[Congressional Record Volume 151, Number 131 (Monday, October 17, 2005)]
[Senate]
[Pages S11414-S11416]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
PHILIPPINES DEBT RELIEF PROPOSAL
Mr. INOUYE. Mr. President, today, I rise to speak on an innovative
and creative proposal submitted by the Republic of the Philippines that
would provide debt relief to the 100 most heavily indebted nations.
This proposal was presented to the Boards of the International Monetary
Fund and the World Bank on September 20, 2005, by the Honorable Jose De
Venecia, Speaker of the House of Representatives, Congress of the
Republic of the Philippines. The proposal has received a positive
reception by financial and political authorities in Western Europe and
will be considered by the Paris Club at its next meeting.
The proposal, known as the Debt-for-Millennium Development Goals--
MDG--Investments program, would allow creditor countries to convert up
to 50 percent of the debt-service payments from debtor countries into
equities or other forms of investment capital. Such equities would
subsequently be use to finance MDG initiatives, including, but not
limited to, reforestation, energy, mass housing, irrigation, food
production, and postharvest facilities, ecotourism projects, safe water
systems, hospitals, infrastructure, and microfinancing.
The Debt-for-MDG Investments proposal is voluntary and would augment
the agreements made by G8 countries to depreciate multilateral debt
owed by heavily indebted countries. Creditor countries will have a say
in which projects they support in a specific debtor country. For
example, under the proposal, a creditor country may decide to help
finance housing construction to address the needs of low-income
households in a debtor country. In addition, the proposal would provide
debtor countries with the opportunity to improve on its infrastructure
and make the economic and social investments required for them to
achieve a self-sustaining economic stability.
Developing countries with heavy debt burdens face tremendous
challenges in meeting the Millennium Development Goals of the United
Nations and in promoting their own economic development and growth. The
Philippine Debt-for-MDG Investments program proposal is one innovative
and creative approach in bringing together the G8 countries to help
address the debt burdens of the 100 most heavily indebted nations. I
encourage my colleagues to review the Republic of the Philippines'
proposal in the hopes that it will spark productive discussion and
debate on this international problem.
Mr. President, I ask unanimous consent that the text of my statement,
and the September 20, 2005, statement of Speaker De Venecia before the
Boards of the International Monetary Fund and the World Bank be printed
in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
(Sept. 20, 2005)
Debt for MDG Investments
(By Jose De Venecia)
On this eve of the 2005 World Summit, I am honored to be
given this opportunity to elaborate before this distinguished
body on the Philippine proposal for a ``Debt-for-MDG-
Investments'' program to help realize the UN's Millennium
Development Goals--the foremost of which is to cut world
poverty in half by 2015.
Since the late eighteenth century--a time of the
overturning of monarchies and the emergence of ordinary
people on the stage of history--visionaries inspired by
scientific progress and the promise of the new international
economy have dreamt of an end to poverty.
Yet a World Bank study finds that, until now, 1.2 billion
people still have a daily spending power equal to about the
price of a hamburger, or a can of soft drink and a chocolate
bar, in the West.
And, according to the Food and Agriculture Organization,
about 815 million people go to bed hungry (among them 200
million children under the age of five).
Of course, the Good Book says the poor we will always have
with us.
But--in our age of the information revolution--it has
become more and more difficult to segregate poverty and
wealth: To prevent the poor from realizing what is possible.
So that--in the long run--the peace and prosperity of the
rich depend on the well-being of all the others.
the world debt burden
Since the 1980s, the weakest economies have been weighted
down by their burden of external debt.
Nowadays, the 100 most-heavily-indebted poor and middle-
income countries must service over 2.3 trillion U.S. dollars
in combined debt-stock yearly.
Debt-servicing in effect deprives these countries of scarce
resources and hard-earned savings which they could otherwise
invest in economic growth, job-creation, and poverty-
reduction.
To pay off interests and principals, our governments are
forced to slash social spending and investment in
infrastructure. They are also forced to impose more--and
higher--taxes.
Typically, debt-ridden states must sacrifice budget
allocations for education, health care, housing, and
development projects in the name of financial responsibility
and continued access to international capital markets.
And, all too often, even such sacrifices come to naught,
because the higher a poor country's debt-stock, the lower the
level of foreign-investor confidence--and the higher the
premium that lenders charge on its debt-paper.
In sum, the debt-burden of the developing world--a burden
that's still growing--has
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been blocking economic progress for billions of the world's
poorest peoples.
