Freedom from Debt Coalition

Press Statement
April 17, 2020

Disastrous Rigidity

With the world reeling from the impacts of the Covid-19 pandemic, it has become increasingly clear that the assumption that the crisis can be dealt with using the usual set of orthodox tools is exceedingly flawed. Recognizing the extraordinary nature of the global crisis, even the World Bank and the International Monetary Fund (IMF) who recently announced that they would cancel $215M debts owed to them by 25 countries that were facing a “moderate or high risk of debt distress” —for countries with a GDP per person that is below $1,145 a year. The measure, according to the IMF Board, was taken “to ensure that vulnerable countries are free to direct all public revenues at their disposal to stop the spread of these diseases and mitigate the financial crisis”. Although, we in the Philippines, facing similar scale of the economic crisis as a developing country, implores the IMF to go much further. “The IMF is sitting on $27 billion of reserves and over $135 billion of gold. It can afford to cancel more debt, and now is the time to do it. We need the cancellation of payments to be extended to a much bigger group of developing countries and be for the next full year. Beyond the IMF, debt cancellation needs to cover payments to all creditors, including the private sector, alongside the commencement of a process to work out how to bring debts down to a sustainable level once the crisis is over”, quoting Jubilee Debt Campaign Director Sarah Jayne-Clifton.

Regrettably, while even the recognized guardians of fiscal orthodoxy have demonstrated an openness to employ extraordinary measures to address the Covid-19 crisis, the Duterte government’s economic team has taken a stance that is more “popish than the Pope.”. A previous proposal for a debt moratorium from perhaps the unlikeliest of sources, Sen. Imee Marcos, whose father had saddled the country with massive debt due to pervasive corruption during his presidency from 1965 to 1986, was flatly rejected by Finance Secretary Carlos Dominguez. Even the former head of our National Economic Development Authority, Ernesto Pernia, recently resigned over “differences in development philosophy;” leading Duterte to appoint DOF Usec Karl Chua as acting secretary. Karl Chua has promoted many anti-poor measures such as TRAIN and TRABAHO as regressive tax policies. This outright rejection of proposals to consider a debt cancellation– or even a simple moratorium–,and the obvious disagreements within the Cabinet exposes a rigidity that, while imprudent under normal circumstances, could prove disastrous in times of crisis. Their neo-liberal economic approach already failed to address pre-Covid economic woes of the Philippine society, and now in a pandemic state, are bound to continue such imprudish rigidity.

Sadly the same rigidity and failure to grasp the real world consequences of uncaring government policies is evident in the heavy-handedness with which the government has rolled out its pandemic response. After initially downplaying the gravity of the unfolding health emergency, the government’s subsequent resort to extreme measures to contain the spread of the virus caused severe disruption and widespread economic dislocation especially for society’s most vulnerable sectors. The threat of Martial Law, declared by President Duterte in his recent admission as his only option to tighten enforcement of the Enhanced Community Quarantine, proves his utmost rigidity and blindedness on rights-based economic options in addressing a Public Health Crisis with an iron fist approach.

In the early days of the Enhanced Community Quarantine imposed in Metro Manila and Luzon, border restrictions resulted in broken supply chains which saw the harvests of vegetable farmers in Benguet rotting away even as huge sections of the country’s capital were forced to subsist on canned sardines and cheap instant noodles.

The foot-dragging on calls for mass testing for Covid-19, a proposal endorsed by health experts and institutions like the World Health (WHO), the World Bank and supported by the broad population, unduly set back prospects for slowly easing off restrictions which are economically painful for all but especially the vulnerable and marginalized.

The desperate poor who were left with no choice but to brave not just the virus but the enforcers of the so-called lockdown are branded as “pasaway” and subjected to numerous humiliations if not outright violence. The 19 vegetable vendors who were forced to take their chances selling their goods along Quezon City’s iconic Elliptical Road for fear of going hungry, were not given aid, but jail time.

While the main focus of government’s immediate efforts is understandably to contain the spread of the virus by minimizing the movement of people, without a comprehensive program in place to address the urgent economic and social needs of citizens, particularly the poor, this is doomed to fail. The incredibly high 108,088 number of lockdown-related violations recorded by the Philippine National Police (PNP) in just 27 days attests to this.

It is now abundantly clear that a lockdown will not work if it is not accompanied by a comprehensive program of social protection for the many. Social protection means insurance against hunger, homelessness, illness and non-enjoyment of basic necessities in life. These are common concerns which do not go away, lock down or no lockdown. Unless this government finds a speedy way of delivering its promise of support to the people, the struggling poor will continue to find ways to survive on their own.

To do this on the scale necessary, of course requires considerable resources, partially addressed, at least on paper, by the passage of Republic Act 11469 or the Bayanihan to Heal as One Act authorizing Pres. Duterte to re-allocate, realign, or re-program P275 billion from the 2020 national budget in order to fight Covid-19. But given the extent and projected duration of the pandemic’s impact, this will not nearly be enough.

Debt as a First Recourse

After declaring on March 30 that there was no need for the people to fear because he had the money to fight Covid-19, the President did a complete about-face exactly a week later, saying, “There’s not enough money to go around.” The gap between the claims by the Duterte administration’s economic managers regarding the state of the country’s fiscal health, and the current scramble to scrounge up funds for addressing Covid impacts is immediately apparent. Thus, the government’s argument that the soundness of our fiscal position, anchored on the economic team’s favorite mantra of “low debt-to-GDP ratio”, gives us the flexibility to take on more debt rings hollow.

