PHILIPPINES: PALACE URGED TO STOP PRACTICE OF OVERALLOCATING FUNDS FOR DEBT SERVICE

Senate Minority Leader Aquilino Q. Pimentel, Jr.
(PDP-Laban) today questioned the practice of the
executive branch to overallocate funds for debt
service payments in the yearly national budget that
further diminishes public spending for productive and
essential programs.

Pimentel cited a study by the Freedom from Debt
Coalition (FDC) which reveals an average difference of
P12.15 billion between programmed and actual interest
payment expenses from 2002 to 2007.

According to the FDC study, P204.62 billion was
earmarked for interest payments in 2002 but actual
payment reached only P185.861.

The same trend for debt service payments was shown in
subsequent years: P271.53 billion earmarked in 2004
against actual payments of P260.9 billion; P301.69
billion in 2005 against actual payment of P299.8
billion and P339.99 billion in 2006 against actual
payment or P310.1 billion.

Pimentel noted that for fiscal year 2006, the excess
in programmed interest payment expenses reached as
high as P28.9 billion.

This year, the government has originally set aside
P318.18 billion for interest payment but budget
authorities have scaled down the amount to P303.3
billion due to the peso appreciation.

Pimentel said the government should exercise restraint
in appropriating funds for debt service so as not
sacrifice economic and social services which are
always short of funding support.

For fiscal year 2008; he noted that the government has
projected debt service-interest payments at P295.75
billion, of which P109.1 billion will go to foreign
lenders and P186.7 billion to domestic lenders.

However, Pimentel said the amount allotted for
interest payment this year has been found to be
bloated because it was computed on the basis of a P53
to the US dollar exchange rate while the current
exchange rate is below P42 to the dollar.

The FDC has estimated that actual interest payment
will decline by as much as P18.85 billion next year if
a more realistic exchange rate will be adopted.

At the same time, Pimentel urged Congress to muster
its political will to repeal the moribund martial law
decree on automatic appropriation for debt payments to
remove legal doubts whenever the legislature decides
to reduce the debt service allocation in the annual
budget.

Pimentel issued the challenge in the face of a warning
from Malacañang that the P17.8 billion slash in the
P295.75 billion allocation for interest payments made
by the House of Representatives would result in
“illegal” increase in the 2008 national budget
submitted by the executive branch. The Senate has
scaled down the cut to only P5.7 billion.

He debunked the Palace’s argument that the country’s
credit-worthiness will be shattered if the automatic
appropriation law for debt payments, as embodied in
Presidential Decree 1177 issued by the late President
Ferdinand Marcos, will be rescinded.

“Mr. Marcos is long gone. And yet, we continue to
adhere to this kind of an imposition on the theory
that we cannot borrow anymore if we do away with the
law on automatic repayment of our debt,” he said.

“That is not necessarily correct. The capacity of the
country to pay is the primary consideration why
lenders would extend to us loans that we need, and we
have to justify the loans from time to time,” Pimentel
said.