There is something seriously warped and intriguing when the first news of the year involves a perpetuation of one of our oldest curses. Not yet a full week into the year that took forever to come since Gloria Arroyo seized the presidency and then declared a fiscal crisis in 2004; and even longer from the time she escalated the value added tax to allow aggressive state spending, her finance managers have very quickly sunk us into an incremental US$ 1.5 billion in newly-minted debt.
At this dispensation’s deathbed, over a billion in Euro Bonds are to follow. And after that, Japanese private placements.
Conceivably 2010 is the last chapter in Arroyo’s incumbency despite immortal debilitating debts. 2010 was also yearned to be the long-coming endgame to one of the most painful episodes in our economy. Technically Arroyo has less than six months before that dawn many wish would come quicker than the creeping pace constitutionality insists we endure.
Never mind that we blindside ourselves to a looming Armageddon in a remote congressional district familiar to those dopey on dangerous drugs and dependent on numbers games. Never mind that the elections may not be the last syllable in this political curse. And never mind the ominous apocalypse for institutions once revered but now only reminisced in memoriam.
Political volatility intensifies risks and, consequently, the cost of borrowings, compelling debt renegotiations posthaste before uncertainty escalates. Unfortunately, Arroyo’s policy of unbridled indebtedness is quickly demanding retributions. Already the national debt rockets beyond Php 4.23 trillion.
Last December 23, 2009 over Php 1.3 billion in bonds with rates as high as 14.9% matured. Between February 3 and March 2, 2010, over Php 2.5 billion are scheduled for redemption with rates ballooning from 14.62% to 14.75%. These bonds, in the high fourteens, will continue to mature until September 2010. Outstanding Arroyo-issued ten-year bonds are scheduled for maturity from December 2010 to January 2011 through October 2011. These bear the highest rates for 10-year indebtedness ranging from 16.5% to over 17.5%.
Seriously alarmed following official declarations of more aggressive borrowings as Arroyo sings her swan song, Legarda noted “recent surveys indicate more Filipinos rated themselves poor and hungry than ever before, indicating that government claims of success in fighting poverty are grossly exaggerated”. More than the exaggerations and hyperbole, the hunger statistics no0w count four million against prospects where taxes are exponentially increased, greater bureaucratic fees are levied and humongous debt is resorted to by a government claiming dubious successes in poverty alleviation.
Legarda asks, “With annual tax collection always falling far short of required expenditures, the government resorts to borrowings from abroad to make ends meet. But who really benefits from the borrowing spree?”
Legarda’s question is profoundly pointed. The answers virtually present themselves. Laws demand a respite from initiating public works projects within a campaign period. If infrastructure spending is effectively on hold, who benefits from Arroyo’s unmitigating borrowing spree and this vicious recycling of indebtedness?
With the incremental billions in freshly minted debt and less than a year to go in a period characterized by desperate political spending to boost the fledgling candidacies of single-digit-rated bets, the answers seem obvious.
The desperation for incremental funding is proverbial and familiar. In 2004, Arroyo demanded both votes and funds be generated by her cabinet. 2010 is far more critical as the fiscal situation has deteriorated and the public’s yearning for democratic normalcy and criminal accountability denies the perpetuation of the lying, stealing and cheating governance model nurtured by excessive debt and taxes.
Legarda’s focus on who benefits from borrowing sprees belies the reality of risks, rates and returns, and the high price paid for unproductive indebtedness.
Demand for Philippine papers is a function of returns and risks. Desperation increases risks. Higher risks demand higher rates, and higher rates mean higher returns for debt paper purchasers. Junk bond rates attract funders depending on earnings options prevalent in markets purchasing these papers. Given global deleveraging and the low rate regime in the United States and Europe occasioned by their stimulus programs, the relatively high-coupon debt offered by the Philippines turns temptingly attractive.
The foregoing is academic. One beneficiary of high cost debt is the bond holder at maturity. But on the flip side of Legarda’s query the question of victims who pay with blood for Arroyo’s borrowing spree compels a riposte.
Stand before a mirror and reflect. The answer should no longer surprise us.
Popularity: 1% [?]
When one borrows at credit card rates to fund construction of the home, one is likely to live there but a short time before the bank seizes the property.
Maybe the Japanese will take over the government, eh? Rather like the US now owns a big chunk of GM. My, what irony . . .
Joe
I straddle between two countries, two economies, dividing the year between the two. Now debt-wise, both appear to be headed in the same direction with both governments’ expenditures shooting through the roof. Yet real estate prices here are still sky-high, actually continuing to register increases, while those in the US continue to drop. In our tract development in California alone, we have already registered a 50% decrease in value from less than 3 years ago.
eni-mini mini-mo (sp)?
Amadeo,
The US is economic cycles, the Philippines is a slow freight to disaster. US stocks dropped by half, and have come back to nearly double, a wash soon. Homes are just slower paced assets in the US, and will come back in 5 years or so . . . No need to worry; it is now a buyer’s market, I might add . . .
