Our Wrong-Way Foreign Aid : Philippines Needs Debt Write-Down, Not Marshall Plan

Cloaked in the spirit of giving, a group of lawmakers in Washington recently called for a multibillion-dollar Marshall Plan for the poverty-stricken Philippines. Such funding appeals, while capturing the holiday spirit, totally miss the point. Even were the money available in the deficit-ridden U.S. budget, a new Marshall Plan is not what the Philippines needs.

The fact is that a Philippine Marshall Plan of sorts already exists, but it flows in the wrong direction--from them to us, not from us to them. As the four congressional sponsors of the proposed new plan admit in their appeal, the Philippines in 1986 paid more than $1 billion more in debt service to foreign creditors than it received in new aid.

And that financial hemorrhage is on a trajectory that leads to economic ruin. According to Philippine Planning Minister Solita Monsod, over the next six years $16 billion more will flow out of the Philippines than is projected to trickle in.

The major part of that outflow goes to pay interest on a Philippine foreign debt of $29 billion. This debt, along with a bloated military, stands as the ghastly legacy of Ferdinand Marcos’ two-decade extravaganza at the expense of the majority of the Philippine population. Loans often enriched the Marcos family and cronies while financing projects that either further marginalized the poor or, at best, bypassed them completely.

Take, for example, the Philippines’ single stab at nuclear power. In Bataan stands the shell of a Westinghouse nuclear-power plant. This was Marcos’ most expensive white elephant, financed by $2.2 billion in loans--almost half of which were lent or guaranteed by the U.S. government.

The plant should never have been built; a volcano rumbles just five miles away, and three earthquake faults traverse the landscape within a 25-mile radius. Evidence recovered after Marcos fled reveals blatant corruption and probable bribery between his agents and Westinghouse.

Luckily, in the wake of Chernobyl the new Philippine government was able to mothball the plant. And yet the Philippines is still required to pay half a million dollars a day just for interest on this loan.

The new proponents of a Marshall Plan observe such debt payment and say that the answer is a fat new package of U.S. aid. But to suggest such generosity in the face of record U.S. budget deficits is to practice a cruel deception. And what was true before the market meltdown of Oct. 19 is all the truer now: The budget must be cut.

Indeed, Congress, in one of its last acts before adjourning for 1987, trimmed overall foreign assistance from $13.2 billion in fiscal 1987 to $12.9 billion in 1988. Well over one-third of that total is pledged to Israel, Egypt and El Salvador. The reductions must therefore fall disproportionately on other recipients--countries like the Philippines. And the Philippines will be lucky to retain its 1987 U.S. aid level of $374 million.

Many in Washington therefore don’t take the proposed Philippine Marshall Plan seriously. They see it as pie in the sky--a nice political gesture that will come to naught.

The problem is that people in the Philippines do take it seriously; they don’t understand that it’s all part of a Washington game. “Marshall Plan . . . Gaining Ground in Washington,” headlines in Manila blare.

We owe the Philippine people honesty. We played with their lives enough during our 20-year support of the Marcos dictatorship. This doesn’t mean that the U.S. government can’t do something to help the Philippines. But it does mean that we should look at the problem from the other end of the flow and select a more realistic way to help.

Philippine debt, and the billions of dollars that flow out of the country to service it, blocks development and hence imperils democracy. Most financial analysts agree that a good part of Philippine and other Third World debt will never be repaid. Yet countries are bled as though it can and should be.

The only realistic response is partial debt relief--a course that the Bank of Boston launched two weeks ago by writing off a sizable share of its Third World debt. Banks made such lavish profits on Third World debt when interest rates doubled between 1979 and 1981 that most can afford significant write-downs.

Recall, however, that debt is a global problem, and its resolution cannot depend on the whims of individual banks like the Bank of Boston. The U.S. government should join other governments in an orderly package to press banks to write down debt to levels reflecting its true market value (currently averaging about half its face value). From the mountains of Mindanao to the teeming shantytowns of Manila, the hopes for democratic development rest in such a course.

Let’s start by putting an end to the Philippine Marshall Plan proposal. Only then are proposals to increase the resources flowing back into that country, and the rest of the Third World, worth considering.