40 WHAT HAS BEEN DONE IN THE PHILIPPINES. source of profit to the Philippine treasury. The debt of the islands under Spanish authority, amounting to about $40,000,000, was gotten rid of by the transfer of sovereignty and the payment by the United States of $20,000,000. The present interest-bearing obligations of the Philippine government are as follows: One-year certificates of indebtedness, under authority of the coinage act. $3,000,000 Second series of such certificates. Bonds for taking up the lands of the friars. Total .. 3,000,000 7,000,000 13, 000, 000 A third series of one-year certificates paying 4 per cent has just been awarded at a premium of 1.181 per cent, or $35,430; but as they take the place of the first issue which is about maturing, they do not add to the total debt or the permanent interest charge. The interest rate upon each of these classes of obligations is nominominally 4 per cent, representing an annual charge of $520,000 per year, but actually the net cost to the treasury has thus far been less than nothing. The following table shows the amount paid in interest from the insular treasury and the amount received in premiums upon the sale of the securities: Obviously the premium on the friar's land bonds should be distributed over the ten years within which they may be redeemed by the government, instead of put to the credit of the treasury in a single year. If this distribution is made, it will be found that the net annual charge upon the revenue for these bonds is reduced by the premium from 4 per cent to about 3.1 per cent. This rate of net interest charge of $7,000,000, representing the principal of the bonds, involves an annual expenditure of $217,000. The net interest charges upon the other two issues, after deducting the premiums, are $97,410, making the net annual interest charges, if these conditions should continue, $314,410. This charge would rise to $354,370 annually if the rate of premium on the last sale of one-year certificates instead of that first realized were taken as the future rate. These figures are subject to a still further deduction by reason of the interest which the Philippine government has received upon the funds kept in banks and trust eompanies pending their use. Thus far, the amounts received for interest within a single year have been $101,785.09, of which $43.223.40 were earned by the proceeds of the one-year certificates, and $58,561.69 upon the proceeds of the friars' land bonds. In the case of $3,000,000 of the one-year certificates, which sum is to constitute a permanent fund to maintain the parity of the currency, it may fairly be assumed that the amount will hereafter remain substantially unimpaired throughout the year and will draw interest at the rate of 3 per cent. This would amount to $90,000 per year. Hence, the permanent interest account of the Philippine government upon its present obligations would stand thus: GROSS EXPENDITURES. Interest on $6,000,000 one-year certificates, at 4 per cent. DEDUCTIONS. $240.000 280,000 520,000 The customs receipts, which constitute the principal revenue of the islands, are about $10,000,000. The net burden, therefore, for interest on the existing debt, is $224,410, or at the rate of a little less than 24 per cent of the customs receipts. There is probably no civilized state in the world to-day-unless it is the little principality of Monaco, whose revenue is derived from the gaming table-which is not compelled to devote a larger part of its revenues than 24 per cent to the interest on its public debt. The present debt of the Philippine Islands being $15,000,000, amounts to about $1.62 per capita for a population of 8,000,000, and the annual net interest charge to less than four cents per capita. The United States has a per capita debt of at least $12 and annual charges of more than 30 cents. Great Britain has a debt in excess of $90 per capita and interest charges of $3. France has a debt of nearly $150 for each of her people and an annual interest burden of $6. But In France It is true that these are richer countries than the Philippines and that their gross revenue is larger. The true test of interest burdens should perhaps be the ratio which they hear to gross revenue. here also the test is in favor of our island dependencies. 30 per cent of the revenue goes to meet the charges on the debt; in Great Britain 19 per cent: even in the United States about 5 per cent, without counting State and local indebtedness. In the Philippines the proportion is about 24 per cent. Tried by every test, therefore, the burden on the people of the Philippines for their bonded debt is among the lightest imposed by modern states, and they are well able to make a further appropriation from revenue to provide for railways and other public improvements. There are few, if any, civilized States, moreover, which have so much to show as the Philippines for the debt which they have incurred. A part represents a substantial asset in gold in the custody of banks and trust companies in New York. The other part represents the acquisition of the best lands in the Philippine Islands, which the Government has acquired from the friars in order to give them back to their natural cultivators, the people of the islands. Both of these debts will be subject to reduction in the ordinary course of events without levying taxes or providing in any other manner for a sinking fund. In the case of the $6,000,000, which has been appropriated temporarily to meet the expenses of inaugurating the new coinage system, half of this amount will be no longer necessary when the new system is com 42 WHAT HAS BEEN DONE IN THE PHILIPPINES. pleted. The money was made available simply for the purpose of covering the capital tied up in bullion in transit from the mines to the completed coin. When the coinage is complete and the balance is cast up, it will no longer be necessary to keep any of the assets of the islands in this form. This obligation of $3,000,000 will disappear, because it is represented to-day by substantial assets in the form of money in the mints, bullion awaiting coinage, or funds on deposit in the United States for acquiring bullion. Not only will this debt be wiped out, but by the process of the coinage itself à profit has already accrued to the Philippine treasury under the coinage act amounting to $1.238,714. This fund, if constituted into a sinking fund, would pay the interest on a gold reserve of $3.000.000 practically in perpetuity. If this sum is considered in connection with the interest payments to be made and the other premiums which have accrued, it will appear that the treasury of the Philippine Islands is to-day at least $1,500,000 better off than if no debt had been incurred. This seeming paradox arises from two elements-the fact that the Government, in coining bullion into silver coins, has given them a gold value somewhat higher than the bullion they contain, representing a seigniorage profit of $1,238,714: and the further fact that the Government received interest on its deposits in New York which were for a time in excess of the net interest paid upon the securities issued, after deducting the premium received at their sale. In other words, the first issue of one-year certificates sold at a price of 102.513, making the net interest to the Philippine government 1.487, and upon the money thus received interest was paid by the Guaranty Trust Company at the rate of 34 per cent. Could this ratio of profit have been applied to the whole of that loan for the entire year, the government would have received in interest from the trust company $105,000, to be added to the sum of $75,390, which was received in premium, making a total of $180,390, while actual disbursements for interest upon the loan were $120,000. There was thus a possible profit to the Philippine government in entering the loan market in this particular case of $60,390. In the case of the friars' lands also the substantial assets which have been obtained will reduce the debt and its charges as rapidly as the lands can be disposed of and the proceeds covered into the treasury. Secretary Taft has estimated that all but $1,000,000 of the amount paid will thus be recovered. Taking the more conservative estimate of $2,000,000 as lost to the treasury in the operation, there will still be within a term of years a recovery of $5,000,000, upon which the interest charges saved at 3.1 per cent will be $155,000. With the absorption of the coinage fund, the net debt of the islands will then stand at $3,000,000 for the currency reserve fund, upon which the interest will be more than met from the seigniorage profits on coinage, and $2,000,000 for the friars' lands, upon which the net interest charges will be less than 1 cent per capita. |