the current fiscal crisis because foreign credit analysts have started downgrading the Philippines as an investment destination and new foreign loans may not be forthcoming if government deficit keeps on increasing. This may lead to a defaulting by the Arroyo administration of its foreign loans since new loans are spent to pay for old loans in a vicious cycle that again hikes total loans. The new taxes that will be imposed by the government have been referred to Congress for legislation since members of Congress are also reluctant in giving up their pork barrels, P70 million annually for each congressman and P200 million for each senator. Everyone is ganging up on poor Juan de la Cruz, as most of the taxes being considered are regressive in nature like the VAT and taxes on petroleum, the latter causing a chain reaction of an increase of prices of basic commodities.

A group of 11 UP economics professors have also come out with their proposals to hurdle the fiscal crisis of the government. In a paper entitled “The Deepening Crisis: The Real Score on Deficits and the Public Debt,” recognizing the unprecedented and the seriousness of the fiscal crisis, they recommend that the government should increase its surplus by 3.5 percent of GDP ( using the nominal value of P4300 billion as of 2003) from its present 0.6 percent to maintain current debts and  support the budgets for vital infrastructure and education. According to this group of professors, the government must also limit the servicing of the off-budget liabilities (items not stated in the annual government budget or the General Appropriation Allocation, called off-items, the most notable of which are debts of the GOCCs) by 1.5 percent of GDP.[11]

But how to do these? This group of professors (GP for short) advised measures which are mostly along the vein of the government’s proposals and which reiterate the usual IMF policy recommendations for the Philippines and other Third World countries to confront their debt problems. These recommendations adopt the free-market framework (called neo-liberal reforms) under the aegis of globalization or a policy of open economy, especially promoted by the United States under the Uruguay rounds of talks, which established the WTO, but which is not taken seriously by even the U.S. itself and the leading capitalist countries (members of the European Union and Japan), who have become more protectionist in their economies starting in the late 1990’s.

The GP’s policy recommendations include: privatization, especially of Napocor; deregulation, or what the group calls the abolition of the “politicization of prices” (p.24); and liberalization of tariffs. For liberalization of tariffs, the GP is particularly against increasing the tariffs on oil imports, because, according to them, “international commitments prevent significant tariff adjustments” (p.19), a shortcoming which is not, however, “encountered when the tax is domestic.” (Ibid) With this self-assurance, the GP therefore recommends an additional two-peso domestic tax (called excise tax) on petroleum, purportedly to control air pollution (!), a two percent increase in VAT and its expansion to cover finally all professionals like lawyers and doctors, an increase of 10 percent tax on new cars and an indexation (or continuous adjustment of taxes, which often go up) on the so-called sin products like tobacco and alcohol, this latter tax along the comprehensive tax reform program, first advocated by the IMF in the 1992 memorandum of agreement of the Philippines with this institution. To reduce the servicing by the government of its off-budget liabilities by 1.5 percent of GDP, the GP advises price and fee-adjustments (especially higher power rates for Napocor to pay off its debts) of government corporations. Another measure backed by the GP that will hit the poor mostly, is the reduction of IRA releases to 30 percent from its current 40 percent. Aware of the corruption in the government, which the WB solely singles out as the main cause of the Philippine fiscal deficit, the GP is also for plugging tax leakages and the reduction of the salaries of management in government corporations.[12]

It must be noted that an IMF post program monitoring team visited the Philippines in June 2004 to find out how the Philippine government is abiding by its commitments to balancing its budget. The team was particularly worried about the growing budget deficit of the government and warned that it was in a “crucial juncture” (Arroyo used the same term “crucial juncture” when she announced that the country is in fiscal crisis last Aug. 23, 2004). The IMF team recommended, among other things: government assuming Napocor debts and fast tracking its privatization, increases in taxes like that of VAT and on petroleum, and a more efficient tax administration.[13] Soon afterwards, Arroyo announced her eight tax measures during her State of the Nation Address and the GP came out with their position paper. Notice the pattern.

