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The Philippines, a country of some 80 million people, is strategically located at the heart of Southeast Asia. Situated between Taiwan, China and Hong Kong in the North, Singapore, Malaysia and Thailand in the West, the Pacific Ocean in the east and Borneo in the South, this archipelagic nation is composed of 7,107 islands.
The Philippine Archipelago is one of the largest island groups in the world and is divided into three major areas that correspond broadly to the ethnicity of the human population. These three groups are Luzon in the north with a total area of 104,687.80 sq. km.; the Visayas in the central region, 57,201.92 sq. km.; and Mindanao in the south, occupying a further 94,630.10 sq. km.
This island chain stretches more than 1500 km from north to south and more than 1000 km from west to east. Less than 400 of the islands are permanently inhabited.
The majority of the people are of Indo-Malay descent although in many cases mixed with Chinese and Spanish ancestry. Many Filipinos take Spanish and derived Spanish family names. In most cases their name relates to the estate to which their ancestors were indentured.
Around 40% of the population lives in urban areas of which 13% of the total population lives in Metro Manila alone. Manila accounts for over a third of the country's GDP.
91.5 percent of the population are of Christian Malay descent, almost 5 percent are Muslim Malay and live predominantly in the south, close to 1 percent are ethnic Chinese, and a further 3 percent are otherwise categorized and are mainly from upland tribal groups.
In recent years there has been a rapid shift from an agricultural based economy to a service economy - much of which however is within government services. There are moves afoot at the political level to reduce and rationalize the myriad levels of government activity but equally there are entrenched political interests opposed to any fundamental change. It is hard to see such reform emerging under the present constitutional system unless there is a massive shift to federalism and an empowerment of resources to finance local decision-making and to make it accountable.
The service sector now accounts for some 43% of GDP while agriculture - which remains the largest employer in rural areas - has been reduced to some 19%. Manufacturing now accounts for a further 24% and is the most important sector in terms of foreign exchange earned through exports. Inwards remittances from overseas workers also play a big part in ensuring adequate international reserves.
The earliest human inhabitants of the islands that subsequently became known as the Philippines are believed to be the Negritos (also known as the Aeta) who arrived some 30,000 years ago having crossed via a land bridge from the Asian mainland. They clashed with other immigrant waves from Borneo and Sumatra, who also made their way across then-existing land bridges. Subsequently, people of Malay stock came from the south in successive waves, the earliest by land bridges and later in boats called balangays. The Malays dominated the lowlands where they settled in scattered communities of kinship, which became known as barangays and which were ruled by local chieftains known as datus.
Permanent Spanish occupation followed in 1565 and the country was then named "Filipinas" after then King Philip II of Spain. By 1571 the entire country aside from the Islamic Sulu archipelago was under Spanish control - often exerted via Mexico and without the knowledge of the administration in Madrid. At first the interest of the Spanish was more strategic than commercial and they viewed their control of the Philippines as no more than a stepping-stone to the rich Spice Islands of Indonesia.
Following Admiral Dewey's defeat of the Spanish fleet in Manila Bay, the United States occupied the Philippines. Spain ceded the islands to the United States under the terms of the Treaty of Paris (December 10, 1898), which ended the war. The United States continued as the colonial master of the Philippines during most of the first half of the 20th Century.
As a result of the Japanese occupation during World War II, the guerrilla warfare that followed, and the battles leading to liberation, the country suffered great damage and a complete organizational breakdown. Despite the shaken state of the country, the United States and the Philippines decided to move forward with plans for independence. On July 4, 1946, the Philippine Islands became the independent Republic of the Philippines, in accordance with the terms of the Tydings-McDuffie Act. In 1962, the official Independence Day was changed from July 4 to June 12, which commemorates the date of independence from Spain as originally declared by General Aguinaldo back in 1898.
After the Second Word War, the Philippines enjoyed one of the most prosperous economies in Asia. It was proud of a per capita GDP that was second only to Japan within the Asian region.
