Bad Credit Remortgage

PUBLIC ASSUMPTION OF PRIVATE DEBTS

Witness: Jean Enriquez

Introduction

At P4.389 trillion ($83.809 billion), the total Philippine debt remains one of the biggest challenges to our development as a people. That a substantial part of this debt burden is of a private, even odious and fraudulent nature makes the mortgage all the more unjustand oppressive.

Over P50 billion of private debts already passed on to public hands in 1992 because crony firms defaulted on state guaranteed loans extended at the behest of top government officials. The practice, however, ofgranting sovereign guarantees and remortgages continues unabated, with government risking people's futures as never before. Contingent liabilities, for instance, from new state-guaranteed loans stood at P496 billion by end 2001, an amount that by government's own reckoning could swell to actual obligations of PhP600 billion in the next 20 years.

Beginnings in the context of the global debt crisis

Stuck in a rut of economic sluggishness and political instability in the early 70s, the Marcos regime and its US government backers decided to take the authoritarian option and thus, declared martial law in 1971. Immediately, the regime set out to advertise an investment climate made favorable to foreign investors with cheap labor, generous tax incentives, and lax labor and environmental laws, among others. The new export orientation, however, called for infrastructure investments that domestic savings alone could not finance.

Other blows came in the form of the global economic crisis in 1974-75 and then again in 1980-81, which set the stage for South countries like the Philippines, Brazil, Argentina and Mexico to access more foreign mortgages. Gripped by crisis, governments lapped up loans being vigorously pushed by North American, Japanese and European banks awash with billions of petrodollars. The low-interest bad credit mortgage schemes were offers theycould ill refuse.

A major global shock would come with the unilateral decision of the US, a major creditor, to raise interest rates in 1979-80. Countries that had played into the easy bad credit schemes of Northern banks foundthemselves trapped in a vicious cycle of settling old, dubious debts with fresh ones.

The role of government

By the time of its collapse in 1986, the Marcos regime had built a $28.206-billion debt legacy for the Filipino people from $3.053 billion in 1975. The problem, however, was not only the over-indulgence of foreign credit and the over-borrowing syndrome of government. The problem was also how the Marcos regime allowed a sizable amount of the massive foreign debts it had incurred at the people's expense to end up as crony capital abroad or in unproductive investments of crony firms at home.

According to a Commission on Audit (COA) report, Marcos "…authorized government-owned banks and corporations to beef up the capital of private corporate borrowers identified with his close associates and to extend the government's guarantee on foreign loans directly contracted by government banks like the PNB and the DBP ."

When foreign creditors called on the guarantees, Government Owned and Controlled Corporations (GOCCs) siphoned funds from the National Treasury to then privately owned firms.