Now the creditor-countries must realize that the poor
economies need a respite from the burden of their debts.
This is the only way they can achieve the higher--and
better-quality--economic growth which is the key to reducing
global poverty that the MDG seeks.
The HIPC Initiative of the G-8 Countries
Let me say--up front--that we welcome the decision of the
G-8 countries to condone tens of billions of dollars in loans
of the Highly Indebted Poor Countries or HIPCs (pronounced
``hipicks'')--which are states mostly from the African
continent.
This is a compassionate--and praiseworthy--step the G-8 has
taken--to reduce to ``sustainable'' levels the debt-stock of
this most vulnerable group of countries.
We must all realize, however, that the HIPCs make up a
relatively-tiny group--when compared to the absolute number
of poor peoples in the so-called middle-income countries.
In fact, over three-quarters of the world's poorest peoples
are found, not in Africa, but in Southeast Asia, South Asia,
the Middle East, Latin America, and Eastern Europe.
``Middle-income'' countries with large populations--such as
Indonesia, Bangladesh, Pakistan, Egypt, and the Philippines--
have much larger absolute numbers of people who themselves
subsist on less than US$1 a day.
And the countries of which these absolutely-poor people are
part are also saddled by debts just as debilitating as those
of their African counterparts.
Beyond Debt Forgiveness
Undeniably--if we are to achieve substantially the
Millennium Development Goal of halving the number of the
world's poor by 2015--the global community must organize
deeper, wider, and faster debt relief than that awarded to
the largely-African HIPCs.
Jeffrey Sachs of Harvard University--in his Report on the
UN Millennium Project--has warned that the world community
has barely enough time to meet its MDG targets.
We believe it naive to ask for debt-write-offs for the
middle-income countries.
The cost of universal debt-forgiveness may be too much for
even the rich countries to bear.
Realistically, middle-income countries such as the
Philippines seek no more than a breathing spell from their
huge debt-service burdens.
Laying down their debt-burdens--even for a short while--
would give them enough ``fiscal space'' to finance their
requirements of growth and poverty-reduction under the social
objectives of the Millennium Development Goals.
The Philippine Proposal
The ``Debt-for-MDG-Investments'' program that my Government
proposes seeks to provide that fiscal breathing space.
We offer the Philippine proposal as a complement to the
agreement by the G-8 countries to write off multilateral debt
owed by the poorest countries.
We plead neither for debt-forgiveness nor for debt-
cancellation.
Our proposal requires no new monies from the parliaments
and governments of the rich countries. Neither do we envision
any reduction or loss of face-value in the creditor's
financial asset.
Furthermore, participation by creditors in the debt-for-
equity program will be voluntary.
And creditors would have the option of choosing which MDG
projects to support in a specific debtor-country.
We propose only that the rich countries plow back into the
economies of the debtor-countries--over an agreed-on period--
an agreed-on portion of the debt-service payments they
receive.
These payments would be plowed back in the form of
equities, or other kinds of financial assets, and channeled
toward MDG programs--such as reforestation, mass-housing,
safe water systems, hospitals, infrastructure, or micro-
financing.
To be sure, there have been debt-for-equity and debt-for-
nature initiatives in the past.
For instance, the United States--through its Tropical
Forest Conservation Act--allowed debt relief, debt buy-back,
or debt restructuring for countries like the Philippines on
their bilateral loan obligations.
But those instances have been few, small, and sporadic.
What we propose is a large-scale conversion of debt for MDG
projects--a plow-back of up to 50 percent of debt-service
payments received.
Creditors may also choose to convert up to 50% of their
debt-stock holdings immediately. This will save a debtor-
country up to half of its debt-service payments.
In countries where debt-stocks are huge and where the debt-
service payment alone is significant, the creditor may choose
to convert only the stream of debt payments.
Positive response in Western Europe
We are offering this program for consideration by the Paris
Club and the G-8 governments; by the multilateral financial
institutions and the regional development banks; and by the
world's large commercial banks.
And I am pleased to tell you that the Philippine proposal
has been received positively by financial and political
authorities in Western Europe.
The Italian Government, for one, agreed to ``give favorable
consideration to the Philippine proposal--once [it] is
submitted to the Paris Club.''
For its part, the German Government has promised it ``will
work to ensure your proposals are discussed openly and
constructively in the Paris Club.''