Yet the economic miracle that swept through Asia during the 1960s and 70s, for the most part, swept past the Philippines leaving it untouched. The reasons for the failure of the Philippines to grasp the opportunity to transform economically are complex. At risk of oversimplification, it could be argued that whereas elsewhere in Asia, political emancipation followed economic emancipation, the Philippines was already a "democracy" albeit one that had more in common with the political society of eighteenth century Europe than a modern post war democratic state. The political elite controlled the country and shared power and the spoils of power (and largely still do so). In these circumstances, fundamental economic reform never really had a chance.
In 1972, President Ferdinand E. Marcos (1965-86) declared martial law, citing growing lawlessness and open rebellion by the communist rebels as justification. Marcos governed from 1973 until mid-1981 in accordance with the transitory provisions of a new constitution that replaced the commonwealth constitution of 1935. He suppressed democratic institutions and restricted civil liberties during the martial law period, ruling largely by decree and popular referenda. The government began a process of political normalization during 1978-81, culminating in the reelection of President Marcos to a 6-year term that would have ended in 1987. The Marcos' government's respect for human rights remained low despite the end of martial law on January 17, 1981. His government retained its wide arrest and detention powers. Corruption and favoritism contributed to a serious decline in economic growth and development.
The assassination of opposition leader Benigno (Ninoy) Aquino upon his return to the Philippines in 1983, after a long period of exile, coalesced popular dissatisfaction with Marcos and set in motion a succession of events that culminated in a snap presidential election in February 1986. The opposition united under Aquino's widow, Corazon Aquino, and Salvador Laurel, head of the United Nationalist Democratic Organization (UNIDO). The election was marred by widespread electoral fraud on the part of Marcos and his supporters and an uprising followed. Marcos was forced to flee the Philippines in the face of a peaceful civilian-military uprising now known as EDSA 1 that ousted him and installed Corazon Aquino as president on February 25, 1986.
It was under the presidency of Fidel Ramos, the first Protestant to hold the office, who was elected as the 12th President of the Philippines in 1992 that the economy began to transform. During the early years of the last decade, the Philippines belatedly started to realize its potential and was spoken of by many as being Asia's next "tiger" economy.
While Ramos put the country on a path of economic growth, the results were uneven and many - indeed most - remained untouched by the success of government policies aimed at encouraging manufacturing investment. Ramos' vice-president was a former local film star and college dropout, one Joseph Estrada. Estrada had actually stood as part of the opposition ticket in the 1992 race but under the Philippines constitution, the President and Vice President are separately elected and not part of a joint ticket. Under Ramos, Estrada had served as Chairman of the PACC anti-crime commission.
Joseph Estrada won the 1998 election and took office on June 30 of that year. Following his election, President Estrada formed the LAMP party out of a tri-partite alliance that had helped him get elected. Some members of former President Ramos's Lakas Party defected to LAMP. President Estrada publicly declared that the battles against poverty and corruption would be his highest priority. Unfortunately, things did not turn out as optimists had hoped and during the Estrada period the country again went into decline.
Present Political Environment
President Macapagal-Arroyo, the transitional president who came to power in January 2001 after former President Estrada "vacated" Malacañang Palace, is coming to the close of her three-year transitional term. Elections will take place for a new President, as well as for other branches of government in May 2004.
The administration of her predecessor, President "Erap" Estrada was marked as a period in which the foreign business community was to all intents and purpose shut out from the consultative process. Famed for his mistresses and his nocturnal drinking habits, the Philippines was governed by a cabal of Estrada cronies known as the "midnight cabinet" - his drinking buddies. It was a period in which statesmanship and statecraft were consigned to the slagheap.
This is the legacy that the hard-working, US-educated economist inherited.
Her first State of the Nation address delivered in July 2001 outlined her vision for her administration with goals set in a ten-year time frame. Obviously during the three-year transition rule, she could do no more than lay the foundations. She called on all segments of society to put aside political bickering and unite behind the national agenda.
Her vision (some call it her "wish-list") called for massive new investment to pump prime the economy, to create new jobs and to eliminate poverty within ten years: Reduced to a one-liner her vision was for "jobs, education, home ownership as well as food on every table."