It could be seen that the main brunt of the GP’s proposals to solve the fiscal crisis is anti-people. It is primarily concerned with restoring investor’s confidence, with an eye for a favorable foreign credit rating as an investment destination for the Philippines, in the country’s capacity to pay off its foreign loans and to become an attractive place for good profits. (p.22-23) The GP is also worried of the eroding competitiveness of the Philippines in the world market (p.16) and an increase in interest rates for credits extended to the country due to an escalating budget deficit (p.22). Though the GP also recommends a cut in the pork barrel of Congress by one half and the reduction of the pay of management in government corporations, most of its policy proposals would cut deeply on the livelihood of the ordinary people like the introduction of new taxes and the increase of prices. The GP claims that there should be an equitable share of meeting the fiscal crisis both from the government side and the people, and that the government must be “first in the line of fire.” However, its proposals would squeeze the meager money of the people more thoroughly, following the regular medicines of the IMF-WB in demanding greater stringent measures from its client governments when they get into a fiscal rut.

However, it has been proven time and time again that abiding by the malodorous prescriptions of the IMF-WB to cure its patient only makes the patient sicker. A study by the UNICEF of 56 countries (26 from Africa, 19 from Latin America, 8 from Asia, including the Philippines, and 3 developing countries in Europe), which had undergone so-called stabilization programs and structural adjustment programs of the IMF-World bank from 1980 to 1985 to hurdle their budget and trade deficits, found that the poverty situations of these countries have only worsened through the application of the IMF-World Bank programs. The UNICEF study concludes: “ The urgency of finding new solutions is especially pressing when considering the poverty-inducing effects that  the current approach (the IMF-WB programs) tends to have, and the direct negative effects that some macro-economic policies have on the health and nutritional status of the poorest, and of children in particular….” (Parenthesis ours) [14] In the 1990’s one can only remember the economic crises that wracked the former USSR, Brazil, Mexico, Argentina and Indonesia , which have been likewise victims of the policies of privatization, deregulation and liberalization peddled by the Big money-baggers of the world and their local subalterns in the Philippines, including the group of professors at the UP school of economics. It can be said that dire lessons in history are not learned by those who benefit from them. 

Liberalization, Privatization and Deregulation

In the Philippines with the introduction of more aggressive liberalization policies in 1995 through the entry of the country into the WTO (closely synchronizing its policies with the IMF-WB)[15], thousands of farmers became bankrupt because of the influx of agricultural goods, particularly from the United States, into our economy. Around 25,000 farmers became deprived of their livelihoods at the second quarter of 1995, and thousands more are continuously being thrown into the streets, many migrating to the cities and hawking for any jobs available.[16] Also during the third quarter of 1995, the Philippines suffered a rice shortage with the price of one ganta of rice increasing from P10 to P20.22 as a result of the closing down of many small farms, aggravated by the lowering of the farm gate price of rice paid to the small farmers by the NFA.[17] The reduction of the farm gate price of rice by the NFA is part of the conditions of WTO for governments to gradually remove subsidies to farmers. A direct effect of the liberalization policy on the budget deficit is that the foregone revenues of the Bureau of Customs due to various tariff rates reductions amount to P100 billion annually from 1994 to 2001.[18]

The policy of privatization of government corporations, also a condition of the IMF for new loans from it and its consortia of banks, has affected thousands of government workers and the quality of service formerly offered by the government. Thousands of government employees have lost their jobs when this policy was first started in 1989 after the implementation of the MOEFA[19] of the Aquino government with the IMF. At the PNB, 3,500 workers lost their jobs and at the MWSS, 3,000 more suffered the same fate. And as part of the cost-saving measures by the Arroyo government to meet its present fiscal crisis, it is also planning to reduce government personnel by another 30 percent.

