Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

FIFTEENTH CONGRESS
First Regular Session

=
HOUSE BILL NO. _3559

Introduced by Rep. BERNADETTE HERRERA-DY

EXPLANATORY NOTE

The second quarter of the Philippine Fiscal year of 2010 saw
the increase of 0.6 percent foreign debt stock, or an increase of 28
billion pesos giving rise to a total government stock of Php4.582
trillion by June of 2010. With a population estimated to reach some
94.01 million this year, Filipinos would have a share of Php50,859
from the country’s total outstanding debt. This debt stock represent
at least 56.5 percent of the Philippine economy, as measured by the
gross domestic product or the total value of goods made and
services rendered within the country.

Php1.986 trillion or at least 43.4 percent of the country’s
outstanding debt had been booked in foreign currencies such as the
US dollars, the Euro and the Japanese Yen. Aside from loans
extended by multilateral lenders and official aids from foreign
governments, the Philippines also borrowed internationally through
the issuance of bonds denominated in these currencies. More so,
the continuous depreciation of the Philippine peso as against the US

dollars accounts for the increase of Php9Billion on foreign debt
stock.

The prevailing economic policy, in addressing this problem,
has been a mixture of increasing taxes, increasing domestic or
foreign borrowings, privatization of some government assets,
promotion of investments and development, calibrating the National
Budget and maintaining economic equilibrium on the basis of what
is available. But just like all other developing countries, tighter fiscal
policy reduces economic growth, making the country’s default
inevitable. The increasing public-debt service costs is a serious and
debilitating matter as it cuts deeply into our country’s limited
resources for economic and social services and affects our credit
standing, capacity to grow and ability to deal with poverty.
Following the model of other countries, and recently that of


Argentina, there is, however, an opportunity to reduce, if not
eliminate, our foreign debt - that is through Debt Swaps.

Indeed, developing countries have been undertaking debt
swaps for more than 20 years. Ever since Chile conducted the
first debt for equity swap in 1985, some fifty countries have
undertaken debt swaps with different aims. Debt Swaps have the
advantage of reducing debt, creating a positive impact on a
country’s balance of payments, promoting investments and
increasing funding for development programs.

It is therefore, about time that the Philippine Government considers
a policy shift when it comes to managing, if not totally, eliminating
our foreign debt. With the creation of Debt-Swap Council, it is
hoped that a total business plan for the debt-reduction will be
created. This proposed measure, moreover, subjects the bidding
process to the so-called “Swiss Challenge”, that will help encourage
private sector initiative in core sector projects. In this way, the
government allows third parties better offers/challenges for a
project during a designated period with a simple objective to

discourage frivolous project/s, or to avoid exaggerated project
development costs.

Hence, tne recite passage of this bill is earnestly requested.

f ly
Mu
ee

HERRERA-DY


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

FIFTEENTH CONGRESS
First Regular Session

HOUSE BILL No. 3559

Introduced by Rep. BERNADETTE HERRERA-DY

AN ACT CREATING A DEBT-SWAP COUNCIL AND FOR OTHER
PURPOSES

Be it enacted by the Senate and House of Representatives in
Congress assembled:

Section 1. Title - This Act shall be known as Debt-
Swap Law of 2010.

Section 2. Declaration of State Policy. - The State
recognizes the need for a sound public fiscal policy that will ensure
the people's right to quality life and basic social services. With the
increasing foreign debt services which accounts to more than half of
the country’s budget, other important functions of the government,
especially social services had been substantially diminished.
Towards this end, the state shall promote fiscal policies that) will
ensure adequate social services, promote full employment, a rising
standard of living and an improved quality of life for all.

Section 3. Debt-Swap Council. - To ascertain) the
reduction of the country’s foreign debt through “debt-swapping”, a

“Debt-Swap Council” shall be created under the Department of
Finance.

Section 4. Composition. - The Council shall) be
composed of representatives from the following government and
non-government agencies:

a) Department of Finance, as the Chairman;

b) Department of Budget and Management;

c) Department of Trade and Industry;

d) Department of Agriculture;

e) Department of Environment and Natural Resources;

f) Department of Health;


g) Department of Tourism;

h) Department of Transportation and Communications;

i) Department of Eneray;

j National Economic and Development Authority;

k) Four (4) representatives from non-government
organizations of nationwide base to be chosen by the President from
among the nominees submitted by the various non-government
organizations in the Philippines; and

!) Two (2) representatives from business/industry sector
to be chosen by the President from among the nominees submitted
by the various business organizations.

