Press Release
December 21, 2007

TO END RECURRENT FEUD ON DEBT SERVICE CUT, PIMENTEL SAYS AUTOMATIC APPROPRIATION SHOULD BE REPEALED

Senate Minority Leader Aquilino "Nene" Q. Pimentel, Jr. (PDP-Laban) today challenged 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law for debt payments, as embodied in Presidential Decree 1177 issued by the late President Ferdinand Marcos, will be rescinded.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.

Pimentel said he is in favor of pruning down the debt service allocation - which makes up the bulk of the 2008 national budget - to realign the funds to social and economic services, as well as research and development but not to fatten the pork barrel of lawmakers.

The Senate minority bloc has called for the beefing up by P20 billion the funding for social and economic services next year, including education, health, agriculture, environment and science and technology.

Pimentel said the government should not tolerate anymore the atrocious situation where it has to pay a gargantuan P624.09 billion in total debt payments next year - consisting of P295.75 billion for interest payments (about 24.1 percent of the national budget) and P328.34 billion (in so-called off-budget expenditures) for principal amortization.

He pointed out that PD 1177 was used by Mr. Marcos to make debt service automatic under martial law conditions when there was no Congress to speak of.

"And so for heaven's sake, we have gotten rid of Marcos in 1986. But up to now, we are still bound by such authoritarian ways. These are no longer valid and cannot be justified under present circumstances, considering not only the fact that we have a Congress but also considering the social and economic situation of the country," the minority leader said.

Pimentel manifested full support for a Senate resolution filed by Sen. Pia Cayetano calling for the reexamination loans that do not seem to have benefited the people.

Upon the recommendation of the finance committee, chaired by Sen. Juan Ponce Enrile, the Senate has restored P12.1 billion of the P17.8 billion cut in the debt service (interest payments) made by the House to provide "legroom" for the payment of interest on questionable or fraudulent loans.

But Pimentel said there seems to be no basis for the apprehension that the government will renege on the repayment for tainted loans because the debt service fund is bloated.

Of the P295.75 billion budget for interest payments, P186.67 billion is for domestic debts and P109.07 billion is for foreign debts.

The P1.227 trillion budget was computed on the assumption of a P53 to $1 exchange rate although the current exchange rate is below P42 to the US dollar. Monetary and banking authorities have projected the peso will further appreciate in the coming months.

Citing data from the Freedom from Debt Coalition (FDC), Pimentel said the reduction of interest payments by adjusting the exchange rate to a more realistic level, and by suspending payments for proposed program project loans "would already account for as much as P18.85 billion debt service reduction, about a billion pesos more than the P17.8 billion reduction by the House of Representatives."

"Surely, this is more than enough to cover for interest payments for illegitimate debts should negotiation and/or debt condonation fail," the FDC said.

News Latest News Feed