The quality of service of government GOCCs does not improve at all after privatization; as a matter of fact, it even worsened at Maynilad, the  privatized  west portion of MWSS controlled by the Lopez group. Because it could not maintain good services and with its debts accumulating, Maynilad appealed to the government to bail it out from its $180 million loan, which the latter agreed to do.  In the first place, Maynilad should be taking care of its own and providing quality service at affordable price of water to the public. But instead Maynilad together with Manila Water (the east portion of the privatized MWSS and majority-owned by the Ayala family) reneged on their contracts with the government not to raise the price of water within five years and the former now has the audacity to ask for government assistance, which was duly given. Talk about the alliance of the bureaucrat capitalists and the komprador bourgeoisie, in which latter category the Lopez family belongs to (the Lopez family is likewise the majority-owner of Meralco, another favorite cow of the government).With regards the deregulation of prices, as also advocated intensely by the GP, need we say anything more concerning its debilitating effects on the populace? The almost weekly increase in the price of petroleum products, which the GP will aggravate with their proposal of a P2 petroleum tax, is testimony enough to this kind of callous policy to solve the fiscal crisis of the government proposed by the IMF-WB and its local cohorts.[20]

The Fiscal Crisis and the Economic Crisis

When one understands the difference between a fiscal crisis and an economic crisis one will realize the magnitude of the callousness of the government to the plight of the people. A fiscal crisis is characterized by an unmanageable budget deficit, with government spending more than its revenues, which in the case of the Philippines is due to its heavy debt servicing. An economic crisis, on the other hand, is the growing impoverishment of the majority of the people.[21] Philippine society has long been suffering from a worsening economic crisis from the year 1975 up to the present. Filipinos living below the poverty line have increased from 57 percent of total Filipino families in 1975 to 70 percent in 1998 then to 85 percent in 2003.[22] The purchasing power of the peso has dropped to P0.56 in 2004, with 1994 as the base year. The minimum wage has been pegged at P250/day but the income required to enable a family of six (the average size of a Filipino family) in 2004 to live on a subsistence level (poverty level) is P479.06 per day. Unemployment has also grown from 8.1 percent in 1990 to its highest ever at 13.7 percent in the first quarter of 2004. But in spite of the deteriorating conditions of the majority of the people, the budget for social services continues to be cut by the government through the years to accommodate the payment of foreign debts. 

Chart 2. Purchasing Power of the Peso

Source: Yearbook, National Statistics Office

Chart 3. Unemployment and Underemployment Rates

Source: Yearbook, National Statistics Office & Current Labor Statistics, Bureau of Labor Statistics

The implications of the government defaulting its debts because of the fiscal crisis are horrendous for the upper class of Philippine society to contemplate. Government treasury bills (TBs) and bonds held by local banks, corporations and rich individuals may become worthless and this situation may force many banks to declare a holiday (hold the withdrawal of deposits). With the unavailability of new dollars, which have been the oxygen tank of our dependent economy, from local and external sources, factories and other business concerns may not able to finance their import of capital goods and other inputs. Since the Philippines is unable to produce its own heavy machinery and other vital facilities for industrialization and is forced to rely on imports, a scarcity of dollars to buy these imports will deal a heavy blow on our economy. Government guarantees of new dollar loans to the private sectors will likewise not be honored anymore by foreign creditors, if especially the IMF-WB brands the Philippines as a risk for the extending of loans from its consortia of banks under the Paris Club and the London Club.[23]

During 1983, when new loans from the IMF ($630 million)  to the Marcos regime were not granted, Philippine industrial production went down by 40 percent, average interest rate shot up to 31 percent and inflation rate by 60 percent.[24] Such a scenario is most feared by the local bourgeoisie and this is the reason why they are one in asking the people to help the government in solving the fiscal crisis with some of them even doling out P1 million (including the billionaire Lucio Tan, who has a pending charge of tax evasion of P12 billion) to the “Bayanihan” Fund. Like the IMF-WB, which salvage the big TNBs when they get into financial trouble by imposing more austerity measures on a people, the komprador bourgeoisie have also no compunction in appealing to the people to bail out the government from the latter’s own self-made fiasco.

