MISREADINGS
Sequence to fiscal freedom
How will the Aquino administration confront the country’s economic challenges somehow puzzles the mind of many finance observers especially after President Benigno Aquino III inherited an economy characterized by debt and deficit from the previous administration.
For the year 2011, Budget Secretary Florencio Abad said that “the government is targeting a deficit of P290 billion from a projected deficit of P325 billion this year.” It is also expected that the national debt will lower by 55.3 percent of the gross domestic product if compared to the 57.3-percent debt ratio this year.
However, these statistical targets will be concretely achieved with more than enough collection in revenues. This is the reason why the imposition of an additional value added tax to the toll fees of expressways in Luzon have become a heated debate prompting the current administration to put on hold its implementation while the issue awaits Supreme Court decision.
Yet the more substantial issue as far as the country’s economy is concerned is this: how will the Aquino administration deal with the country’s ballooning debt? Interest payments to foreign and domestic debts alone automatically suction sizable revenue of the government – an amount which could have made useful to finance its various social delivery programs.
For all post-1986 EDSA governments or from 1986 to 2008, debt service to interest payments alone averaged around 25.75 percent of the national government budget. Yet in spite of its soaring approval ratings, signals from the current administration seem to reveal that it is not inclined to entangle itself from the umbilical cord of indebtedness.
No less than Finance Secretary Cesar Purisima said that current government programs will have to be funded by a mix of foreign and domestic borrowings. In fact, to Secretary Purisima, this period is the best time to borrow for interest rates are low. Good timing or not, I believe that this is the best time for the government to deal with the country’s debt in order to stir the economy towards the direction of gradual fiscal freedom.
First, by striking out the “Automatic Debt Servicing” provision which is enshrined in Section 26 (B), Book VI of Executive Order 292 or the 1987 Revised Administrative Code – which mandates automatic appropriations for interest payment and principal amortization of government obligations. This law was copied in toto from Presidential Decree 1177 of the Marcos Dictatorship.
Second, it must conduct an official debt audit in order to know what government projects are legitimate and what are not. For instance, government continually pays for projects which are deemed illegitimate and useless, such as SEMP2 “Textbook Scam” and the Austrian Medical Waste Incinerator – an unused unit lies rotting at the backyard of the Western Visayas Medical Center in Mandurriao District, Iloilo City.
Third, repudiate blatantly illegitimate debt cases. The House of Representatives and Senate have identified around 13 illegitimate debt cases as far back as 2008. Government must stop paying interests of the projects identified in the Bicameral Conference Report of House Bill 2454.
Lastly, it needs to rescind onerous contracts entered by the national government with the private independent power producers for it continues to bleed public coffers dry.
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