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).
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.
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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