Unfortunately, her call to unity has not been heeded and, among the political core of society, she has remained a controversial figure throughout her presidency. Faced with such disunity, on December 30 2002 while vacationing in Baguio City she announced with much surprise to all that she would not seek re-election in 2004 and that she would pass the mantle to others to complete her vision. However, this announcement did not stop the politicking and the harassment she has received from known supporters of Estrada who have used their money and influence to destabilize the administration.
Undoubtedly, her tenure in Malacañang has been the antithesis of her predecessor. She is known by all to be a hard-working president who, indeed, has sought to push through her reform program at every opportunity. She is intelligent, articulate and can handle herself with ease on the world stage. In many respects she represents the presidential ideal. However, she sits atop a political minefield in which she is often thwarted by vested interests who resist change at every turn and she works within a constitution which - framed in the aftermath of the martial law period - places unusual constraints on presidential powers.
It is a truism to repeat that in the course of an average lifetime, the Philippines has gone from a position as one of the most affluent of Asian countries to being one of the poorest. For that, the larger part of the blame can be placed on the Marcos years and the martial law period that not only saw the looting of the national treasury but also brought back corruption and nepotism as part of the way of life that exists until today. But there are other factors too. In part it is a legacy of the post-Marcos (1987) Constitution, which both reduced presidential powers and abandoned a two-party political system in favour of a multi-party one. It can also be blamed on the Filipino attribute to "forgive and forget." An attribute that is admirable in many ways yet which in the murky world of politics, is a liability and a millstone around the neck of any genuine reformists.
The Philippines is one of Asia's oldest democracies and the Filipino people have a long tradition of being outspoken and politically active. This free-wheeling democratic tradition can sometimes appear quite distinctive from the ordered political process in many other Asian countries, yet it is an essential part of the vibrancy of the Philippines to allow the free exchange and flow of ideas.
It is certainly true that the recent history of the Philippines has been marked by several periods of turbulence. Much of this turbulence can be directly traced to the Marcos period and the politicization of the military forces that occurred during that time. The present (1987) Constitution enshrines the principle that these forces - both the military and the police - are subject to the control and direction of a civilian commander in chief. This is the President of the Philippines.
Unfortunately a small group of former and present military personnel have not accepted this principle and continue to cause local disturbances. The verdict remains out on the root cause of the coup attempt of July 27 2003, however it came at a time during which the administration of President Arroyo was starting to bite into the vested interests that had controlled much of the wealth and political power for a long period of time. Many of these people were aligned with the Marcos family and with former President Joseph Estrada who, himself, is on trial for plunder - a charge which carries the death penalty. Yet to the amazement of many foreigners, he is allowed a benign form of detention in a hospital "cell" from which he continues to entertain his friends, give interviews to journalists and conduct broadcasts (and even visit his mother at her home in Metro Manila). His treatment has been contrasted with that of two former Korean presidents, Chun Doo-hwan and Rho Tae-woo who appeared in court in Seoul in prison garb and in chains for lesser crimes.
In fact the government of President Gloria Macapagal-Arroyo has enjoyed wide support from a cross section of local society including the business community, the national police and the armed forces. Increasingly, government officials are being subjected to lifestyle checks to ensure that their assets are in keeping with their positions. Significant progress has been made in the recovery of ill-gotten assets and their redistribution to the most needy sections of society. Progress has also been made in the battle against corruption and government inefficiency during her term.
Recent decisions relating to the redistribution of the funds from the taxes levied on the poorest farmers during the Marcos era as well as the recovery of part of the assets plundered from the country by Marcos could make a significant impact on poverty reduction in the Philippines if they are actually distributed as intended. At this stage however, while the first battle has been won, the war is far from over and the result remains indeterminate.
The present administration has made a major effort to cut the "red tape" by simplifying government procedures and setting time limits on government transactions. In many agencies the number of steps required to obtain government permits has already been reduced significantly. However the results so far are patchy and standards of service in many government agencies remain far from ideal. "Fixers" are still required in most dealings with government. Certainly, there is fear that with a less vigilant administration there will be a roll-back of any improvement.
