Home Speeches National The Concept of Odious Debt in the Philippine Setting
The Concept of Odious Debt in the Philippine Setting Print
Tuesday, 24 February 2009 14:26
(Keynote Speech of REP. EDCEL C. LAGMAN during the Forum on “Odious Debt in Public International Law”
on 24 February 2008, Malcolm Hall Theater, University of the Philippines College of Law, Diliman, Quezon City)

My advocacy for the reduction of the country’s huge debt service, particularly on foreign loans, antedates my crusade for the enactment of a law on reproductive health, family planning and population development and my campaign for the abolition of the death penalty. The latter has succeeded almost three years ago. The RH bill has bright and encouraging prospects of passage within the year.

But the crusade for debt reduction still hangs on the balance more than two decades after I have filed the first of a series of debt cap bills pegging the country’s debt service to a percentage of our export receipts.

Although there is yet to be a universally accepted definition of “odious debt”, paraphrasing various authorities and commentaries could evolve a definition suitable to the Philippine setting in this wise:

An odious debt is one contracted and utilized by a despotic, corrupt and/or profligate regime against the interest of the people or as personal availment of the leader or ruling clique, without the consent of the people, and with the complicity or awareness of the creditor, thus rendering the debt unenforceable or subject to repudiation.

From the foregoing definition, an odious debt has the following essential elements:

(a)    The debt was contracted by a tyrannical, profligate and/or corrupt regime;
(b)    The proceeds of the loan were used against the interest of the people or principally utilized as a private availment of the leader or clique of the contracting regime;
(c)    A new leadership or succeeding regime repudiates the loan as odious and unenforceable; and
(d)    The creditor was aware or could have been aware of the corrupt and/or tyrannical regime and the errant or fraudulent utilization of the loan.

The confluence of these elements fits to a “T” the transition from martial rule under the late President Ferdinand Marcos to the new administration under former President Corazon Aquino after the EDSA People Power Revolution in 1986 which could have justified the repudiation of patently odious loans. The classic example is the 2.2 billion U.S. dollar Bataan Nuclear Power Plant loan which was attended by corruption and bribery even as the secondhand nuclear facility was installed with 4,000 defects atop a volcano and proximate to an active fault.

After President Aquino addressed the United States Congress and proclaimed that “never again shall we kneel before the altar of foreign finance”, the Philippines, invoking the Spanish dictum of palabra de honor (word of honor), continued to pay all foreign loans, including the tainted and odious Bataan Nuclear Power Plant loan which we have now fully paid to the tune of 64.794 billion pesos, a religious repayment spanning four administrations from the Aquino, Ramos, Estrada and Arroyo regimes. It should be underscored that the nuclear power plant also known as the “Monster of Morong” had been mothballed since 1986 and has not produced even a single kilowatt of electricity.

And now there is a pending bill in the House of Representatives projecting the immediate rehabilitation, commissioning and commercial operation of the BNPP without even an updated feasibility study addressing its technical, safety, economic, financial and ecological aspects. Perforce, we must reject this improvident bill and let the BNPP remain a stark monument of official corruption and greed, and culpable private complicity.

The payment by the Philippines of odious loans is assured and facilitated by two factors:

(1) The continuing implementation of the mechanism of automatic appropriation of debt service, a martial law edict under Presidential Decree No. 1177, which has been conveniently incorporated in the Revised Administrative Code during the remaining few months of the Aquino Revolutionary Government and ratified by the Eighth Congress in 1987.

I am informed that it is very possible that no other country in the world has a similar statute on automatic appropriation of debt service.

(2) Absence of a public, thorough and transparent audit of foreign debt in order to validate, among others, the existence of odious loans.

Congressional efforts to deal with aforesaid twin problems are not lacking. Since the Eighth Congress and early in every Congress up to the present Fourteenth Congress, bills and resolutions have been filed repealing or calling for the abrogation of automatic appropriation of debt service. These measures are inexorably and invariably destined to and subsequently found in the archives after the end of each Congress.

This Fourteenth Congress I have filed again the bill on the repeal of automatic appropriation under House Bill No. 329.