In London, senior Treasury officials on the International
Poverty Reduction Team also assured me they would consider
the proposal seriously in the Paris Club.
Subsequently I was able to meet with Jean-Pierre Jouyet,
President of the Paris Club. After hearing me out, he decided
to create immediately a `Technical Committee' of experts to
evaluate our proposal for presentation to the Club's 21
member-states.
menu of options
Our ``Debt-for-MDG-Investments'' program will be backed by
tangible assets--most of which would be value-creating, job-
generating, and tradable in themselves.
A particular creditor may convert his debt-holdings into
equities in new projects that have their own prospective
income streams.
Or he may choose to put it in trusts or endowment funds for
social investments--such as USAID has done through the World
Wildlife Fund, under the Tropical Forest Conservation Act.
As a third alternative, debt-service receipts may be plowed
back into new lending for long-term social-reform programs.
This third alternative the World Bank and other multilateral
institutions may be inclined to consider.
We are extra-cautious in our approach to the holders of
public-sector bonds, domestic government securities, and
Brady Bonds--because we do not wish to give them any cause
for alarm.
Nonetheless, we eagerly invite them--as they see fit--to
convert their bond-holdings into equity in assets being
privatized by developing-country governments.
Technically, no one should lose under this Philippine
proposal. The debt-service and/or principal amount is merely
converted into equities in new or existing projects of at
least equal value, and with their own earnings potential.
the philippine case
To illustrate how far this proposed program would benefit a
specific middle-income state, let me cite the case of the
Philippines.
Our MDG projects over 2005-2010 will cost roughly $6.5
billion in social investments yearly.
Our domestic financing capacity for these projects is $5
billion yearly. Thus we face a residual-financing gap of $1.5
billion.
Meanwhile, for 2005 alone, the Philippines will be paying
roughly US$2 billion in interest and another US$ 2.5 billion
in principal amortization on our foreign debt.
If, say, 50 percent of this total amount were freed under
our proposal, the Philippines will have the equivalent of
112.5 billion pesos (at more than 50 pesos to one U.S.
dollar) worth of anti-poverty projects--enough to ensure it
is able to meet all its Millennium Development Goals.
re-investment choices
Debtor-countries like the Philippines can readily offer
specific projects as the object of debt-for-MDG investments.
Creditors may wish to consider the following.
1. Debt-for-Reforestation--These are projects that will
regenerate forest resources; bring back green cover to the
bald mountains in Asia, Africa, and Latin America; restore
the ecological balance and create hundreds of thousands of
jobs in upland rural communities throughout the poor
countries.
By taking advantage of carbon credits under the Kyoto
Protocol, investors in reforestation projects can realize
investment paybacks within three years.
Moreover, it has been well-established that reforestation
projects in tropical countries can turn a $100,000 investment
into $3 million in ten years from timber sales alone.
2. Debt for Energy--Current runaway oil prices have given
impetus to the search for indigenous and renewable
alternatives to hydrocarbons.
The successful Brazilian experiment of substituting ethanol
from sugar cane for petroleum is already being adopted by
many countries not only to lower their dependence on foreign
crude but also to lower their energy costs.
High oil prices have now made the conversion of cane sugar
to ethanol more profitable than its traditional use to
produce sugar granules.
The Philippines has set itself the goal of replacing 30% of
the gasoline it consumes with ethanol within three to five
years. Setting up a sufficient number of ethanol factories in
our sugar-producing regions will require investments of
roughly $1.5 billion.
3. Debt for Mass-Housing--The lack of shelter is a common
problem in many developing countries.
In the Philippines alone, we have a backlog of up to four
million units. This is due mainly to the lack of long-term
financing at interest rates our low-income households could
afford.
Housing loans that extend over 15 to 25 years will create
mass demand in our construction sector. And this demand will
ripple widely throughout the economy. Not only is building
labor-intensive. Its has strong linkages with other
industries.
4. Debt for irrigation, food production, and post-harvest
facilities--In many developing countries, the interrelated
problems of rural poverty, under-employment, hunger, and
malnutrition are best dealt with through strategic
investments in basic food production, irrigation, and farm-
storage facilities.
Off-farm employment can be enlarged through investments in
high-value crops and
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animal production, food processing and other post-harvest
facilities.
Creditor-countries can set up community-based corporations
in these activities with equity participation from local
government units, cooperatives, or non-government
organizations.
