Bad Credit Remortgage

Not surprisingly, the debt crisis reached its gravest proportions under the Marcos dictatorship. One of the reasons for the debt build-up during this period was the Marcos regime's need to preserve its economic prop - crony capitalism. So all-encompassing was this system of crony capitalism that many of the country's 500 state agencies at the time took off as private ventures of Marcos' friends and associates. Then after cronies had their fill of state-guaranteed financing and bled their own ventures dry, their bankrupt, debt-strapped firms passed on to the national government.

Huge amounts of public funds poured into salvaging firms whose common feature was their mortgages with the Marcos regime.As the firms eventually foreclosed, government financial institutions (GFIs) had to borrow more from the national government to continue running them. In less than five years, from 1978-1982, net lending (representing national government infusions into GFIs and other GOCCs like the National Power Corporation) rose from 9.9 percent to 22 percent of total government expenditures or tenfold from $2.6 billion to $22 billion.

Initially, a P1-billion rescue fund for "distressed" corporations was put up, ostensibly to prevent layoffs in the face of animpending recession and remortgages. Government went a step farther by offering sovereignguarantees that sped up the approval of foreign credits of these firms. The money eventually ended up being relent by GFIs like the Development Bank of the Philippines (DBP) and the Philippine National Bank (PNB), to firms that were having difficulties in meeting loan payments to these same GFIs, including theSocial Security System, or directly to foreign banks.

With this system of bestowing sovereign guarantees in place, there was no urgency for foreign lenders to carefully probe loan applications. After all, government or the Central Bank (now the Bangko Sentral ng Pilipinas) had bound itself to repaying the loans, regardless of the viability of the projects it financed. During the period 1978 to 1982, the proportion of total medium and long-term debts relent by the public sector to the private mortgage more than doubled from $901 million to $2,105 million.

The Aquino years: honoring private, dishonorable debts

"Growth must take priority, for the plain and simple reason that we have no money to pay, we can't," Corazon Aquino said of her debt policy. "And if we starve the nation of essential services, there may be no one around willing to honor the debt." Faced however with the challenge of averting an economic crisis on one hand and honoring the Marcos regime's debts on the other, the Aquino administration opted to take upon itself - or rather the Filipino people - the decision of paying them all, "if only for honor". Thus, despite pronouncements against extending any more sovereign guarantees, the Aquino administration would take on up to $2,740-million of private sector debts before the end of 1986. Two years later, assumed debts accounted for 38 percent of the increase in the national government's foreign debt.

"It will not be a good picture for the government if these banks…were closed due to unpaid debts," then Central Bank Governor Jose Ongpin reportedly told Aquino. On his part, former Secretary Franklin Drilon clarified that "'the law vests upon the chief executive's discretion whether or not to undertake such assumption of debts,'"…even if "'the value of assets transferred is less than the amount of the liabilities assumed.'"

By the time Fidel Ramos came to power, total foreign and domestic bad credits assumed by the national government amounted toP194.857 billion (See Table 13, Annexes, for foreign exchange rates). Of these liabilities, 419 loan accounts guaranteed by GFIs costing P147 billion were then transferred to the Assets Privatization Trust for disposal. Some 384 public and private bad credit mortgage incurred these loans from foreign and domestic creditors, confident that they were covered by guarantees of such GFIs as DBP, PNB, the Philippine Export and Foreign Loan Guaranty Corporation (PhilGuarantee) and the National Development Corporation.

The collaterals that turned out to be grossly overvalued were foreclosed and later privatized or sold at one-fifth their value. Moreover, because of sovereign guarantees, the national government had to directly pay all their foreign and domestic debts.