The New-Colonial State and the Semi-Feudal Agricultural Economy

The root of the present fiscal crisis and the economic crisis of our society is the neo-colonial status of the Philippine state. A neo-colonial state, though it is not directly governed by another country like the Philippines under American rule from 1899 to 1946, is, however, dependent on external sources for its economy to function. In the Philippine case, the country is dependent on loans and investments supported by U.S. monopoly capitalism or imperialism, for its economy to survive. It is a situation where the subservient economy is forced to abide by agreements and other treaties in favor of foreign business allied with imperialism. For instance, the conditions set by the IMF-WB-WTO are made to be religiously followed by the Philippine state in order for the latter to be assured of new loans. But as we have seen, since the people can only produce so much, even including the remittances of OFWs to the Philippines, which have precariously propped up the Philippine GNP for many years[25], and that corruption of the bureaucrat capitalists also eats up a substantial amount of government money, the deficit of the government continues to grow at the consternation of its foreign creditors.[26] Thus, the government is constantly sinking in its own neo-colonial quagmire and its profit-seeking foreign creditors may altogether halt granting new loans unless the government squeezes more sweat and blood from the toiling masses. For who else will it squeeze if not the hapless and often unknowing masses. While the government is quick to deregulate prices of the leading TNCs in the Philippines, particularly in the oil industry, it refuses to increase the wages and salaries of government employees and legislate an increase of a measly P125 of the minimum daily wage, due to the dictates of the IMF. [27]

Ever since the Philippines became an American colony in 1899, the Philippine government has always placed first its obligations to U.S. business over and above its social responsibility to the Filipino people. This is especially exemplified in the notorious Presidential Decree 1177,  formulated during the martial law regime of Marcos and re-enacted as Executive Order 292 by President Aquino, which requires the government to pay for its foreign debts before any other expenditures. In principle, the annual budget allocations for all other operations of the government, most particularly for social services, can become zero if nothing is left after meeting the country’s debt obligations, especially now with our ever increasing debts.  Such a law is unique in the Philippines, and has been called a classic example of an exploitative neo-colonial policy. While many oppressive laws enacted by the dictator Marcos through presidential decrees (note that monarchs once issued laws known as monarchical decrees) have been rescinded, PD 1177 has been retained under the pressure of the IMF-WB by the Aquino government and all other successive Philippine administrations. 

PD 1177 is just an extreme manifestation of neo-colonial laws vis-à-vis the United States that our supposedly independent government has been forced to abide by since 1946 (when the Philippine state became a member of the IMF-WB). Another example of an unabashed U.S. neo-colonialism policy in the Philippines was the threat of not granting to the latter a $430 million loan in 1946 for war damages incurred during the Second World War (it was U.S. planes and guns that actually wrought extensive damage in the Philippines), if the Philippine government does not amend its 1935 constitution with the incorporation of Parity Rights for U.S. business in the Islands. Parity Rights would extend the same privileges to exploit the natural resources of the Philippines to U.S. business as enjoyed by Filipino nationals. Though Parity Rights was gradually phased out in 1974, it was nevertheless substituted by equally liberal investment laws during the Marcos era. Other neo-colonial laws enacted in the Philippines are: the Bell Trade (free trade) law in 1949, the 1962 decontrol law (which devalued the peso for the first time) of Diosdado Macapagal, and the various very liberal investments laws of Marcos (Investment Incentive Act of 1967, Export Incentive Act of 1970, PD 1034, the latter allowing offshore banking units in the Philippines, etc.), all compiled under the Omnibus Investment Act, the Labor Code of 1974 (disallowing strikes in so-called vital industries) and the  laws under various structural adjustment programs of liberalization, privatization and deregulation, implemented by the Aquino up to the Arroyo regimes. Most of these laws since 1949 have been commitments under various letters of intent with the IMF, now called Memorandum of Economic Agreement.[28] Such agreements are made to appear as if they embody reforms formulated by the Philippine government itself, though they are in fact based on recommendations from various studies conducted  by  IMF-WB survey missions before such economic reforms are adopted by the Philippine government. Thus, there were the industrial reforms of 1956 and 1979, financial reforms of 1972 and 1980, agricultural reforms of 1980 and 1996 and educational reforms of 1982, 1997 and 2001 implemented in the Philippines following the proposals of sundry IMF-WB survey missions, from the Bell mission, Ranis mission and others.

