A country's foreign debt is the money owed to foreign creditors and is therefore denominated in foreign currencies. In business jargon, our foreign debt is couched in the term foreign exchange liabilities (FXL) .
$ 6.46 billion or P 31.65 trillion has been added to the foreign debt since Joseph Estrada assumed the Presidency in June 1998.
Most likely, these amounts defy the imagination of the poor Filipino. It could take years to even spend such amounts. The effort will be worthless, though, since there will be a new set of figures on the debt situation every year.
For this reason, many think that the problem of the Philippine foreign debt crisis should be left for economists to solve. By using highly technical language, finance officials have managed to obscure the significance of the debt problem to the Filipinos when, in fact, the foreign debt situation is very relevant to the people who are paying off this huge debt.
Take a look into these numbers:
If 1% of the P 31.65 trillion borrowed by President Joseph Estrada was used for infrastructures, then it could have been built 519, 000 classrooms and 452,000 low-cost housing units.
Note: All computations based on data from IBON Facts & Figures, DECS and BSP.
The staggering amounts involved and the complex economic issues has prevented popular discussion and debate about the Philippine foreign debt. However, this issue is not as complicated as it seems. First, we need to know the characters behind this vicious cycle.
Introducing the Cast
Before we unfold the story of how financial institutions attempt to serve foreign interests in an independent republic, a brief introduction of the main characters is in order.
The IMF. Created at the Bretton Woods Conference in 1944, the International Monetary Fund (IMF) serves as an emergency bank to countries with short-term balance of payment (BOP) problems. A BOP deficit occurs when a country spends more than it earns. However, money is lent to debtor countries only after its government agrees to conditions imposed by the IMF.
The WB. The World Bank is the twin institution of the IMF and is also known as the International Bank for Reconstruction and Development (IBRD). The WB Group is composed of five agencies that makes loans to its 177 member countries. It functions differently from the IMF since it loans out money primarily to finance specific development projects.
The Bank and the IMF have a close working relationship. Like the IMF, the World Bank also makes loans to restructure a country's economic system by funding structural adjustment programs (SAPs).
They make special efforts to preserve their neutral image, similar to the United Nations (UN). However, unlike the UN, where each member nation has an equal vote; voting power in the IMF-WB is determined by the level of a nation's financial contribution. This means that highly industrialized countries are given greater voting power while developing countries have relatively little power.
The G-7. The Group of Seven is composed of the seven largest industrialized countries and they hold 45% of the vote while the remaining 55 % is divided among the 170 other member nations. The G-7, composed of Japan, Germany, France, Great Britain, Italy and Canada, is led primarily by the United States since it has the largest contribution and is thus entitled to 17% of the vote.
Furthermore, the President of the World Bank is by tradition an American while the IMF President is a European. The unequal distribution of voting power tends to favor the rich countries while further aggravating the indebtedness and wretchedness of poor countries.
The RP. The Republic of the Philippines, an island-nation of 75 million Filipinos, has a strategic importance to the USA far beyond its size. The US formally acquired the Philippines at the turn of the century. Between 1899 and 1941, the Philippines was transformed into a colonial dependency of the United States. The end of World War II brought with it formal independence from the US and a constitutional form of democracy.
Even though the US-RP relations have ceased to be between colonizer and colony, the status of the Philippines has become one of semicolonialism, since the US has secured the right to maintain military installations in the country and its citizens enjoy the same rights as Filipinos. And now, with the debt crisis, the US-RP relations have become one of creditor and debtor. However, the seeds of debt dependence were sown even before the country's independence in 1946. (Legaspi, 1991)
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THE DEBT TRAP
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