Press Release
October 12, 2016

Excerpts from the interpellation of Senate President Pro-Tempore Franklin M. Drilon's during the Committee on Appointment's hearing on the confirmation of the ad interim appointment of Finance Secretary Sonny Dominguez

Drilon: What is our total indebtedness today?

Dominguez: Our total indebtedness is around five trillion or 43% of our GDP. I don't have the exact data...

(Senator Lacson: I think it is P5.943 trillion...)

Dominguez: Yes. Less than P6 trillion.

Drilon: How much is domestic and how much is foreign debt?

Dominguez: Our foreign debt is $77 billion dollars and the balance is domestic, so probably about half.

Drilon: About 50-50?

Dominguez: Roughly.

Drilon: Under the 2017 budget, how much is allocated for debt service?

Dominguez: The interest payment is P334 billion...

Drilon: For 2017?

Dominguez: Yes.

Drilon: This is the total debt service for both foreign and domestic?

Dominguez: Interest payment.

Drilon: Yes, debt service interest payment. What is the presumed exchange rates used?

Dominguez: P45 to P48.

Drilon: That is the presumed exchange rate. How much it closed yesterday?

Dominguez: P48.59.

Drilon: Do you expect the peso to strengthen in the next two months and in the next year?

Dominguez: I cannot say. But the indications are: the dollar is strengthening against all currencies around the world primarily because of the planned increase interest rates by the Fed.

Drilon: There is a good chance that our assumptions of P45 to P48 will no be followed?

Dominguez: It is possible.

Drilon: And that will add to our burden for the debt service? For the record, does Secretary Dominguez (agree)?

Dominguez: Yes, it will.

Drilon: What is the interest rate assumed when we had our debt service of P334 billion?

Dominguez: Foreign or domestic?

Drilon: Both.

Dominguez: Most of our debt is fixed at 5% per annum. That's the average.

Drilon: So the budget for debt service is principally affected by the exchange rate, which we cannot predict at this time, but which at this point is higher than our assumption of P48.

Dominguez: Yes.

Drilon: What about the credit rating agency? Will our interest burden be affected by the rating that we get? In other words, we have a 5-percent interest rate burden on the basis of an investment grade. If credit rating agencies would lower our credit rating, what is the effect on the 5% that we have budgeted as our rate of interest for purposes of servicing our debt?

Dominguez: of all, I don't like to speculate on that. If at all, it will be on the future borrowings. It's not for the past.

Drilon: Since we are on a deficit, we expect to be borrowing in the future? We don't expect self-financing next year. Do we?

Dominguez: No.

Drilon: So we have to borrow and therefore, our debt burden will be affected by our crdit rating.

Dominguez: Yes, of course. May I say though that the Standard and Poor said that they will maintain our credit rating at least for the moment, they said up to two years. Fitch and Moody's give me no indication of downgrade in credit rating. I suppose if it is not improved, the worst case is it will be maintained.

Drilon: But of course it will be prudent for us to take stock and try to maintain this favorable credit rating. Was it correct, you were quoted saying that that credit rating is not important to the economy?

Dominguez: That is not an accurate quotation. But I said that what is more important to us is the objective of making sure that there is inclusive growth and reducing poverty...

Drilon: Let me go to another point. How much is our official development assistance from the Western countries?

Dominguez: Our total ODA from the US is $1.2 billion, which included the $450 million from MDC; From Australia, $567 million; the UN, $365 million; EU, $327 million. The total is $3 billion.

Drilon: $3 billion dollars from the US, EU, Australia?

Dominguez: Those are the grants.

Drilon: Total of $3 billion.

Dominguez: Yes, you honor.

Drilon: The government and the administration's assertion of an independent foreign policy s something that we should all support, because, in fact, that is in the Constitution that we should have, we should maintain an independent foreign policy. But the question is that is in everybody's mind is, in maintaining an independent foreign policy, do we have to displease, insult our allies? Here, we are talking about $3 billion ODA. Kapag araw-araw pong ininsulto an gating mga kaibigan, hindi ba ito malalagay sa alanganin itong $3 billion ODA?

Dominguez: Are you asking a question, Sir?

Drilon: Yes. An ordinary, logical and rational way to look at this is, are we not putting in danger our $3 billion ODA by displeasing our allies. There is no question that we should maintain an independent foreign policy and that is an obligation on the part of the government under the Constitution. But the question in everybody's mind, in order to pursue an independent foreign policy - which we support - do we have in the process displease our long-term allies and - no matter what you say - put in jeopardy the ODA?

Dominguez: I think that there might be an school of thought that would say that it is not advisable to do that.

Drilon: Do you belong to that school of thought, Mr. Secretary?

Dominguez: I am not the foreign affairs minister, but I would say that yes, there is some logic to what you're saying.

Drilon: Sometimes, Congress can be logical.

Dominguez: All the time.

Drilon: I'm glad that we were able to put that on the record that at least the secretary of finance has some independent policy that he wants to pursue in his term. But indeed that is a cause for concern among the citizenry and I am glad that you have associated yourself with that concern. I will repeat, an independent foreign policy is a constitutional duty of the President. But in the process, the concern of many citizens is that it entirely possible an independent foreign policy without insulting our long-term allies from whom we have about $3 billion in ODA.

Drilon: Just another point, the matter of our general system of preference (GSP), where we enjoy preferential tariff rates for our products where we have a GSP. In what countries do we have a GSP set up?

Dominguez: I am not sure of the entire list but certainly in the Asean and the US.

Drilon: Asean and the US, how about the EU?

Drilon: You can verify this with the Bureau of Customs. For example, in the European Union, our enjoyment of preference in the tariff rates for our products was premised on the passage of certain laws. For example, we had to pass in last Congress a law that would impose a very high penalty on illegal, unrestricted fishing, because of the preferential tariff rates that our tuna products from General Santo, Region XI, would enjoy under the GSP. Would you know, what is the value or the benefit that we enjoy out of these, let's say, GSP in the US?

Dominguez: Offhand, I don't have the value but for sure, access to the markets is certainly very meaningful to our exporters.

Drilon: Very substantial to our exporters.

Dominguez: Yes.

Drilon: So that if the GSP is withdrawn, then our product become expensive and non-competitive in the areas where these products are exported.

Dominguez: Yes, senator.

Drilon: And as I've said earlier, I know for a fact that we enjoy a GSP privileges in the EU where the principal benefactor and beneficiary is our tuna from General Santos. Maybe 25,000 or so of our seamen are in EU-registered vessel, which though not directly affected by the GSP, will certainly be enhanced or adversely affected depending on our relations with the EU countries. As a citizen, we are concerned about how we are perceived by the EU countries given our little colorful language insofar as the EU countries are concerned. Can we have your views on this. Is is to the interest of the DoF that we are able to maintain our GSP privileges in both the US and EU countries?

Dominguez: Mr. Senator, not only for the DoF but the industry and the Philippines as a whole.

Drilon: So it is very critical that we maintain this?

Dominguez: I will not say it is critical, it is important.

Drilon: Whatever adjective we use, the fact is if we los these privileges, then it will adversely affect our economy?

Dominguez: Yes, Mr. Senator.

Drilon: It affects our poor people because they depend on our tuna industry.

Dominguez: Yes, Mr. Senator.

Drilon: So that it is certainly to our national interest that we maintain these GSP privileges and these GSP privileges can be withdrawn by the countries promulgating such privileges. Do you agree?

Dominguez: Yes senator.

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