Neo-colonial laws are easily enacted in the Philippines due to the fact that Congress is dominated by the upper classes of our society, composed mostly of the landlord class and the komprador bourgeoisie or their representatives.[29] The komprador class basically favor a dependent trade relationship with the U.S. since their business in cash crop exports, like sugar, coconut, hemp, etc., benefit from this relationship. Thus free trade arrangements like the Bell Trade Act and export incentive laws are to the great advantage of the Philippine landed gentry. This is the reason why this class supported the U.S. policy of not dismantling the semi-feudal structure of Philippine agriculture when the country became an American colony in 1899. A study of the U.S. Bureau of Labor in the first decade of the century recommended to the U.S. government that the feudal relationship of tenant to landlord already entrenched during the Spanish regime must not be disturbed.[30] Soon after, the U.S. passed the Payne-Aldrich Act (or the first free trade law in the Philippines) in 1909. The retention of semi-feudalism in the Philippines, “semi” since a great part of the Philippine agricultural produce are exported, would reduce the production costs of the komprador bourgeoisie in the countryside to their advantage as well as their trading partners, since tenants and sacadas (seasonal workers in haciendas many of whom are tenants) incur for the komprador lower payments for labor and thus cheaper export goods. The komprador bourgeoisie have also maintained the backward state of technology in their haciendas since manual labor in the countryside is plentiful and the acquisition of machinery in their farms will just increase their cost of production. Thus, throughout the years even with various land reforms, which are always diluted by a landlord-dominated Congress, the tenancy and the sacada systems persist in the countryside. In 1980 tenancy still existed in 26 percent of total farms in the Philippines and this further increased to 35 percent of all farms by 1996.[31]

The IMF Post-Program Monitoring Team

Yearly, the IMF sends survey missions to the Philippines to monitor closely whether the Philippine state is faithfully following its various commitments under its programs with the Fund (the term commonly used to refer to the IMF), especially with regards debt servicing. From June-July 2004, an IMF survey mission conducted a so-called post program monitoring (PPM) on how the Philippine government is managing its deficit as we have already discussed above. The Philippine government last entered into a stand-by agreement (under a credit line called by the Fund as a precautionary agreement) during the Estrada administration, which secured a $1.3 billion from the Fund. The IMF survey team last June made sure that all the commitments under this precautionary stand-by agreement are complied with. The Arroyo administration is contemplating to borrow under another new stand-by agreement with the IMF to meet the current fiscal crisis. With the entry of WTO in 1995 to supervise more stringently the observance of the trade liberalization policy (a continuing commitment with the IMF) of the Philippines, the country has been more closely integrated to serve the business agenda of the TNCs in the name of so-called globalization.[32]

With the Philippine state deeply mired in foreign debts, which even forebodes a closing of its government within the next two years, its foreign creditors through the IMF can bring it down to its knees and impose such deadly requirements for the economy that its people will bleed white. Such a situation will bring ruin to all, including the banks and the business of the komprador bourgeoisie, ever faithful but dispensable partners of U.S. imperialism.  But the lives of majority of the people have long been ruined, forced to a hand-to-mouth existence, with millions robbed of their human dignity, subsisting on morsels thrown by the government and the rich and living in squalid places only fit for animals. The masses have seen one Philippine president after another come and go without the least improvement in their lives even in times of government budget surplus and supposed economic growths of GDP and GNP. In fact, the plight of the masses has worsened through the years as we have seen. Thus, one fiscal crisis after another, and there had been several in the past, though the present is the most severe, have become of no concern anymore to the long enduring and suffering masses.