Importantly, the Department of Labor and the National Labor Relations Commission remains antagonistic towards foreigners and foreign companies and is cited by many companies as a deterrent to investing in the Philippines.
Among the changes introduced by the Arroyo administration is the government purchase system. Government procurement has been simplified and the procurement process made more transparent. A new procurement law, Republic Act 9184 came into force in January 2003 although the enforcement rules are still being drafted. Much of the procurement process has been placed online with buyers able to compare prices offered by vendors.
The government has also set in place various feedback mechanisms making use of internet and cellphone technologies to encourage the public to report corrupt or errant government officials. The government is committed to the investigation and prosecution of government officials found to be involved in corrupt activities.
Despite the progress made on many fronts, it has yet to make any real impact on most foreign-owned operations in the Philippines. There remains a wide gulf between government rhetoric, which emphasizes the level playing field, and local practice, which is to protect local interests.
The export-manufacturing sector is heavily reliant on both the United States and the Japanese markets and indeed, during a period of shrinking foreign direct investment, those two countries remain the most significant foreign investors into the Philippines.
Yet both these economies have been sluggish. As a result, Philippines manufactured exports - much of which comes from the electronics sector - are not growing as intended. Exports currently make up around 40% of GDP with electronics accounting for two-thirds of this total. Earlier the government had forecast an export growth for 2003 of around 5% but based on the performance so far, is unlikely to meet this target. The prediction now is for a 3% growth target.
Update No: 007 - (29/07/04)
Philippines withdrawal from Iraq was an exercise in "realpolitik"
Within the Philippines, attitudes towards the withdrawal of the Filipino contingent from Iraq because of the capture and threatened beheading of a Filipino truck driver by Islamic militants almost invariably divide along national lines: Philippine nationals (especially those that have families working overseas - and that includes most!) overwhelmingly believe that saving the life of one overseas worker was more important than the international commitment given to the peacekeeping force in Iraq, although the more erudite Filipinos will often add as an afterthought that the president was in a "lose-lose" situation or that it was a "terribly difficult decision to make."
Foreigners on the other hand - including foreign residents of the Philippine - see it as another example of a president who flip-flops on policy issues and is prepared to tear up contractual arrangements when the exigencies of domestic politics so dictates.
Both have a point but it is moot to ask the question, especially of Americans critical of her decision, "So what?" Governments around the world, at least those democratically elected will invariably put domestic policy concerns ahead of foreign policy. Washington does exactly the same. Foreign ministries may be big on ego but are often lacking when it comes to driving domestic policies.
The facts of the situation in the Philippines are such that Mrs. Arroyo really had little choice (if any at all) in saving the life of the hostage, one Mr. De la Cruz. Consider:
· Filipinos have been as much divided over the war in Iraq, as have the citizens of many other countries; the more so since it became evident that the Philippines and other allies were lured into the "coalition of the willing" by Washington on the basis of falsehoods. America, in playing the pied piper to rally the coalition, was driven primarily by its own domestic policy concerns.
· President Arroyo has recently come through a grueling election race in which she was proclaimed the winner by the narrowest of margins; while she won (or at least appears to have won) by a decisive margin in the Central and Southern Philippines (the Visayas and Mindanao); her main opponent beat her hands down in Luzon (Northern Philippines) and in Metro Manila.
· The opposition would have had a field day had she taken any other course of action but to exert every attempt to save the hostage. In the eyes of most of the country, she would have lost any credibility she now has and would have again been seen to have been putting the interests of U.S. policy ahead of national interests.
· Mr. De la Cruz was an overseas worker and it is the overseas workers that keep the economy afloat. There are said to be some eight million of them (although how this number is verified remains somewhat of a mystery). President Arroyo needs those workers sending their remittances and has to be seen to be protecting them - even when they put themselves in harm's way. After all there are no jobs for them in their own country and they are hardly in the midst of a battle zone by choice.
