Bulatlat - The Philippines's alternative weekly newsmagazine

This story was taken from Bulatlat, the Philippines's alternative weekly newsmagazine (www.bulatlat.com, www.bulatlat.net, www.bulatlat.org).
Vol. V, No. 29, August 28-September 3, 2005

19 years after dictator's ouster

BNPP and Fraudulent Marcos Loans Still Put Pressure on National Budget

The BNPP is the strongest argument against President Gloria Arroyo's recent declaration that the government will pay off all the debts of the late strongman Ferdinand Marcos inspite of the fiscal crisis and declining government spending for social services.

By Arnold Padilla and Joseph Yu

IBON Features

Posted by Bulatlat

IBON Features— Of the P931 million daily that the Arroyo administration wants to allocate for servicing interest payments in its 2006 budget proposal, IBON estimates that more than P4 million will be set aside for interest payments for the fraudulent Bataan Nuclear Power Plant (BNPP).

As debt servicing continues to drain the country of much-needed funds, calls have intensified to cancel odious debts and give government more flexibility to manage the country's limited resources.

"Odious" debts are broadly defined as those incurred by a despotic power not for the needs or interests of the state but to strengthen its despotic regime or to repress the population that fights against it. It also includes loans used for projects or programs that did not materialize or did not benefit the people as originally intended, as well as those made for the personal benefit of government officials and their cronies.

Under this definition, much of the foreign debt incurred under the regime of former president Ferdinand Marcos is clearly "odious" and illegitimate and should be cancelled. Among the last five administrations, Marcos amassed the largest foreign debt at more than $25 billion during his 20-year reign from 1966 to 1985. Many of these debts were not used for infrastructure projects or social programs to benefit the people, but ended up in Marcos's personal accounts. One estimate places the amount of the country's total borrowings that Marcos diverted at more than $8 billion or 33% of the country's borrowings during his term.

But even worse is that it is not Marcos or his cronies who are shouldering the cost of these debts, but the Filipino taxpayer. Based on figures from the Bureau of Treasury, the outstanding balance of Marcos' foreign debts, as of end-2003, stood at almost $1.2 billion or more than P67 billion (at an exchange rate of P1:$56). The country was projected in 2004 to pay more than $183 million to service the principal of the debt and another $45.3 million in interest and other charges.

The Single Largest Foreign Debt

Marcos was also responsible for the single largest foreign debt the country has ever contracted, the $2.3 billion-Bataan Nuclear Power Plant (BNPP). This lone project comprised 9% of the total foreign debt of the country when it was completed in 1984, and was awash in allegations of corruption.

Projected as the "best solution" to the global energy crisis in the 1970s resulting from the skyrocketing prices of imported oil products, government expected that the plant would produce 3.8 billion kilowatt-hours (KWh) of power annually. Government further projected that it would save $215.4 million per year in cost of importing oil for power generation.

With a generation capacity of 620 megawatts (MW), the BNPP was constructed on a 357-hectare government reservation at Napot Point in Morong, Bataan. The contract was awarded to US-based Westinghouse Corp. despite a much lower bid by General Electric which was favored by a technical committee.

Although its initial cost was estimated at only $500 million when the project started construction in 1975, by the time of its completion its pricetag had bloated to $2.3 billion allegedly due to payoffs by US-based Westinghouse to some government officials, including Herminio Disini, who had facilitated the project, and Marcos himself.

The Aquino administration, which came into power in 1986, eventually mothballed the plant for safety reasons, since the BNPP sits on a major earthquake faultline and near four volcanoes. Despite the patently onerous nature of many of Marcos's debts, Aquino still opted to honor the country's foreign debts, including those of the BNPP, to ensure the country's creditworthiness.

In July 2004, the Sandiganbayan (the country's anti-graft court) ordered the arrest of Disini for allegedly receiving $18 million in bribes from Westinghouse and Burns and Roe, an American engineering firm that prepared the specifications for one of BNPP's two nuclear reactors. The Office of the Ombudsman said Disini had "requested and received" $17 million from Westinghouse and $1 million from Burns and Roe.

Meanwhile, plans to convert the nuclear facility into a gas-fired plant faltered when it was shown that conversion of the plant using another type of fuel could cost more than $600 million, enough to finance an entirely new power plant.

Repaying Onerous Debts

In spite of the failure of the BNPP to generate even a kilowatt of electricity, and the corruption surrounding its construction, government continues to honor the obligation to pay its creditors. From 1986 to 2004, these creditors have been paid $1.8 billion for principal repayments alone, an amount that has been shouldered by Filipino taxpayers.

From 2005 to 2018 (when the loan is scheduled to close), government still has to pay $110.8 million in principal and interest payments for the BNPP loans. Of the outstanding balance, the US Export-Import Bank accounts for $55.4 million or half the total loan, while American Express accounts for 11% or $12.1 million. Other major creditors include the Union Bank of Switzerland, $8.4 million or 8%; Bank of Tokyo, $5.2 million or 5%; and Mitsui and Co., $1.5 million.

A significant portion of the outstanding loans have been converted to Brady Bonds, which are bonds issued for the restructuring of bank loans by public debtors and are secured with government bonds. Unlike debt papers, bonds cannot be renegotiated and debtor countries cannot put off payments on the principal. Out of the $110.8 million that the Philippines still has to settle with BNPP creditors, $28.2 million or 26% are in Brady bonds which are scheduled to be repaid by 2018.

But the remainder of the outstanding loans must be settled within three years starting 2005. This means that from 2005 to 2007, Filipino taxpayers will have to shell out almost $76,000 (some P4.25 million) daily to pay for the BNPP.

Making Creditors Accountable

The Arroyo administration, while acknowledging that the BNPP debts are onerous, lacks the political will to make the country's creditors accountable for debts that are patently odious. Former Budget secretary Emilia Boncodin has ruled out debt repudiation, saying it may not be a sound policy in the long term.

But debt cancellation of fraudulent loans incurred under Marcos, the BNPP debt in particular, is an option that government should seriously consider if it is looking for a doable solution to ease its debt and budget problems. The debt of the national government stood at almost P4.1 trillion as of February 2005, while debt servicing in 2004 reached P601.7 billion, more than half of national government expenditures.

More importantly, creditors should be held liable for profiteering from blatantly corrupt loans at the expense of the Filipino people. It is not believable that they were unaware that Marcos and his cronies were cashing in on the BNPP. As early as 1975, glaring disparities in the estimated cost of the BNPP had already surfaced. Despite Westinghouse's winning bid growing more than 300%, the US Eximbank still awarded Marcos $644.4 million in direct and guaranteed loans in 1976.

There are past legal precedents for the cancellation of onerous debt. In 1898, the US repudiated the debts of Cuba to Spain. The British House of Commons International Development Committee also released a decision in 1998 calling the bulk of Rwanda's external debt onerous and should not be shouldered by the people because they were used by that country's genocidal regime.

In the spirit of holding creditors to account, the remaining balance of the BNPP debt should be canceled, including the securitized Brady Bonds component which should now be their responsibility. But beyond this, creditors should also reimburse past debt payments made by government, which could be in the form of reduction in current outstanding balances with them.

But debt cancellation should not focus exclusively on the BNPP. A Marcos Debt Review Task Force should be established to reexamine all of Marcos's foreign debts to determine how much of the remaining balance and past payments are illegitimate debt, for the purpose of recommending their immediate and unconditional suspension. IBON Features / Bulatlat

August 2005

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