Straddle well . . .
Joe
To borrow until, it is up to your neck is iresponsibility. Soon a
thousand pesos will become the now ten cents value.
Philippine is one of the poorest country of the world. Look at the
people living around the garbage dumps.
Since we are gtalking about borrowing allow me to posts this comments:
According to a comment from J_ag from one of Dean’s blogs
J_AG
October 16, 2009 at 6:51 am
The national debt is but a portion of the public sector debt. Not included in that amount are the debts of NAPOCOR, NFA, BSP, LGU’s other GOCC’s, contingent debts of the private sector foreign obligations, SSS, GSIS, and the sovereign guarantees attached to multilateral funding to the private sector privatization.
Copy pasted from an article from the tribune circa May, 2007.
It is about the GIR being borrowed money,instead of being real reserves.
Total foreign debt is closer to $60 billion + as the BSP does not count as foreign debt the dollar placements that are owned by resident investors. However, the debt is in a foreign currency and we do not have the permission of the US to print US currency.” What is beyond dispute is that we have an overall debt level that even the BSP agrees is over double what the GIR holds. Now we will raise the next question that will expose the deception of the BSP’s claim that the GIR is real reserves not based on borrowed money………
……..To sum up, the GIR is borrowed money used to spruce up the books and confuse and dumb down the Filipino people about the real economic fundamentals; interest payment to maintain the GIR profits only the IMF and penalizes our whole country with perpetual and growing debt.
Bottom line is we borrow so we could pay our debts Napocor,Psalm and the rest (especially the bSP)does this and this will go on perpetually,unless something is done.
the last sentence was mine and not from the excerpt I copied.
what is GIR?
gross international reserves
Dean,
How come when I read the president’s budget message, the figures for debt servicing don’t add up.
in the last yeear’s budget message of the president.
Consistent with our battle cry, “Labanan ang Kahirapan,” the social services sector corners the biggest share of the budget pie with 30.7 percent, or P434.0 billion; followed by economic services with 25.5 percent, P361.4 billion; debt burden with 21.4 percent, P302.6 billion; general public services with 16.9 percent, P239.6 billion; defense with 4.6 percent, P65.2 billion; and net lending with 0.9 percent, P12.2 billion.
Debt service’s 21.4 percent share in the national budget next year shows a conspicuous continuous decline from 31.6 percent in 2005 and 23.2 percent in 2007, in accordance with our deficit reduction strategy. This means more resources can now be used for essential spending on investments on our human and capital resources.
looking at the 2009 budget- it does not amount to 302.6 billion
378,866,000,000 for principal ammortization
252,550,000,000 for interest payments
pinaplabas na naman na bumaba ang debt servicing sa budget message this year.
.. Consistent with the government’s thrust to achieve the Millennium Development Goals (MDGs) and alleviate poverty, the social services sector will get the biggest share of the 2010 budget with 31.1 percent or P479.9 billion. It is followed by economic services, 23.1 percent (P356.5 billion); debt service, 22.1 percent (P340.8 billion); general services, 17.9 percent (P275.2 billion); and defense, 4.8 percent (P73.6 billion).
Hi Karl,
The process of rolling over maturing debt, borrowing through bonds which the government guarantees but also eventually purchases, debt coursed through swaps, contracts and “insurance” policies have a way of distorting figures.
i used data from the BSP website which I think is understated because the repayment route does not always pass through their system.
Dean
Sometime its intrusive to perceive, to what in the hell is our government doing to us. Our economic system(s) are put into shamble. Higher archy are getting funded by the wealth that they collect from the people. It may be that wary beasts of the forest come around to accepting the hunter’s trap as a necessary concomitant of foraging for food. At any rate, the presumably rational human animal has become so inured to political interventions that he cannot think of the making of a living without them; in all his economic calculations his first consideration is, what is the law in the matter? Or, more likely, how can I make use of the law to improve my lot in life? This may be described as a conditioned reflex. It hardly occurs to us that we might do better operating under our own steam, within the limits put upon us by nature, and without political restraints, controls, or subventions. It never enters our minds that these interventionary measures are placed in our path, like the trap, for purposes diametrically opposed to our search for a better living. We automatically accept them as necessary to that purpose.
p.s.
I thank you. President Gloria M. Arroyo, and your economic staff, for putting Philippines into a rotten state were in. I was putting my wholesome trust in you, and you screwed me, and the rest of all the Filipinos with this economic burden. 2004 was not far off then, 2010 is around the corner and you have not lifted one poor soul out their desperation.
Pinoy-in-Pinas, if you even think for just one moment, yes I am voting for her. Your mind is diluted
Ooops!
“Higher Archy …” (WTF)
correction: “Hierarchies“
Dear Mario,
You were right the first time.
Dean
Thanks Dean,
I was completely discombobulated.
Dean,
Did you happen to know Prof. Chang?
Dear Primer,
No. I’m afraid not. In writing the piece, I just juxtaposed Legarda’s quote on BSP data.
Dean