The reality of government debt
Being a trial attorney—or the much classier British term “barrister”—and being on the university debate team are similar. For both, you learn a variation of this rule.
“If you have the law [or facts] on your side, pound the law. If you have neither the facts nor the law, pound the table.” There is much tablepounding going on about Philippine government debt.
There are three interlocking components to a loan. These are the principal amount of the loan, the maturity date or tenor, and the interest rate. You cannot make any competent analysis of a loan without speaking on all three.
A headline that reads—with an article to match—“philippines’ Covid-19 loans balloon to P641 billion; to be paid until 2049” is a complete intellectual fraud because there is no mention of the interest rate. If you are going to write a thousand words on Philippine government debt and not mention the term “interest rate” even once, you qualify for this assessment. “I’m impressed with your confidence in the face of your ignorance.”
The Department of Finance has a thorough and transparent list of government loan details on its web site (https://www.dof.gov.ph/data/fin-agreements/ ). There is no acceptable excuse for failing to provide the public with accurate and complete detailed information.
“Another USD 26.36 million were grants from the Government of Japan and from ADB.” Grants are not debt, as the amount is not paid back. Do your homework. And a big thank you to both agencies.
The $165 million loan from Agence Française de Développement (AFD) is not related to the pandemic. It is for “Strengthened Government Financial Support for PPPS.” Term: 20 years, Interest rate: 6-month Euribor. The current six-month Euribor rate is a negative 0.527 percent, meaning they pay the Philippine government to borrow money from them. But maybe this is where the concern is: “Shall not be less than zero percent per annum.”
There is a $110 million credit line from AFD along with the ADB to “support the development of financial inclusion with a special focus on the poorer, rural population and women to improve financial infrastructures.”
For direct Covid support through the CARES program, the government has two loans from ADB for $250 million (seven years) and $500 million (two years)—not year 2049. The interest rates are Euribor plus 0.50 percent and Libor (0.31 percent) plus 0.50, respectively.
The $750 million loan for the CARES Covid Aid from the Asian Infrastructure Investment Bank goes at Libor plus 0.50 percent. But the government cannot spend any of the loan proceeds on “alcoholic beverages, tobacco, or gold jewelry.”
The $458 million Jica “Post Disaster Standby Loan [Phase 2]” has a 40year tenor at an annual interest rate of 0.01 percent. The Export-import Bank of Korea loan of $100 million for 20 years carries a 1.5 percent annual interest. The four ADB loans for CARES totaling $1.5 billion for two to seven years is at Libor/euribor plus 0.5 percent.
Government debt can be extremely dangerous. That is why we must constantly keep a heavy boot on the government’s neck (yes, that is how serious I am about this issue) to make sure it does not screw around with the public’s money.
But to do that the press/media must stop with the drama and provide all—not just “selected”—facts. Speaking ‘Truth to Power’ by overacting is neither truthful nor powerful. It is just embarrassing.
Because of its decade long continuing strong financial stability and its continuing good standing in the international markets, the Philippines has been able to secure vital funding during these perilous times on highly favorable terms. T.G.Y.F.