Ibon Urges Arroyo: Stop Foreign Debt Payments

This year's budget shortfall -- projected at P145 billion by yearend -- can be substantially trimmed if government defaults on the P130-billion debt interest payments slated for this year, says Ibon.

The Arroyo administration should stop foreign debt interest payments this year instead of looking for more foreign loans and new taxes to solve the budget deficit problem.

This was the unsolicited advice of Ibon Foundation to President Gloria Macapagal-Arroyo, who marked her first month in office early this week. The huge budget gap is seen as one of the biggest threat to the country's economic recovery.

Ibon, an independent socioeconomic research and policy institution, pointed out that this year's budget shortfall -- projected at P145 billion by yearend -- can be substantially trimmed if government defaults on the P130-billion debt interest payments slated for this year.

However, Ibon noted that with the current government's adoption of  last year's General Appropriations Act (GAA), Malacañang is expected to continue fulfilling its foreign debt interest  commitments.

But this can be prevented if Arroyo shores up "enough political will" to instruct the next Congress to strike out the expensive item, Ibon said. Congress will reconvene in July to draft a new GAA for the second half of the year.

Debt interest payments corner a huge chunk of the national budget. As in last year's budget, the amount allotted for debt interest payments account for 20% of this year's national budget.

"By continuing to pay foreign debt interest at P130 billion, the government will be shelling out an amount to foreign creditors that is three times bigger than the combined allotment for education, health and agriculture this year," said Ibon research director Antonio Tujan.

"If the Mexican government was able to do it in the late 1990s when they experienced a financial crash, then maybe the pragmatic economist in Mrs. Arroyo can also stand up to our creditors and do the same," argued Tujan. "Besides, IBON's proposal does not include defaulting on principal debt amortization - which was what Mexico did!"

The P130 billion still does not include principal debt amortization, which has been taken out of the annual budget deliberations since 1995.

"So, although it would appear that debt service budget had been on a downward trend, it should be noted that since 1995, payment for principal debt has been excluded in the GAA items," added Tujan.

As of June last year, the country's foreign debt stood at US$53.2 billion. This means each Filipino owes foreign creditors almost P35,000.

Various peoples' organizations like the party list group Bayan Muna  are asking the Arroyo regime to repeal the automatic appropriation scheme for debt service. Instead, the funds should be rechanneled for basic services. #