Section 5. Functions of the Chairman. - The Council
shall be headed by the Secretary of Finance as the Chairman. He
shall establish, with the concurrence of the Council, the policies,
procedures and standards to govern the implementation and
interpretation of the functions and duties of the Council.

Section 6. Per Diems of Members - The members of
the Council shall be entitled to an allowance of Five thousand pesos
(P5,000.00) per meeting actually attended but not more than ten
thousand pesos (P10,000.00) a month.

Section 7. The Secretariat.- The Council shall
appoint an Executive Director who shall assist the Chairman and act
as Secretary of the Council. The Department of Finance shall
provide the Secretariat which shall assist the Council in the effective
performance of its functions.

Section 8. Powers and Functions of the Debt-Swap
Council. - The Council shall have the following powers and
functions:

a) Identify the country’s debt which could be converted,
the prospective foreign investments or projects and its’ executing
agencies. In doing so, the Council, may look into, among others,
the country’s external debt profile, existing governmental policies,
potential funding sources for the swap and financial and design
issues for the swap.

b) Identify assets or real rights which could be offered for
swapping. Assets which may be the subject of swapping shall
include but shall not be limited to, exploration rights for oil,
mineral explorations and development, reforestation of denuded
lands, development of new agricultural lands and infrastructures,
development of natural energy sources, development of industrial
and touristic zones, development of climate change mitigating
measures and development of other natural resources.


c) Craft the proposals for swapping which shall include,
determining the appropriate, debt-payment mechanism to be used,
the amount of debt eligible for redemption, payment schedule,
projects to be funded, financial structure for channeling debt-swap
proceeds and supervision and evaluation of uses of funds.

d) Enter into debt-conversion agreements with creditors
who won through public bidding as indicated in Section 9 hereof or
through an unsolicited offer subjected to “Swiss challenge” under
the rules to be established by the Council

e) Set up an_ oversight committee to monitor
implementation of agreements entered into, including the use of
proceeds from said agreements.

f) And such other powers as may be needed in the
exercise of the Council’s mandates and functions.

Section 9. Public Bidding and Unsolicited Offers
subject to Swiss Challenge. - All projects for debt-swapping
crafted by the Council shall be published, once every week for three
(3) consecutive weeks, in at least two (2) newspapers of general
circulation and in at least one (1) local newspaper which is
circulated in the region, province, city or municipality in which) the
project is to be implemented inviting all duly qualified creditors/,
non-government organizations, development organizations or other
third parties to participate in a public bidding for the project in
question. The Council shall promulgate the rules and regulations to
be followed in the conduct of such public bidding and processing of
unsolicited offers subject to Swiss Challenge.

Section 10. Types of Debt Swaps. - The Council shall
consider, but shall not be limited to the following debt-swap
schemes:

a) Debt-for-equity swaps wherein external debt shall be
exchanged into local currency for equity investment in the country.

b) Debt-for-development swaps wherein a development
organization purchases sovereign debt at a discount and negotiates
with the Government to exchange the debt at par or at an agreed
discount for local currency funding for a development project
approved by the Council.

c) Debt-for-environment swaps wherein external debt
is exchanged for local currency funding for nature conservation and
environmental protection.

Section 11. Guiding Principles for Debt Swapping. -
In crafting projects for debt-swap, the Council must be guided by
the following principles:


a) The assignment of any asset or real right must not
violate the Constitution or any law;

b) Debt swaps must support the country’s investment
priorities and used to attract additional investments;

c) Debt swaps must be undertaken through the
coordination of various government agencies; and

d) Debt swaps can be designed to promote participation by
civil society in funding and administrating development or
environmental programs.

Section 12. Implementing Rules and Regulations. ~
The Council shall, within one hundred twenty (120) days from the
effectivity of this Act, promulgate rules and regulations necessary to
effectively implement its provisions.

Section 13. Separability Clause. - If any provision of
this Act or any part thereof be declared unconstitutional or invalid,
the other provisions, as far as they are separable from the invalid
ones, shall remain in force and effect.

Section 14. Repealing Clause. - All laws, decrees,
orders, rules and regulations or parts thereof which are inconsistent

with the provisions of this Act are hereby repealed, amended or
modified accordingly.

Section 15. Effectivity. - This Act shall take effect

fifteen (15) days after its publication in the Official Gazette or in at
least two (2) newspapers of general circulation.

Approved,