[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

[[Page S11415]]

     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.

                          ____________________