Addressing Debt-dependence for a Real People-centered Economic Development

‘Prioritize peoples’ needs over debt service’

“If Yahweh your God blesses you as He has promised, you will be creditors to many nations but debtors to none; you will rule over many nations, and be ruled by none.” Deuteronomy 15:6

Integration

We start in the belief that God is the origin of life, giver of freedom, and source of all things. Everything in this world belongs to Him (Deut 10:14; Gen 28:30). He entrusted us with His creation (these abundant natural resources), not to become passive beneficiaries but as Christian stewards. Our mission is to cultivate them responsibly, share them lovingly in justice with others, and return them with increase to the Lord (source: To be a Christian Steward: A Summary of the US Bishops Pastoral Letter on Stewardship).

As true followers and disciples of God and our Lord Jesus Christ, we take part in this mission. Stewardship is discipleship. In our mission as Christian stewards, we look into the life and teachings of Jesus for guidance.

Today, caring and cultivating the world involves – a joyful appreciation for the wonders of nature, the preservation and protection of the environment, respect for human life (with adequate standard of living; a life with dignity) and development of this world through noble human effort (physical labor, trades and professions, the arts and sciences).

By doing this, we do not just improve our world but the Kingdom of God, already present among us. Our mission as stewards is a partnership with God – our share in a divine human collaboration in creation. Stewardship occupies a central place in our live as Jesus’ disciples.

Objectives

1)      To deepen the understanding of participants of their roles as stewards of God’s creation.

2)      To encourage the participants to take an active role as Christian stewards as part of their true Discipleship of Christ.

3)      To facilitate the participants in practicing/realizing their faith towards a debt burden-free society when the people’s basic needs (essential/public services) are prioritized over debt service. The government should no long be dependent on debt to finance its economic and social programs.

Suggested (Group) Activity: The Budget Exercise

Scenario A:           Using P25,000 as a monthly income of a family of 5 (with 3 children), try budgeting allocations for basic needs such as – food & toiletries (grocery), monthly bills (power, water, telephone/cellphone bills), transportation, education (allowance/baon), house rent, health and recreation/savings.

Scenario B:            Same condition/requirements apply as in Scenario A but deduct 40% to pay for the family’s debt.

Guide Questions:

1. What was your group’s experience and feelings when you did the budget exercise for Scenario A and B?
2. What difficulties did you encounter if there’s any?
3. How the family’s debt affected the budget allocation for the other expenses?

Deepening

Situationer

Debt service first before peoples’ basic needs. Coming from the Freedom of Debt Coalition (FDC), partner of the Faith-based Congress Against Immoral Debts (FCAID), one thing that we have in mind, year in year out, is that 30% of the national government budget automatically goes to interest payments of foreign and domestic debts while principal payment, an off-budget item, is also paid.  Summing it all up, a total of 40% of government funds and revenues go to debt service.

So, with the approved P1.816 Trillion 2012 National Government budget, only 60% of that, around P785 Billion, shall be left for other government expenses—operational, social services and infrastructures.

Section 26(B), Book VI of the 1987 Revised Administrative Code as instituted by Executive Order (EO) 292 says that: All expenditures for…(b) principal and interest on public debt,…are automatically appropriated.

It was during the Martial Law in the Philippines that automatic appropriation for debt service was first codified, in Section 31(B) of Presidential Decree 1177 (Budget Reform Decree of 1977[1]). In consonance with her “honor-all-debts” policy, Cory Aquino signed into law the Administrative Code of 1987, copying en toto Section 31(B) of PD1177 into Section 26(B) of the code. Section 31(B) of PD1177 also serves as its legal basis.

Automatic appropriation for debt, on top of other automatic appropriations, severely compromises the Congressional “power of the purse“ since only a little amount of the budget is left for Congressional reallocation as Congress cannot increase the budgetary ceiling (Article VI, Section 25-1 of the 1987 Constitution, as affirmed by Sec. 24, Book VI of EO292). The level of borrowings too, is effectively set by the amount of principal amortization to debts which are to be “rolled over”, since they are not part of the budget but instead deducted to new “financing” of the government.

To this date, the Philippines is the only country that has an Automatic Appropriation on Debt Service in place.

Debt Payments and Under-spending. One obvious impact of prioritizing debt service over essential services (economic and social services needed by the people) is the government’s under-spending for the improvement and the delivery of these services to the people.  

Almost all throughout post-EDSA era, 1986-1995 and 1999-2012, total debt service exceeded spending for both economic services and social services. Supposed additional funds for economic services to spur growth and for investment in the country’s human capital in the form of social services are instead used for debt payment, some of which for questionable loans.

Debt service for interest payments alone for 1986-2012 and for 2001-2012 averaged around 23.47% and 22.04%, respectively, of the total national government (NG) budget. Compare this to the meager education-to-NG budget average of 15.03% and 2.52%, and health-to-NG budget average of 2.52% and 1.88% for the same time spans.

