E 
13111 CONGRESS OF THE REPUBLIC 
) 
OF THE PHILIPPINES 
1 
First Regulnr Session 
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S E N A T E  
S. BILL NO. 
rirtrodriced by Seitnfor Ralph G. Recfo 
Explanatory Note 
Government guarantees create contingent liabilities which government may not 
be able to pay when a call is made. Indeed, it creates distortions in the allocation of 
budgetary resources of the government not to mention government exposure to high 
fiscal risks. Fiscal instability in Mexico was traced to state guarantees for infrastructure 
projects while in South Korea, the government-guaranteed loans of the banking sector 
spurred fiscal problems for the country. 
A World Bank (WB) study showed that real fiscal deficits of governments are 
higher than the conventional budget deficits being reported, by as high as 7.8% of the 
gross domestic product (GDP) for developing countries and 2.3% of GDP in developed 
countries. For the Philippines, the hidden deficit was estimated at around 4% of GDP. 
The same study established a strong correlation between the hidden deficits and 
currency crises in the East Asian countries. 
This bill seeks to restore fiscal discipline and minimize government exposure to 
fiscal risks with the end view of maximizing budgetary allocations to social services 
such as health, education, and housing. It sets a cap on the guarantees government can 
extend within a fiscal year to thirty percent of one percent (0.30%) of the gross domestic 
product at current prices for the preceding year. 
It is in this light that immediate approval 
111 is earnestly sought 


13th CONGRESS OF THE REPUBLIC 
) 
OF THE PHILIPPINES 
1 
First Regular Session 
1 
Introduced by Senator Ralph G. Recto 
AN ACT 
TO 
LIMIT 
ANNUAL 
GOVERNMENT GUARANTEES TO THIRTY 
PERCENT OF ONE PERCENT (0.30%) OF THE GROSS DOMESTIC 
PRODUCT (GDP), AT CURRENT PRICES, OF THE PRECEDING YEAR 
Be it enacted by the Senate and the House of Representatives of the Philippines in 
Congvess assembled: 
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2004". 
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health, education, and housing. 
SECTION 
1. Title. - This Act shall be known as the "Guarantee Cap Act of 
SEC. 2. Declaration of Policy. - It is hereby declared to be the policy of the 
State to restore fiscal discipline and minimize government exposure to fiscal risks 
with the end view of maximizing budgetary allocations to social services such as 
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SEC. 3. Cap on government guamntees. - The national government or any of 
its instrumentalities may guarantee foreign or domestic loans of the private 
sector: Provided, That the total loan obligations guaranteed by the national 
government or any of its instrumentalities within a fiscal year shall not exceed 
thirty percent of one percent (0.30%) of the gross domestic product (GDP), at 
current prices, of the preceding year. 
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SEC. 4. Implementing rules and regulations. - The Department of Finance 
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(DOF), the National Economic Development Authority (NEDA), the Department 
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of Budget and Management (DBM), and other appropriate government agencies 
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shall promulgate rules and regulations necessary for the 
effective 
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implementation of this Act. 
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SEC. 5. Repealing Clause. - All laws or parts of any law inconsistent with the 
provisions of this Act are hereby repealed or modified accordingly. 


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Approved, 
SEC. 6. Sepuvubility Clause. - If any provision of this Act is held invalid, the 
other provisions not affected thereby shall continue in operation. 
SEC. 7. 
Efectivity Cluuse. - This Act shall take effect fifteen (15) days after 
its publication in at least two (2) newspapers of general circulation. 
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