5. Debt for Eco-Tourism--Many poor countries have natural
tourist attractions which are often located in untouched
regions far from the usual tourist spots.
In the Philippines alone, there are dozens of white-sand
beaches, secluded coves, and diving sites, historical
attractions, and mountain vistas--all with strong potential
to attract global tourists.
Foreign investment can make these potential tourism sites
attractive by giving them modern infrastructure such as
airports, communication lines, and hotel facilities.
Investors may also wish to develop specific areas as
complete travel ``packages''--much as Bali, in Indonesia, has
become. Ecological tourism in the new countries will bring
many benefits--even apart from enabling the developing
country to generate foreign exchange.
6. Debt for Wealth-Creating Projects. Many developing
countries possess natural resources they are unable to
exploit because of their lack of investment capital. The
Philippines, for one, can potentially become the world's
fifth-largest minerals producer. Substantial deposits of
gold, copper, and nickel have been discovered in many parts
of the archipelago.
Oil and gas wells are now operational in the Malampaya
areas in offshore Palawan.
In addition, land-reclamation programs may be launched in
coastal cities like Manila, Cebu, Davao--all of which need
room for expansion. These programs could raise billions of
pesos for the foreign investor and the Philippine State.
Reclamation, as we know has been a major stimulus to the
economies of Hong Kong and Singapore.
Social Investments
Bilateral or multi-lateral creditors, who offer official
loans, will be attracted to social investment opportunities
for their Debt-for-MDG programs.
There are many ways through which official lenders can plow
back their debt-service receipts into social investment in
the poor countries. Among them are the following:
1. Debt for Education. Millions of young people in poor
countries have little or no access to basic education. Debt-
payments can be plowed back into school buildings,
instructional materials, and better pay and training for
public-school teachers in the poor countries.
They can also fund school-feeding programs and ``wages for
learning'' incentive schemes that keep potential drop-outs in
school--as well as college scholarships and ``study-now-pay-
later'' programs. In making these social investments,
creditors can deal directly with local. government units and
school boards.
2. Debt for Hospitals and Health Care. Debt-relief funds
can also be channeled to primary health-care facilities such
as puericulture centers, general hospitals, and diagnostic
laboratories. Even more useful are mass vaccination programs
to prevent epidemic that now kill people in poor countries in
great number.
3. Debt for Micro-Finance. The United Nations regards
microfinance as a key strategy in poverty reduction. The
success of microlending in Bangladesh and elsewhere proves
how much poor people (particularly rural women) can do--given
a little capital.
The hundreds of micro-banks operating throughout the Third
World can use recycled debt-service payments to expand their
coverage and to raise their loan levels to the local
entrepreneurs they serve.
If we are to realize the vision we share--of halving the
world's' most abject poor in 10 years' time--we will need the
concerted action of the world's richest economies.
According to the ``Report on the UN Millennium Project,''
the MDGs will require from the donor-states at least $50
billion more yearly--on top of the US$88 billion the rich
countries have already committed in Official Development
Aid--to fund sufficiently their action points, reform
programs, and development requirements.
Persuading the G-8 countries and the Paris Club to raise
this new money will obviously be hard to do.
So we say outright that the world's donor and creditor
communities need not raise new money. They can easily meet
the most urgent needs of the poor and middle-income countries
just by agreeing to plow back a portion of their debt
payments into the economies of the poor countries--through
our Debt-for-MDG-Investments program.
The rich countries commonly reproach the poor countries for
dissipating in corruption too large a part of the foreign aid
they receive.
We believe this reproach to be richly deserved. We expect
that the debtor-countries which subscribe to the Philippine
proposal will agree to observe adequate standards of
transparency in their handling of recycled debt-payments--
particularly those that go into social investments. (In the
case of equity investments, investors will presumably be
protected by the normal business constraints.)
An end at last to poverty?
In conclusion, let me emphasize that we in the so-called
middle-income countries are not seeking the charity of the
rich.
Whatever the outcome of this proposal, we shall continue to
honor our debts.
But we appeal to our creditors: Together let us seek
creative ways of easing our debt-burden--ways that will also
help us meet our obligations to you.
Right now, all we seek is some fiscal breathing space--
which will allow us to realize our national Millennium
Development Goals by 2015.
With your consent and your support--and with a little help
from the various institutions of the United Nations, as well
as the world's large commercial banks--we can launch together
a massive international effort, truly to ``make poverty
history.''
Thank you for hearing me out, and good day.
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