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Volume 2, Number 16              May 26 - June 1,  2002                     Quezon City, Philippines

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Top Arroyo Official Says RP Could Be Next Argentina

Filipinos now owe P2.38 trillion in foreign and domestic debt


By Artemio A. Dumlao


BAGUIO CITY – A top official of the Arroyo administration this weekend warned that the Philippines could be the next Argentina if the ballooning government budget deficit is not  significantly reduced soon.

Guillermo Carague, chair of the Commission on Audit (CoA), also revealed that Filipinos now owe nearly three trillion pesos in foreign and domestic debt.

Speaking at the opening ceremonies of the 2002 Luzon and Manila Regional Conference of the Philippine Institute of Certified Public Accountants (PICPA) on Friday at the Baguio Country Club (BCC), Carague warned that “this situation should not be allowed to continue, otherwise we might one day wake up and find (ourselves) in a similar situation as that of Argentina.”

The CoA chair said that the total outstanding debt of the Philippine government has soared to P2.380 trillion since 1998.

"What is alarming is, foreign debt component has grown to almost 50 percent of the total debt, meaning a larger outflow of foreign exchange," Carague said.

Carague, former secretary of the Department of Budget Management (DBM), further revealed that as of 2001, foreign debt pegged at P1.135 trillion, while domestic debt registered at P1.245 trillion, totaling P2.380 trillion, compared to P1.427 trillion total debt in 1998.

‘More belt tightening in gov’t’

"Obviously, therefore, we have to start cutting down on government expenditures… we have to start living within our means," Carague said.

Starting in 1998, the COA chief said, the deficit in government’s fiscal operations has swelled because revenues have not kept pace with expenditures. In turn, this resulted in bigger borrowings, putting the government even deeper in debt, Carague said.

Budgetary surplus deficit rose to P136 billion, compared to only P49.981 billion in 1998, or an increase by P86 billion in three years (up to 2001).

The CoA chair also said that revenues have been growing at an average of 10 percent annually since 1993 (P260.4 billion), and swelled to P563.73 billion in 2001, growing at 12 percent. He warned, however, that more borrowings will further exacerbate the deficit because of more interest payments.

He suggested that realigning a number of government expenditure programs is the challenge to the country’s financial and economic managers. "The key lies in selecting programs with greatest economic multiplier effects," he said.

He revealed that, years back then while still in the National Economic Development Authority-  Investment Coordinating Committee (NEDA-ICC), Carague had objected to the government guarantee to the BOT (build-operate-transfer) scheme for the San Roque and Casecnan dam projects in Luzon.  It was overruled.

"Today, of course, we know that those projects are part of the high cost of electricity that we are now paying for," Carague said.

"Every year we have been paying the equivalent of about a billion pesos in commitment fees for foreign assisted projects,” he said. “This is a penalty for not utilizing the loans that we have contracted with foreign creditors. In effect, we are paying interest on money we have not yet borrowed."

Carague also reported that:

1.      Debt Service-Principal amortization, which is not included in the calculation of the government’s surplus deficit, is also quite large, having grown from P13 billion in 1986 to P86 billion in 2000;

2.      The larger portion of interest payments is for domestic debt (66%) increasing from P56.18 billion in 1986 to P93.57 billion in 2000. He explained that the currency crisis in 1997 triggered a shift in government borrowings to the local market;

  1. Public borrowings soared in 1998 from a total of P111.3 billion to P174.9 billion.


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