Debt Dependence and Illegitimate Debts. What brought about our dependence on borrowings and debt was our failure to think as a nation. Our national thinking is that as an economy and as a society, we cannot grow, develop and prosper without relying on external or foreign help–foreign capital, foreign loans, foreign grants, foreign technology and even foreign ideas.  This is a colonial legacy—300 years of Spanish rule, followed by almost 50 years of direct American colonial rule, then a brief period of Japanese occupation, and  then the return of the Americans who sponsored a kind of flag independence which is called neo-colonial.  Meaning, the government is in Filipino hands, but the economy and foreign policy remains under the heavy clout of the United States. Post-colonial studies have affirmed this and have shown that colonial mentality has not left societies like the Philippines where the transition to independence has been engineered by the colonizer.

Because of our debt dependence, the government’s basis for entering into loan agreements is the opportunity to access funds from various loan and fund facilities being pushed by the lenders themselves. While in actuality, the wisest thing for government to do is to know the needs of the people first. As a result, many of the loan-financed projects did not really benefit the people. This neglect gives birth to illegitimate debts.

For FDC, illegitimate debts are those contracted without democratic process, with the use of bribery, fraud and deception; contracted by illegitimate parties such as authoritarian governments and dictatorships and/or by private corporations, which are given public guarantees; those that finance projects and policies destructive to people and communities, the economy, the environment; those that are wasted on corruption or white-elephant projects; and, those that are accompanied by onerous and unfair terms and harmful conditionalities. Often the consequences of these policies are even more immediately and strategically damaging than the impact of servicing the debt.

Reflection and Analysis

Biblical passages are clear that getting into debt is a bad situation. Not only is the debtor put under the mercy of his creditor; there is the suggestion, especially in Deuteronomy 15, that borrowing is a sign of something amiss in the life of a nation.

Debt leads to loss of land, the main means of livelihood in an agrarian economy. Financial insolvency can, in extreme cases, result in slavery.

In general, the biblical data sees indebtedness as problematic, even if it is taken for granted as a fact of life. Whether caused by poverty or bad judgment in business, it is a condition that exposes one to a host of vulnerabilities and too many risks.

The unforgiving official in the parable found in Matthew 18:21-35 was one such. When asked to settle, his debts had mounted to 10,000 talents, a staggering amount considering that one talent was then worth about twenty years’ wages for a laborer. If not for the king’s mercy, he and his family and all he had would have been sold, and even then it was very likely that the sum would not have been enough to cover the required payment. Even for much smaller amounts, like the hundred denarii owed to him by his fellow official (a denarius was a day’s wage for a laborer), indebtedness can be a ticket to prison.

It is only in recent history that we have not been seeing debtors clapped to jail. Yet even so, in many poor and largely traditional societies today, we still see generations of peasants tied to virtual slavery because of some ancient memory of indebtedness to their landlords.

In our culture, a debt incurred, especially in critical moments of need, is not just a debt but utang na loob (literally, a ‘debt within’ or ‘debt from inside’). It is not, strictly speaking, a merely economic transaction but a very delicate form of emotional banking. One feels a permanent sense of gratitude for an intervention that, by definition, can not ever be repaid. The inner and emotional sense of indebtedness never ends; it becomes generational. Unfortunately, this very fine value is often exploited by those who seek to take advantage of the poor who are usually in such extremity of need, as well as the strongest bearers of the old traditional culture.

Besides being subject to various uncertainties and vulnerabilities, debtors tend to suffer loss of sovereignty. Borrowing makes a people prey to the depredations of those with financial power over them. There is an implicit warning for countries that tend to get imprudently indebted or have developed a culture of free-wheeling access to credit that encourages profligacy.

We see this warning put positively in Moses telling Israel that part of God’s blessing is that they need not borrow: “you shall lend to many nations, but you shall not borrow.” They will not be reduced to the mercy of moneylenders, but instead gain financial strength that will lead them to political ascendancy: “you shall rule over many nations, but they shall not rule over you.” (Deut. 15:6). Clear-eyed, Moses understood that he who borrows eventually bows the knee to him who lends.

Our nation need not worry about the retaliation of international lenders when we stand for ourselves and tread the path that is best for us, the Filipino people. Because as true disciples and stewards of His creation, this is a part of our mission – to pursue a real people-centered economic development for all and not only for a few. We must trust in our capacity as a nation for we are blessed with abundance by God. He will never forsake us.

Call to Action

In a 2007 Church Unity Congress, the faith-based communities had declared in the name of God that: all illegitimate debts are immoral, they must be repudiated, and those responsible must be held accountable.

Based on this declaration, as stewards of God’s creation and disciples of Jesus, we Catholic Christians must walk our faith and free ourselves and our nation from debt burden by supporting the following:

1. All debt cases and loan-financed projects found to be illegitimate (fraudulent, behest, onerous) must be re-negotiated or repudiated, with appropriate sanctions to be applied against erring parties, whether government or private entities.
2. Create a Congressional Debt Audit Commission, which will regularly:

a)      Investigate all public sector debts and contingent liabilities; and,

b)      Review and rationalize all laws pertaining and/or concerning public debt, borrowings, payments and contingent liabilities with the end view of restoring the Congressional power of the purse, and promoting transparency and accountability.

1. And through Congress, Repeal the Automatic Appropriations on Debt Servicing, contained in the Sec. 31 (B) of Presidential Decree 1177 in Sec. 26 (B), Book 6 of the Revised Admin Code of 1987.

For ourselves, avoid falling into debt but live within our means!