Unfortunately, the Supreme Court has refused to strike down as unconstitutional the statute on automatic appropriation of debt service. The High Court has recommended instead that a repealing law should be enacted by Congress. Hence, the periodic, almost Sisyphean, attempts to obliterate from the statute books the sinister mechanism on automatic appropriation.

In the Thirteenth Congress, Joint Resolution No. 2 was filed by freedom from debt advocates in the House of Representatives calling for the creation of a Congressional Commission to “review and assess the debt policies, strategies and programs of the Philippines; conduct a public audit of all loans acquired including assumed and contingent liabilities; validate the utilization of loan proceeds and the payments made thereon; and recommend policies and strategies to reduce debt service.”

This was the first measure of national significance approved by the House of Representatives in the Thirteenth Congress. Unfortunately, the Senate failed to act on the said Joint Resolution which would have had the force and effect of a law if approved by the President.

Joint Resolution No. 4, which is of similar import as Joint Resolution No. 2, was filed again in the present Fourteenth Congress. It is still languishing in the Committee on Rules and we intend to transform it to a simple House Resolution so that it does not have to go to the Senate.

When I was Chair of the Committee on Appropriations during the First Regular Session of the current Congress, I successfully sponsored the reduction by 25.904 billion pesos of the debt service allocation as contained in the President’s National Expenditure Program. This cut was approved by the House of Representatives and the Senate in the 2008 General Appropriations Bill and the amount of 25.904 billion pesos was reallocated to social services.

Of this total amount of debt service reduction, (a) 15.904 billion pesos corresponded to debt service savings as a consequence of the appreciation of the Philippine peso to the US dollar at that time; (b) 5.0 billion pesos corresponded to premature allocation of interest payments for contingent loans; and (c) another 5.0 billion pesos corresponded to loans challenged as fraudulent, wasteful and/or useless, pending their renegotiation and/or condonation, like the following:

(1)    Austrian Medical Waste Project;
(2)    Small Coconut Farms Development Project;
(3)    Social Expenditure Management Program 2;
(4)    Secondary Education Development and Improvement Project;
(5)    Philippine Merchant Marine Academy Modernization Project;
(6)    Telepono sa Barangay Project;
(7)    Power Sector Restructuring Program;
(8)    Power Sector Development Program;
(9)    Angat Water Supply Optimization Project;
(10)    Procurement of Search and Rescue Vessel Project; and
(11)    Pampanga Delta Development Project.

The foregoing challenged loans were identified by the Freedom from Debt Coalition (FDC) who had difficulty in documenting the fraudulent and wasteful loans because of the absence of a public debt audit and the scarcity of verifiable documents.

Many of the controverted loans can qualify as odious loans either at the time they were secured and/or at the time of their respective, flawed and corrupt project implementations.

As expected, the Executive vetoed Special Provision No. 1 on the “Use of the Fund” and Special Provision No. 2 on “Reporting Requirement” covered under the heading “Debt Service-Interest Payment”. However, the reallocations of the debt service cuts to basic social services were spared, as we have designed.

The presidential veto was justified on the following grounds: (1) automatic appropriation for debt service is allowed by law and has been declared constitutional; (2) the prohibition on disbursement of funds for interest payments on loans challenged as fraudulent, wasteful and/or useless is an encroachment on the constitutional guarantee of non-impairment of contracts; and (3) the government’s credit standing needs to be preserved and protected.

It is clearly manifest that Congress does not have the requisite extraordinary number of votes to override the President’s veto. Suffice it to say that the constitutional guarantee on non-impairment of contracts only protects valid and legitimate contractual obligations. Moreover, the repudiation of odious, fraudulent and wasteful loans would not detract from the government’s credit standing as we do not default on our lawful and aboveboard indebtedness.

The crusade for debt reduction has been long and arduous. But neither I nor my likeminded colleagues will give up a good fight.  We therefore truly appreciate the holding of this forum on odious debt as it would be instructive on the strategies we will have to pursue in identifying and repudiating Philippine odious debts.

The debt campaign may have been protracted and difficult but this will only make our eventual victory more rewarding and the battle even more worthwhile.