What must be done?               

The Philippines must first and foremost re-negotiate all foreign loans, since a great part of these are odious loans, particularly those incurred during the Marcos regime, when our external loans ballooned from $599.5 million in 1965 before Marcos to $28.2 billion after he was ousted in 1986. Marcos incurred a total of $27.8 billion loan during his regime, including the scandalous $2.3 billion for the mothballed Bataan Nuclear Power Plant and other loans to his cronies.[33] The Philippine government still continues to pay for  the interests and principals of many of  the Marcos loans, which formed part of the total current $57.8 billion foreign debt of the country. And there are other questionable foreign debts like those incurred by Napocor from the Ramos up to the Arroyo regimes that a tough and determined government mission can negotiate with the country’s foreign creditors. Other countries like Peru, Bolivia, Ecuador, Cuba, Ivory Coast, Nigeria, Tanzania and Zaire have at one time or another unilaterally suspended or repudiated part or all of their debt servicing. Even the United States repudiated some of its debts, such as those that she incurred from British financiers in building railroad networks in the 1800s. Several of the American allies also never paid back debts to the U.S. acquired during World War I.[34]

When Corazon Aquino succeeded the dictator Marcos after EDSA I, she had all the moral ascendancy at that time to repudiate Marcos’ debts of dishonor since world opinion was behind the people’s movement that toppled the dictatorship. Instead, Aquino promptly went to deliver a speech before the U.S. Congress as an invited special guest to assure all the Philippine foreign creditors that the country will pay all its external debts, including the loot that Marcos had stashed away in foreign banks, mostly in Switzerland, which is estimated to be around $13 billion to $20 billion. Indeed, this subservience and cowardice of Aquino is one of the major factors why we are in our present crisis.

The solution to our fiscal crisis is not for the people to carry its burden since they had not been responsible for it in the first place. In fact, the masses have long been subjected to the effects of the constant scrimping of the national budget, mostly affecting the appropriations for social services, in order to defray government debts. The solution is not to increase all kinds of taxes, like what the government and the 11 UP professors are clamoring for, which will just exacerbate the miseries of the people, but for the government to have a strong political will to renegotiate all debts, especially foreign.

Another way out from the fiscal crisis is to likewise renegotiate the Philippines’ commitments under various trade agreements to lower down and eventually eliminate its tariffs for all sorts of products, particularly agricultural, which ridiculously include products that the country has in abundance like vegetables.[35] Revenues foregone from custom dues, which are estimated at P100 billion annually, for the entry of diverse products into the Philippines, have contributed greatly to the escalation of the government deficit. Still another alternative to confront this particular diminution of government revenues is for the Philippines to withdraw from WTO as a member. Instead the Philippines can enter into various bilateral trade agreements with countries, whose products we need. Countries like Taiwan and Vietnam are not members of WTO and yet they get along very well with their foreign trade, compared to the Philippines with its richer natural resources.

The drain of around 20 percent from the annual national budget due to graft, patronage and tax evasion must also be eliminated. This massive leakage from the national budget has been the focus of the mainstream media as the supposed primary cause of the fiscal crisis.  In an effort to divert public attention from the need to renegotiate the huge Philippine foreign debts, Malacañang has been announcing vociferously complete with moral indignation for publicity’s sake that the fat cats in the GOCCs and congressmen should trim their big salaries and reduce their pork barrels. But this is like wishing that the tiger shed off its spots since Malacañang is the leading scrounger of the money of the people with its huge presidential discretionary fund of P3 billion which  Arroyo refuses to cut.

