Wednesday, March 23, 2011

Fiscal irresponsibility 7: Philippine government debt

After posting yesterday Part 6, Poor countries' debts, it attracted several comments from some friends, especially in related to the Philippine government's public debt. Hence, this follow up data and article.

I got this from the DOF's Bureau of Treasury website. This table just shows how irresponsible ALL Philippine governments have been -- by living beyond their means, by not controlling their spending even if revenues are not sufficient, so they went on endless borrowings, and the debt keep rising and rising.

The end-2010 public debt of P4.718 trillion pesos, total for both domestic and foreign debt, if converted to US$ at end-2010 exchange rate of P43.85/$ was equivalent to $107.6 billion!

So what does it imply: (a) we are a poor country because of the high government debt, (b) we are a poor country but has a rich government, (c) we are a rich country impoverished by our government, (d) all of the above, (e) none of the above?

But some BIG government apologists can quickly say, "The debt is high but the GDP is also high. So the debt/GDP ratio has not increased through the years. It is alright to have a high public debt so long as the economy is growing. We can even argue that the economy is growing because of high government presence and intervention in the economy."

Wrong. An ordinary household would normally live within their means. If the income is small, then they don't buy a car or live in an expensive house. When the income expands, then they also expand their spending, and society develops as people work more, save more, and invest more. Governments are doing the opposite. They promise a lot, spend a lot (it's not the politicians' own money anyway) then borrow a lot. And the debt becomes bigger and bigger, and the proportion of taxes and fees collected that go to debt payment, interest + principal, gets bigger.

"Drop the debt" campaign by rock star Bono and other activist groups like the Freedom from Debt Coalition (FDC) is wrong. Drop the borrowings first, then drop debt payment later. Before we can have freedom from debt, we should have freedom from endless-borrowings mentality.

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