Debt-for-Equity Scheme Will Legitimize Fraudulent Loans

House Speaker Jose de Venecia’s debt-for-equity scheme, if implemented, recognizes that all debts are legitimate, including those deemed as onerous.

By IBON Foundation
Posted by Bulatlat 

Despite all the hype speak, House er Jose de Venecia’s debt-for-equity scheme is not a solution to the country’s debt crisis but may in fact even worsen it, according to independent think-tank IBON Foundation.  

The plan does not call for debt forgiveness or cancellation, but will instead convert half of the debt-service receipts of multilateral lending institutions and multinational commercial banks such as the International Monetary  Fund (IMF) and the World Bank to “equity development and anti-poverty projects that poor countries are undertaking to meet their national Millennium Development Goals (MDG) goals over 2005-15.” 

Accepting this proposal recognizes that all debts are legitimate, including those deemed as onerous, says IBON. An example of onerous debts is those contracted by former President Ferdinand Marcos-- such as debts for the mothballed Bataan Nuclear Power Plant (BNPP), which Filipino taxpayers will have to pay almost $76,000 daily until 2007.  

According to IBON, debt cancellation of fraudulent loans incurred under Marcos, the Bataan Nuclear Power Plant (BNPP) debt in particular, is an option that government should seriously consider if it is looking for a doable solution to ease its debt 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. 

IBON adds that using the MDGs as an end-goal makes the debt-for-equity scheme a shrewd strategy to promote neoliberal globalization The MDGs, through the World Bank’s Poverty Reduction Strategy Papers (PRSPs), promote a package of neoliberal reform policies that developing countries must implement if they want to avail of concessional lending or poverty reduction assistance from the World Bank.  

These Papers may require developing countries to privatize state-run utilities or reduce spending on social services to pave the way for private sector participation, resulting in increased user fees and less access by the poor to vital services such as water provision and health. It would also open the door for further foreign corporate control over the ailing domestic economy. 

According to IBON, instead of pursuing the debt-for-equity-scheme, implementing a sound debt management plan that would include cancellation of odious and illegitimate debts and stopping automatic appropriations for debt service is a more logical step in solving the debt crisis. IBON / Posted by Bulatlat

Sept. 14, 2005

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