The road we are opening may be too demanding and risky for the present government. We know that it will require great courage and the support of the masses to enter this road, and the government does not have both these strengths. In the final analysis, it is a true government of the people who will traverse this road that can lead to the emancipation of the people and prosperity for our country. Saving from foreign debts, increases in government revenues from tariffs, and the final elimination of bureaucrat capitalism, can generate funds to launch a genuine land reform program, which will not this time be defeated by a landlord-dominated Congress. An effective and successful land reform program will lead to an effective national industrialization program for the Philippines, one that is not geared toward the needs of foreign countries but provide for the welfare of the Filipino people. Higher revenues for the government can also subsidize substantially social services like education, health for the people, housing, transportation, etc. Greater capital outlay from the national budget can support infrastructures for development, all planned for the advancement of the greater good. We as an organized people must act immediately to travel the road that we are showing for the time is fast ticking away before our national wealth may be completely dissipated and the country brought into great economic chaos. Bulatlat                                                                         

Edberto M. Villegas, PhD, is chair, Development Studies Program of the University of the Philippines in Manila; author of several books, notably Studies in Philippine Political Economy, 1984; Japanese Economic Presence in Southeast Asia, 1992, and Global Finance Capital and the Philippine Financial System, 200. He is also a Fellow of the Center for Anti-Imperialist Studies and an economic analyst of Bulatlat.


[1] IBON Facts & Figures, The Economy in 2003, Mismanaging the Crisis, Vol. 27, No. 1, Jan. 15, 2004.

[2] Quoted from a speech of Senator Joker Arroyo, Philippine Daily Inquirer, Sept. 6, 2004, A4.

[3] Memorandum of Economic and Financial Agreements of the Philippine government with the IMF (MOEFA), 1989-1992, MOEFA, 1994-1997, and MOEA(Memorandum of Economic Agreement), 1998-2000.

[4] All these debts are not included in the statement of annual national budget, because they are considered off-item budget by the government. 

[5] Rosario G. Manasan, Fiscal Reform Agenda:  Getting Ready for the Bumpy Ride Ahead, PIDS, p. 2,

[6] From Department of Budget and Management (DBM) - only interest  payment is included in the annual budget declared by the government, while payment for the principal is from data of the Bureau of Treasury, not stated in the annual budget of  Congress. This is due to a dictum of the IMF regarding the manner of reporting the national debt.

[7] Business World, Jan.30-31, 2004.

[8] For a thorough discussion on the EPIRA , see “Power Sector Restructuring Under EPIRA”, IBON Facts and Figures, Vol. 27, No.12, June 30, 2004.

[9] The Bataan Nuclear Power Plant was built through a loan of $2.3 billion and the government up to the present is paying its creditors $170,000 daily as interest alone for this loan, which it conveniently passes to the public in the forms of taxes and fees. The consummation of the debts incurred for the nuclear plant will be up to 2018.

[10] Memorandum of Economic and Financial Agreement with the IMF, 1989-1992.

[11] Emmanuel de Dios, et al, The deepening crisis: the real score on deficits and the public debt, pp.14-16.

[12] De dios, et al, pp. 14 -24

[13] Statement by IMF Staff Mission to the Philippines, July 12, 2004, International Monetary Fund, Washington DC, and from Business World, June 30, 2004. With regards the debts of Napocor from World Bank, ADB, and Japan Bank for International Cooperation, IMF recommended that it be taken over by a newly created Power Sector Assets and Liabilities Mgt.(PSALM) of the government.

[14] Giovanni Andrea Cornia, “ Adjustment Policies 1980-1985: Effects on Child Welfare”, Adjustment with a Human Face, Protecting the Vulnerable and Promoting Growth, A Study by Unicef, Clarendon Press, Oxford, 1987, pp. 48-72.

[15] The tandem of the IMF-WB-WTO has been called the three musketeers of the international capitalist order. The IMF is widely known among  NGOs in Africa  as the Institute of Misery and Famine.

[16] Data from Kilusang Magbubukid ng Pilipinas.

[17] Gemma Luz Corotan, “The Rice Scam,” Betrayal of the Public Trust, PCIJ.

[18] Data from Bayan Muna party list.

[19] Memorandum of Economic and Financial Agreement, 1989-1992.

[20] Ibid.

