The DoF’s ‘Foolish-ima’

DIE HARD III
Herman Tiu Laurel
09/13/2010



As always, great horn-blowing accompanies the latest multi-billion peso borrowing announced by PeNoy Aquino’s Finance chief. Cesar Purisima clearly hopes this will drown out objective and critical analysis of the P44.1 billion in new loans added to the already enormous P4.6-trillion national government debt stock and our total debt of about P7 trillion. One headline even quotes the Hyatt 10 balik-secretary describing the oversubscribed issue as a “landslide vote of confidence,” the “first peso-denominated bond outside the country,” a “milestone,” and “the first time an Asian country conducted a float using its own currency.”

By real honest standards, however, forensic financial analyst Hero Vaswani of the Kilusang Makabansang Ekonomiya explains that there is nothing really great about it. If anything, that huge borrowing is merely evidence that the Philippine economy is unable to generate revenues, and that the government still has to borrow to finance its operations, despite claims of a 7.9-percent GDP growth.

A debt is a debt. Yet Purisima says the peso bond issuance “is the latest development in the (country’s) financing program in support of the government’s proactive management of external liabilities, particularly with respect to reducing its vulnerability to foreign currency risks.”

But isn’t it really just the foreign financial syndicates’ way of avoiding the volatility of the US dollar by tying up a debtor country to an exchange rate for the bond? So far, only the weak and unstable countries, such as Colombia in South America, have become suckers to this scheme of issuing local currency bonds.

National Treasurer Roberto Tan even supported the new peso bond debt, saying it would “enhance the government’s debt investor profile,” despite past examples of investor profiles given to countries such as Greece that have shown the scoring by the financial ratings agencies to be really meaningless.

Even as Purisima boasts that the peso bond issuance was oversubscribed 13 times, we ask: Isn’t this oversubscription just a symptom of the hard times in the western economies? The US is facing an on-going “low intensity depression” and its policymakers have already pumped trillions of dollars into the system, leading to desperation on where to park the overflowing financial assets.

Further, Vaswani explains that the US is lending at practically zero interest; which is why so-called “investors” have started to use this to buy Third World debt earning upwards of 5 percent. This reminds me of the “petrodollars” 40 years ago when US dollars overflowed after the Organization of Petroleum Exporting Countries required oil to be traded only in that currency, as the Middle East crises (of created wars and oil embargoes) exploded oil prices from $15/bbl to almost $90/bbl (adjusted to 2008 dollar values). Trillions of US dollars then had to be recycled by finagling or forcing Third World countries to swallow a lot of un-payable loans.

Purisima is simply doing what all his predecessors have done: Increasing our debt; failing to raise revenues for government; and relying on new debts to finance the growing national budget with its increasing annual deficit-spending. The two months under the PeNoy administration has not brought about new ideas for generating greater revenues without imposing new taxes and other pains onto the public. Hence, the imbroglio over the value-added tax (VAT) on tollways, the raising of MRT fares, and now, the removal of the senior citizens’ VAT exemptions, which came out in the news just last Sept. 9.

Where then is the much-vaunted “anti-corruption dividend,” where savings from cleaning up waste from graft and corruption are supposed to make up for the deficits and fulfill the “no new taxes” pledge from PeNoy’s election campaign?

The plain truth is, the Philippines will never be able to break loose from the tightening strangle of the “debt trap” because every administration since the February 1986 elite counter-revolution (with the sole exception of Erap Estrada) had all been against the national economic development paradigm of Ferdinand Marcos.

After Cory Aquino took over, state revenues and the people’s wealth — as directed by the US State Department and Makati Business Club — were aggressively transferred to the oligarchy through trade liberalization (jumpstarted by Cory and Bobby Tañada’s removal of 3,000 items from tariff protection); privatization and deregulation of strategic industries and public utilities (Meralco, Petron, Napocor, etc.); and reversal of progressive income taxation through the institution of the regressive VAT system.

It went on through Fidel Ramos and peaked under Gloria Arroyo, where Big Business raked in P3 trillion in profits in just nine years!

To stop this bloodletting, the people must wrest power away from the oligarchy and put a genuinely democratic leadership in place. Unless PeNoy undergoes a miraculous transformation and becomes truly Pinoy — no longer for and of the US and the Makati Business Club — Filipinos will have to continue their search for genuine nationalist and patriotic leadership. It could be still by elections, if we can stop the future use of those Hocus-PCOS machines, or it can well be by other means, which may prove feasible when the time comes.

In the meantime, let’s continue to expose what the current Finance secretary is really doing in contracting all these new debts — whether in peso, dollar, euro, or yen. Debts in any currency are just the same old financial foolishness. Right, Mr. Foolish-ima?

(Tune in to Sulo ng Pilipino, Monday, Wednesday, and Friday, 6 p.m. to 7 p.m. on 1098AM; watch Politics (and Economics) Today, Tuesday, 8 p.m. to 9 p.m., with replay at 11 p.m. on Global News Network, Destiny Cable Channel 21; visit our blogs, http://newkatipunero.blogspot.com and http:hermantiulaurel.blogspot.com)