The Marcos debt
By: Eduardo C. Tadem - @inquirerdotnetPhilippine Daily Inquirer / 12:20 AM November 24, 2016
Another compelling argument against the “hero’s burial” for Ferdinand Marcos was his corruption-ridden mismanagement of the country’s debt. At the height of martial law in 1977, he issued Presidential Decree 1177 mandating the automatic appropriation for debt service, thus starting the process that continues to this day of prioritizing debt repayments before budget allocations for social and economic services and other government expenditures. The Philippines is the only country in the world with such an automatic debt appropriation law, Walden Bello says.
In the 1970s Marcos took out huge amounts of foreign currency loans that by the 1980s his regime could not repay. He tried to hide the dire financial situation by overstating the figures for foreign reserves. By then the economy was in a free fall: GDP growth dropped 5.3 percent, prices of primary export commodities fell by 50 percent, workers’ wages were reduced, and unemployment hit one-fourth of the labor force. The crisis worsened with the assassination of Ninoy Aquino in August 1983. As foreign banks withheld their credit facilities, Marcos declared bankruptcy in October 1983 and sought a 90-day moratorium on principal debt payments. The World Bank provided bailout loans to avert a default but with painful conditions like cutting the government budget, peso devaluation, tariff dismantling, and ending subsidies. Marcos had become the proverbial debt addict wholly dependent on foreign aid.
Cronyism became more rampant as Marcos prioritized the bailout of companies owned by his friends and close business associates. The Freedom from Debt Coalition cited the proliferation of behest loans with government guaranteeing the procurement of borrowed capital without complying with banking rules and procedures. The most notorious case was the $2-billion Bataan Nuclear Power Plant, which was completed in 1985. Total repayments, which ended only in 2007, reached $22 billion, with a debt service of $140 million a year, $12 million a month, and $388,000 a day. Marcos, through a crony, was reported to have received an $80-million payoff.
Ibon Databank reported that the Philippine debt in 1983 comprised 91 percent of GNP and 509 percent of export earnings. In addition, the loans became costlier as creditors imposed higher and floating interest rates. When Marcos became president in 1965, the total debt was $600 million; by the time he was ousted in 1986, it had ballooned to $26 billion—a 43.34-percent rise.
Mamoru Tsuda and Gus Yokoyama wrote in 1986 that hearings by the US House subcommittee on Asia-Pacific affairs revealed that “Japanese corporations had paid rebates to Marcos and his cronies, as well as to financial groups allied with the former President, in connection with Japanese yen loans to the Philippines.” Total commissions—in reality, bribes—allegedly paid by five Japanese corporations amounted to $1.03 million.
In April 1986, the Commission on Audit accused Marcos of diverting US aid funds, particularly the interest earnings of P236 million from the Economic Support Fund (ESF) which were illegally disbursed and classified as “confidential fund” via a Malacañang memorandum. The COA also reported the “irregular and illegal” diversion of P35 million to the “confidential fund” of the ESF Council headed by Imelda Marcos.
A May 1986 report by the UP School of Economics said: “The foreign debt incurred by the old regime is one of the biggest obstacles to Philippine economic recovery. The Philippines is one of the most heavily indebted countries in the world: seventh in size of debt, sixth in debt to exports ratio, fourth in debt to GDP ratio, and ninth in debt service ratio.”
The UP report also said that “most of the projects financed by the foreign loans were unproductive; … not well chosen or were probably chosen precisely to finance capital flight through the overpricing of projects.” Furthermore, projects were found to be “overpriced, mismanaged, not viable to begin with, or made unviable by changes in exchange rate and the international environment.”
As a result, the government had “to squeeze basic services and maintenance expenditures, reduce investment in infrastructure, incur huge deficits, and raise taxes and user fees to service the debt,” the UP report said.
Eduardo C. Tadem, PhD, is professorial lecturer of Asian studies at UP Diliman and president of the Freedom from Debt Coalition.