[21] We prefer to use the criteria of the increasing incomes of the majority of the people especially of the last three deciles of the populace and decreasing unemployment rate as measurements of economic growth rather than the mainstream economic measures of the growth of GNP and GDP. While, GDP may grow, as the Arroyo government is claiming that it grew from 4.1 percent in 2003 to 6 percent in the second quarter of 2004, yet unemployment continues to grow in 2004 and many more Filipinos are falling below the poverty level.

[22] Data in 1975 from US AID, Country Development Strategy Statement, Jan. 1980, p.2, and from 1998 and 2004 from IBON Philippines.

[23] The Paris Club, which relies on the IMF-WB good listing of a country as a reliable debtor, is composed of 400 transnational banks while the London Club, which is also advised by the IMF-WB, is composed of 700 TNBs.

[24] Data from the Center for Research and Communication (CRC), 1984, now the University of Asia and the Pacific.

[25] It has been estimated that Filipino OFWs’ remittances to the Philippines is 285 percent of foreign direct investment (FDI) and 1,047 percent of ODA, and 14 percent of export of goods and services in the Philippines (from a speech of former Finance Secretary Roberto Ocampo, BW, Jan. 16, 2004, p. 25).

[26] Standard Chartered Bank of London has warned of an Argentina crisis befalling the Philippines, Inquirer News Service, Aug. 8, 2004.

[27] Deregulation of   oil prices and other commodities and austerity measures by the government, including a freeze on the wage and salaries of government rank-and-file employees, and the control of the minimum wage are contained in the MOEFA of Aquino, Ramos and Estrada with the IMF.

[28] At one time, in 1962 a governor of the Philipine Central Bank, Miguel Cuaderno, complained of the dictatorial policy of the U.S. state Department in influencing the IMF to make the Philippines shift drastically from a control to a decontrol policy (from Cheryl Payer, The Debt Trap,  Penguin Books, 1976, p.59-60.)

[29] 40 percent of the lower House of Congress come from the landlord class, while the rest have their families in various business like real estate, manufacturing, etc. Only a very few, around 1 percent, mostly from the party list, are from the lower middle class. In the Senate, all are multi-millionaires or millionaires, belonging to the landlord class or attached to business. (Rulemakers, Sheila Coronel et al, PCIJ, 2003, passim) Also see Dante Simbulan, A Study of the Socio-Economic Elite in Philippine Politics and Government,  a doctoral dissertation, The Dept. of Political Science Research School of  Science, Australian National University, 1965.

[30] “Labor Conditions in the Philippines,” Bulletin of the Bureau of Labor, Washington, Government Printing Office, p. 777.

[31] Data from the Agricultural Division, NSO.

[32] Edberto M. Villegas, Studies in Philippine Political Economy, Revised Edition, 1984, Silangan Publications, 1984, Chapters I-III, V; Global Finance Capital and the Philippine Financial System, Institute of Political Economy, 2001, Chapter 3.

[33]Some of the  fraudulent debts of the Marcos cronies are: Rodolfo Cuenca, CDCP, $323 million, Alfredo Montelibano, Planters Products, $150 M, Roberto Benedicto, Nasutra/Philsucom, $265 M, Benjamin Romualdez, Meralco/First Holdings, $370 M, Marcos/Jose de Venecia, Landoil, $165 M, Genonimo Velasco, PNOC, $123 M, Geronimo Velasco, Nobel Phil.,$14 M, Geronimo Velasco, Republic Glass, $2M, Herminio Disini, NPC, $795, Roberto Ongpin, NIDC, $795 M, Roberto Ongpin, NIDC, $157 M, Roman Cruz, PAL, $321 M, Conjuancos, PLDT, $654 M.(From data of NEPA and IBON data bank) 

[34] The Philippine Debt Crisis, published by the Freedom from Debt Coalition, March 1989, pp.25-26.

[35] The lowering of tariff rates for cabbages, lettuce, string beans, tomatoes, etc., that farmers in Northern Luzon produce in abundance, has bankrupted these farmers after the entry of the Philippines into GATT.

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