The problem, which has apparently dawned on Duterte is that having a budget does not automatically translate to having the funds available. The P275 billion the President is theoretically allowed to re-cast from the national budget is not cash in the pocket since the 2020 General Appropriations Act (GAA) itself is, both literally and figuratively, not “money in the bank”.

For one, even prior to the crisis the budget deficit was already on an uptick. The previous year’s deficit, at 3.6% was higher than the government target of 3.2%. For the first two months of 2020, the budget deficit was already at P14.6 billion according to the Bureau of Treasury. With the economy expected to post zero growth, if not contracting by 0.8 percent this year, the budget deficit could balloon to 5.3 percent of gross domestic product (GDP)—way past the 3.2 percent of GDP programmed for this year.
In addition, with Covid-19 resulting in weak trade and slower domestic demand, tax revenues are expected to take a major hit—as much as P91 billion according to Finance Sec. Dominguez.

Not surprisingly, the current administration has once again instinctively turned to borrowing to augment the emergency funding to counter the pandemic impacts. Apart from a much-needed infusion from the Bangko Sentral ng Pilipinas, it appears a major chunk of the budget for Duterte’s “4 Pillar Strategy“ will come from the World Bank, ADB and various other multilateral and bilateral IFI sources. In fact, as early as mid-March, Dominguez announced that they would be borrowing around $1 billion to fight the pandemic. Unless this decision to resort to further borrowing is reversed, the country will see a sharp rise in national debt that will burden the people and handicap future recovery efforts.

The Freedom from Debt Coalition forward these imperatives for the national government to heed not only in this urgent times, but more so for the medium and long term solutions:

1) CANCEL ALL EXTERNAL DEBT PAYMENTS DUE IN 2020. Every year, we allot a substantial amount for debt service payments as a result of the Automatic Appropriations Law. The total foreign debt service for 2020, including principal, interest and other charges is US$5.2 billion or PhP263 billion. Cancelling external debt payments is the quickest way to free up much-needed resources which can then be used to bolster efforts to tackle the health, social and economic crises spawned by the Covid-19 pandemic. Resources thus generated can be channeled to social amelioration which can be expanded to reach more vulnerable people. Further, FDC reiterates its call to repeal the Automatic Appropriations Law, to allow for a just and imperative responses in global pandemics, such as this, to free the chains brought by lockdown on fiscal policies.

2) PRIORITIZE DOMESTIC SOURCING for COVID-19 RESPONSE BUDGET instead of contracting new loans to fund pandemic response efforts. We reject the oft-repeated statement that the Philippines’ low debt-to-GDP ratio gives it more flexibility to take on more debts. In addition to the above-mentioned proposal, re-casting the national budget to address the current crisis, canceling illegitimate loan contracts and onerous privatization deals such as the National Grid Corporation of the Philippines (NGCP) contract which resulted in billions of foregone revenue annually.

3) REALLOCATE THE BUDGET FOR CANCELLED ONEROUS CONTRACTS (the budget for all payments) to the provision for Food and Essential Services for our poorest communities, and for minimum wage earners impacted by the No Work-No Pay policy.

4) RE-DRAW THE BUDGET TO REFLECT CURRENT REALITIES and PRIORITIES, recognizing that the Covid-19 pandemic has upended all plans for the current year and beyond. A substantial chunk of the current GAA allocations are no longer reflective of current needs both national and local and need to be re-appropriated for crisis response such as building-up our public healthcare system, shoring up the economy and expansion of social protection measures. Re-casting the budget, however, must go beyond allocating for immediate Covid-19 response efforts and promote strategic re-investment in critical sectors such as public health services and domestic food production (pump-priming with needed funds for the Agriculture and Industry sectors) which have played roles in the current crisis. Agriculture investment should emphasize strengthening local production and self-sufficiency as a bulwark against external supply shocks. Re-building public health infrastructure must prioritize community-based primary health care and promote free medical care for all.

4) SUSPEND IMPLEMENTATION OF REGRESSIVE TAX LAWS such as the Value Added Tax and TRAIN in order to bring down the prices of goods and services to provide relief for the people. This is especially crucial at a time when DOLE reported as many as 1.2 million Filipinos are expected to lose their jobs.

5) RE-INVEST IN DOMESTIC FOOD PRODUCTION OF KEY STAPLES. The fragility of global food supply chains was again brought to the fore by the crisis which created bottlenecks in the movement of commodities. The current crisis should prompt re-thinking for policymakers. Countries who become overly dependent on food imports run the constant risk of experiencing shortages if supplies are cut off at the source. A net-importer like the Philippines must reduce import-dependence by reversing flawed policies such as the Rice Tariffication Law which do not contribute to strengthening domestic capacity.

6) ESTABLISH STRICT OVERSIGHT ON THE USE OF PANDEMIC RESPONSE FUNDS to reduce leakages ensure that resources are properly utilized. Strategic economic and political decision-making should be broadened so that key decisions are subjected to democratic discussion and choice. Allowing citizens groups to participate in oversight mechanisms and democratizing decision-making on the allocation and distribution of funds would contribute to ensuring that the budget is responsive to the needs of the broader population.

7) FULFILL, RESPECT, PROTECT AND UPHOLD HUMAN RIGHTS, as cornerstone of Covid-19 response efforts.