Sri Lanka reminder: Till debt do us part
We can’t help peeking at debt-wracked Sri Lanka, whose ticking time bomb exploded Wednesday, sending its president fleeing then emailing his resignation from Singapore, and the parliament left in Colombo picking up the pieces of a shattered economy.
Protesters vacated public buildings they had occupied, including the abandoned president’s residence, but their search continued for an end to soaring food prices, fuel shortages, civil unrest, and widespread suffering.
Prime Minister Ranil Wickremesinghe who took over as acting president imposed a curfew to control disruptive movements and normalize services. Parliament will elect a president, who will then pick a new prime minister so the government can mend the broken economy and manage the huge loans that had gone awry and triggered a recession.
Not a few Filipinos have offered unsolicited advice for Sri Lankans to make sure the escaped president Gotabaya Rajapaksa who, after licking his wounds abroad, may just return to cover his tracks on the noble pretext of unifying the country.
To be candid about our common gullibility, Manila should re-learn from Colombo the tragic lessons of falling into the same old debt trap with eyes, and sticky palms, wide open.
There is nothing intrinsically wrong – it is in fact a wise move – to borrow capital to jumpstart feasible projects rather than wait till the capital is raised from revenue or somehow accumulated before launching the project.
What has spoiled many well-laid-out plans is that the greed of the borrower and the ulterior agenda of the lender sometimes conspire to wrap up the borrower and his coterie in a web of corruption to clinch the deal.
It may be too late to ask in hindsight if the Duterte administration had borrowed too much too fast in a Build-Build-Build frenzy even as scheming foreign creditors accommodated, or took advantage of, whatever was fueling the borrowing spree.
Let’s hope the runaway borrowing of the previous administration does not spoil the development plans and programs of President Ferdinand Marcos Jr.
Manila was surprised yesterday by reports that China had withdrawn its commitment to fund three big-ticket rail projects of Duterte: the Calamba-Bicol line (P143 billion), the Tagum-Davao-Digos line (P83 billion), and the Clark-Subic line (P51 billion). Marcos wants his team to go back to the negotiating table.
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The crisis gripping Sri Lanka is driven largely by the lack of foreign currency with which to pay for its importation of food, fuel, and other essentials, leading to acute supply shortages and very high prices.
When Colombo suspended last April payments for its $51-billion debt to China, Japan, and other foreign lenders, the Sri Lankan rupee depreciated fast, pushing inflation there to a record high of 6.15 percent compared to the then global average of 1.91 percent.
An incredulous Marcos emerging from his first cabinet meeting in July would not accept reports that the Philippine inflation rate is in the same range of 6.1 percent. Actually, the debatable figure depends on how it is computed within what period.
Without foreign currency to pay for imported essential goods, including food and fuel, there was not much that Sri Lanka could do to ease not only the economic pressure building up but also the problematic crowd behavior on the ground.
With one eye on Colombo, we re-read yesterday the Bureau of the Treasury’s posting last May saying that the Philippine government’s total outstanding debt was registered at P12.68 trillion as of end-March 2022.
It said that of the total debt stock, 30.1 percent was sourced externally while 69.9 percent were domestic borrowings. Most Filipinos are unaware that the government borrows around twice as much from local sources as from foreign lenders.
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Also unknown to many is this provision of the Constitution on the overseeing of foreign loans:
“Sec. 20, Art. VII: The President may contract or guarantee foreign loans on behalf of the Republic of the Philippines with the prior concurrence of the Monetary Board, and subject to such limitations as may be provided by law. The Monetary Board shall, within 30 days from the end of every quarter of the calendar year, submit to the Congress a complete report of its decision on applications for loans to be contracted or guaranteed by the Government or government-owned and controlled corporations which would have the effect of increasing the foreign debt, and containing other matters as may be provided by law.”
Was this process followed during the six years of Duterte? If Yes, did all loans contracted by him have the prior approval of the Monetary Board, and were the proper reports submitted to the Congress quarterly, as mandated by the Constitution?
What did the Senate and the House of Representatives do with the reports, if any, on the foreign debt building up? Nothing? And how many of the projects using foreign loans actually took off?
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The Philippines is No. 56 on a list of 196 countries/sovereign borrowers compiled by Wikipedia in descending order of their total foreign debt based on official documents and the latest available reference years.
At the bottom of the list, with zero debt, is Liechtenstein, a German-speaking microstate in the Alps between Austria and Switzerland. Its estimated population of 38,387 has a GDP per capita of $98,432. (The Philippine GDP per capita is $3,549.)
Sri Lanka is No. 63, with an external debt reported at $46.6 billion, which breaks down to a per capita debt of $2,200 (compared to each Filipino’s $720 debt). But this was based on data of 2016, not last year.
Wikipedia also said that while a country may have a relatively large external debt (either in absolute or per capita terms) it could actually be a “net international creditor” if its external debt is less than the total of external debt of other countries held by it.