Manasan (2006) estimates the financing gap for MDGs in

							STORY BRIEF
November 21, 2007

Dr. Joseph Lim from the University of the Philippines School of Economics urges the
United Nations to launch an international campaign to change the concept of “debt
sustainability” of international lending institutions particularly the Bretton Woods
Institutions. To achieve debt sustainability, the UN system and the UNDP can ask the
creditors not to look at the countries’ capacity to pay their debts but on how debt
servicing has hampered the debtor-countries’ capacity to eradicate poverty and the other
UN Millennium Development Goals (MDGs).

In a study presented during the National Consultation on Financing for Development
conducted by the Social Watch Philippines today, Dr. Lim said this would change the
Paris Club rules and allow a bigger chunk of bilateral debts to be reduced or converted
without jeopardizing the country’s credit worthiness and rating.

Bilateral debt conversions and debt treatments are constrained under the IMF and Paris
Club Rules. The eligible debts for the Philippines are debts incurred before the cut-off
date of April 1, 1984. Under the existing rules, very little debt is eligible for debt
reduction and debt conversion for the Philippines.

The new debt sustainability concept identifies a country requiring debt relief if it is found
lagging behind in meeting at least one of the MDG targets, debt service payments have
reduced the potential and actual budget for social and economic services vital to meet the
MDG targets or foreign exchange outflows to pay debt service impede the economic and
social development of the country and retarding the progress to achieve the MDG
targets..

Dr. Lim presented in the forum that the government’s principal and interest debt
servicing is equivalent to 87.2 percent of GDP in 2006, almost doubling the 2000 level at
44.3% of the GDP. These funds can go to education, health, social and economic services
and rural infrastructure. Among the critical MDG targets, the country is lagging behind in
hunger mitigation, has low survival rate in elementary education and deteriorating social
health insurance programs.

To complement this proposal, Dr. Lim also urges the government to offer feasible MDG
projects and programs where bilateral debts or grants can be re-channeled to, within or
outside the Paris Club rules. The civil society groups can help identify development and
anti-poverty plans that are in dire need of financing and/or have become the victims of
tight budget or fiscal constriction as a result of debt servicing allocation.

The countries targeted for debt conversions, debt reduction and grants are Germany,
Italy, Switzerland, US, Finland, Spain, France, Canada, United Kingdom, Denmark,
Belgium, and Netherlands; non-Paris Club countries such as China, Taiwan, Singapore,
Korea, Hong Kong and India; and Muslim countries such as Malaysia, Brunei, Kuwait,
Libya, Saudi Arabia. The Philippines can ask for grants from countries that are averse to
debt conversions such as Japan and Australia.

According to Dr. Lim, another strategy but requires mutual obligation and accountability
is to attract the bilateral creditors with projects and programs that will advance the
MDGs, based on a system of prioritization of programs that is consistent with the
Philippine Medium Term Development Program. The Philippines and the creditors or
donors should ensure transparency and accountability as well as efficient absorptive
capacity of the programs to ensure that the funds are appropriately and efficiently
channeled to achieve the MDGs.

The developed countries should strive to achieve their commitments of providing
external development assistance equivalent to at least 0.7% of their GNP including funds
from debt reduction, and their pledge to finance vital MDG projects and programs,
including those of low and middle income countries outside the Heavily Indebted Poor
Countries (HIPC).

So far only Norway, Denmark, Luxemburg, Netherlands, and Sweden have complied
with this commitment. Japan and US, two of the world’s and the Philippines’ top donors
have very dismal records. Japan spent only 0.2% of its GNP for external development
assistance in 2003, while the US spent only 0.15% of its GNP for external development
assistance for the same year.

Dr. Rosario Manasan estimates the financing gap for MDGs in the Philippines in 2006 is
between P600 billion to P800 billion, or between $12 billion to $17 billion (roughly
around 1% of annual GDP). This is around 1/4 to 1/3 of the total external debt of the
Philippines as of end of 2005 and around 40% to 50% of the government external debt of
the same period.

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