“The Philippines and the national government remain deeply indebted despite the US$1-billion loan extended by the country to the International Monetary Fund (IMF). “
by Ducky Paredes
I am glad to use this explanation from IBON Foundation, Inc. an independent development institution established in 1978 that provides research, education, publications, information work and advocacy support on socioeconomic issues. We have been hearing all sorts of opinions on the announcement that the Philippines lent a billion dollars to the IMF, as if this was big news. It is not.
The silliest reactions were those that suggest that if we had that kind of money lying around, we would be better off distributing the cash to so many of our people who are poor. We could buy them food, build roads, school rooms and so on; as if money served no other purpose than for it to be spent — the classic thinking of spendthrifts.
Here is IBON’s take:
“The Philippines and the national government remain deeply indebted despite the US$1-billion loan extended by the country to the International Monetary Fund (IMF). Statements including from Malacañang that the country is a “creditor nation” are inaccurate, public relations spin and distract from the reality of continuing underdevelopment and debt-dependence.
“The country’s external debt still totaled US$62.9 billion as of March 2012 – US$79.1 billion if other debt monitored by the Bangko Sentral ng Pilipinas (BSP) but relegated to a footnote are included. Up to 77% of this, or US$48.3 billion, is owed by the government including the BSP. And while the country stopped being a net borrower from the IMF in 2006, it still has US$11.7 billion in multilateral debt including US$3.3 billion to the World Bank (WB) and US$6.0 billion to the Asian Development Bank (ADB).
“Outstanding national government (NG) debt meanwhile has reached Php5.1 trillion as of April 2012 and Php2.1 trillion of this, or 41% of the total, is foreign debt. This huge debt is among the reasons why debt service takes is chronically the single largest expense of the government, for instance reaching Php738.6 billion in interest and principal payments just in 2012.
“Government may have wanted to give the impression that the Philippines is now able to lend the IMF US$1 billion because of its sound management of government finances and of the economy. However the international reserves are not really funds that the government has earned and can lend or spend in the same way as, for instance, its projected Php1.6 trillion in revenues for 2012. The international reserves are foreign exchange assets accumulated by the economy from various foreign exchange inflows, but which are not like money held by the treasury.
“The Philippines has actually been lending to the IMF for decades now with an interest-earning reserve position that, for instance, rose from US$113.4 million in 2000 to US$516.83 in May 2012. There has likewise been billions of dollars in other lending to foreign entities. The BSP has long had interest-earning deposits in foreign banks and held interest-earning foreign securities including from the United States (US). This lending rose from US$12.4 billion in 2000 to US$64.1 billion in May 2012.
“These have sensibly not been played up in the past because such “lending” of foreign exchange is normal occurrences in the management of any country’s international reserves and are not equivalent to lending of surplus government cash. The recent hype about “creditor nation” status then appears part of a public relations campaign of a supposedly improving economy in the build-up to the next State of the Nation Address (SONA) at the end of July.”
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This is a tempest in a teapot and those who show off by pointing out alterative uses for the billion dollars only reveal their utter ignorance and rank stupidity. As IBON points out, “The Philippines has actually been lending to the IMF for decades now with an interest-earning reserve position . . .” So, this is actually nothing to marvel at or something that anyone needs to investigate. It is an ordinary thing that the country has been doing no matter who has been in charge. Why the big fuss, then? Probably someone who did not know any better thought to tell the world something that the rest of the world had always known.
A country, like any enterprise has different kinds of moneys. Earnings from taxes, operations and borrowings go into the government’s budget and are assigned by Congress in the national budget to be spent; and there is also money that is kept as a reserve or, as in a commercial enterprise, as stockholders’ equity or capital.
Imagine if we allowed ourselves to spend all of our money, including the painting collection of the Bangko Sentral and all of our gold hoard, who would then still accept the Philippine peso as a currency with any worth to it? We need that money that is in the vaults of the BSP to earn. This is why we lend to the IMF because the IMF will surely pay us back. It is a lending without any risks.
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hvp 06.27.12Readers who missed a column can access www.duckyparedes.com/blogs. This is updated daily. Your reactions are welcome at firstname.lastname@example.org