EXPLANATORY NOTE 
Democracy answers this question --- “who ought to exercise the 
public power?” The answer it gives is --- the exercise of power 
belongs to the people as a body.. .*I 
It has been thirty (30) years since Presidential Decree No. 1177, which is 
more popularly known as the Automatic Appropriations Law for debt 
servicing, was issued by former President Ferdinand E. Marcos. As the 
title suggests, under this Law, the ational Government is duty bound to 
automatically appropriate funds for principal and interest payments for 
public debt servicing. 
The rise in the accumulated indebtedness of the National Government over 
the years has reached alarming proportions. Each year, the Government is 
allocating enormous amount to service the country’s external debts. In 
2005 alone, the Government allotted Php686 Billion or around 94% of the 
country’s total revenues. It was also in the same year that budget allocation 
for debt payment overtook the appropriation for public service expenditures 
by 1.37%. 
Given the already impoverished life of most Filipinos, the money which the 
Government automatically allocates for debt payments should instead be 
re-channelled to fund- basic services like education, health, poverty 
alleviation and other similar spending devoted to social and public services. 
It is worthy to consider that local government units (LGUs) play a big role in 
delivery of such services. 
Through the devolution process, it became the LGUs’ burden and 
responsibility to deliver public services like health care, disaster 
preparedness and management and other social services to the citizens. 
With this vital task at hand, Internal Revenue Allotment (IRA), which 
comprises sixty-four (64) percent of the resources of the country’s LGUs, 
‘Ortega y Gasset, Jose. 1937. Inveflebrete Spain. Translated by Mildred Adams. (New York: W.W. Norton) 
p. 135 


is a major determinant of the quality of public services that actually reach 
the populace. Albeit playing a vital role in the delivery of public and social 
services, LGUs are only given a small percentage of the government’s 
overall financial resources. 
p4 
It is noteworthy that the parties to be principally 
by this roposed 
legislation are the LGUs, which shall receive Fifty percent (50%) of 
resources to be ‘Yresd” if we are ‘lo repeal the automatic appropriation of 
funds for external debt payments. The remaining resources shall be re- 
channelled to other basic social services which compete for funding 
annually in the national budget. 
Substantial funding for public and social services is what is needed during 
these pressing times of economic instability and social fallibility. Much as 
the government would like to provide for programs that will boost the 
country’s progress and stimulate development, it can only do so much with 
the very limited resources lefi afbr most of our resources are automatically 
allotted for debt servicing. 
Other countries similarly situated like the Philippines have showed us the 
way. For example, Brazil resisted paying its creditors for eighteen (18) 
months starting in 1987, resulting lo simulated threats from creditor banks 
but with little real retaliation. Likewise, in the case of Bolivia, it suspended 
most debt service payments in 1984 and actually gained an auspicious 
buy-back deal three (3) years after. 
This bill, in a sense, simply seeks to follow the lead of these countries by 
cancelling the automatic allotment of funds for debt servicing under P.D. 
No. 1 177 in order to “free” sufficient funds for the public and social services 
as well as the poverty alleviation and development programs of the 
National Government. 
This representation firmly believes that if the Government has the political 
will to repeal the automatic appropriations for the servicing of the foreign 
debt, the Government will have the necessary resources which go a long 
way in uplifting the sorry state of the nation and the citizenry and provide 
very much needed funds for basic public and social services for the people. 
In view of the foregoing, early passage of this bill is earnestly requested. 
F. TRILLANES IV 
Senator 


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FOURTEENTH CONGRESS OF THE REPUBLIC ) 
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OF THE PHILIPPINES 
First Regular Session 
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Introduced by Senator Antonio F. Trillanes IV 
AM ACT 
AMENDING SECTION 31 OF PRESlBENTlAL DECREE NO. 1177, ALLOCATING 
FIFTY PERCENT (50%) OF THE FUNDS “FREED” AS A RESULT OF THE 
AMENDMENT TO AUGMENT THE INTERNAL REVENUE ALLOTMENTS (IRA) OF 
LOCAL GOVERNMENT UNIT§, PROVIDING FOR THE AUTOMATIC RELEASE OF 
THE INTERNAL REVENUE ALLOTMENTS OF LOCAL GOVERNMENT UNITS AND 
FOR OTHER RELATED PURPOSES. 
Be it enacted by the Senate and House of Representatives of the Philippines in 
Congress assembled: 
SECTION 1. Short TWe. - 
This Act shall be known as “Automatic Debt 
Appropriations Cancellation Act of 2007”. 
SEC. 2. Amendment of Section 34, P.D. No. 4477. - Any provision of law to 
the contrary notwithstanding, Section 31 of Presidential Decree No. 1177 is hereby 
amended to read as follows: 
“Section 31. Automatic Appropriations. - All expenditures for (a) 
personnel retirement premiums, government service insurance, and other 
similar fixed expenditures; [(b) principal and interest on public debt,] & 
(LJ 
national government guarantees of obligations which are drawn upon, 
are automatically appropriated: Provided, That no obligations shall be 
incurred or payments made from funds thus automatically appropriated 
except as issued in the form of regular budgetary allotments. ” 
SEC. 3. Appropriations for Debt Servicinq. - The funding for the payment of 
the principal and interest for the foreign debts of the country shall undergo the same 
annual appropriations process like all regular items of the National Budget under the 
General Appropriations Act. 
The same shall be recommended annually by the 
Executive through the Department of Budget and Management (DBM) based on the 


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preferences, priorities and programs of the administration, and shall be subject to the 
review of both houses of Congress. 
SEC. 4. Incr@ase in the ~ u ~ ~ i n a  
of Laacsd ~ o v @ r ~ m e n ~  
Units. - Fifty percent 
(50%) of the resources of the Government “freed as a result of the cancellation of the 
automatic appropriations for debt servicing under Section 31 of Presidential Decree No. 
1177 shall be allocated to augment the current funding of local government units 
(LGUs) by means of increasing their share in Real Estate Taxes collected within their 
territorial jurisdiction or the so called Internal Revenue Allotment (IRA) due to them. 
SEC. 5. Automatic Release of IRA. - The Internal Revenue Allotment (IRA) 
due to each local government unit (LGU) shall be automatically released within fifteen 
(15) days from the start of each and every quarter in the form of quarterly budgetary 
allotments covered by the appropriate release orders. The DBM may not withhold or 
impound any part or portion of the allotments due to local government units (LGUs) for 
any reason whatsoever. 
SEC. 6. lmplemenfina AaencK. - The DBM shall take the appropriate action to 
see to the implementation of the provisions of this Act, particularly in the preparation of 
the annual National Budget of the Government as contained in the General 
Appropriations Act and in the computation of the IRA due and payable to local 
government units (LGUs). 
SEC. 7. Seaarabilitv. - In case any part, portion or provision of this Act is 
declared as invalid or unconstitutional, the remaining parts, portions andlor provisions 
thereof shall remain in full force and effect. 
SEC. 8. Et7ecfiviQ. - This Act shall take effect fifteen (15) days following the 
completion of its publication in two newspapers of general circulation. 
Approved,