· Mr. De la Cruz was a Pampangueño - from President Arroyo's home province of Pampanga. Now Filipinos are big when it comes to such matters as extended family and in a crisis situation such as this, the president had to be seen to be pushing out all the stops to save a life. Had she not done so then she would hardly dare set foot in the province for the remainder of her presidency and she could kiss goodbye to her family's power base - probably for all time.
· America might huff and puff for a while - what else would you expect in an election year? But overall, is it not going to cut its nose to spite its face. The global terrorist threat is real enough and America needs the Philippines just as much as the Philippines needs America. Not only does Washington need to work with the Philippines in the twin wars against international terrorism and international drugs; it needs the Philippines as an ally because of the latter's strategic position in Asia. In the overall perspective of the alliance, this incident is no more than a blister on the heel of a relationship that is otherwise sound.
This is not to say that there will not be repercussions from the Iraq pullout. Indeed as we have already seen since the withdrawal, the terrorists in Iraq have become emboldened to take further hostages including an Egyptian diplomat. Yes, this action of the Philippines has put others at risk and the government of this country has to accept the fact as one of the unfortunate consequences of its actions. It is not a time to be smug. Indeed, the action of the president could embolden local terrorist groups to behave in similar fashion if their demands are not met. That is a fearsome possibility.
And "yes," once again questions have been raised about the reliability of the Philippines administration - not only in the world of international diplomacy and alliance frameworks, but in a more everyday sense in relation to the willingness of the government to respect contractual arrangements instead of shifting the goalposts to suit the needs of the moment.
To regard the Philippines as an "international pariah" as some have suggested is absurd and certainly overstating the case. However damage has indeed been done to the country's international status. For the moment, President Arroyo has diminished her standing on the global stage. The onus is now clearly on her and her government to show that it does have backbone and that this incident was the exception to the rule. There is perhaps no better time than now to show the international business community that this new government can be trusted over the long haul. But a recovery in standing won't happen overnight. This is something that the Philippines has really got to work at.
The President outlines her reform agenda
President Arroyo delivered the first State of the Nation Address (SONA) of her new presidential term at the reopening of Congress on Monday 26th July, immediately after the return of Mr. De la Cruz to the Philippines where he was accorded a hero's welcome. Many asked why? After all, the only thing he achieved was to not get killed. Yet he was alive, the quintessential "everyman," and just what the president needed to get political grumblings by the opposition off of the front page of the newspapers.
Her address to the nation took as its theme "A New Direction: Putting People First in an Era of Change and National Renewal." There were few surprises in the speech since she had used the opportunity beforehand to signal her agenda for the new term, which is to concentrate on five key areas:
· New measures for job creation and economic growth;
· The government's drive against corruption;
· Improved social justice and meeting basic needs;
· Improvements to education and opportunities for young people; and
· Energy independence and energy savings.
Even ahead of the actual event, she described this as "the most ambitious economic reform agenda in a generation" and it was outlined in some detail at a meeting a few days before the SONA speech to the Makati business community including the influential Makati Business Club and representatives of the joint foreign chambers of commerce in the Philippines. In that meeting, President Arroyo laid stress on her tax reform measures and asked for the understanding and the support of the business community in getting these measures through Congress.
If passed, she claimed, they would generate over P80 billion in new revenues annually while allowing the government savings of around P100 billion. Passage of these reform measures would enable the government to balance the budget within six years and to reduce the Consolidated Public Sector Deficit to no more than 3 percent of GDP - down from the 6.7 percent of GDP at the present time.
Subsequently her 40-minute address to the new Congress painted a broad brush of sacrifice in the interest of the nation but came up short on matters of detail. It began with a bold declaration, obviously addressed to an international audience. President Arroyo said emphatically that the foreign policy focus of the country was to protect vital interests - and that "these included the 8 million overseas Filipino workers". Sacrificing the life of Mr. De la Cruz, said the President, would have been an exercise in "pointless provocation." Again, addressing her international audience she reminded them that the Philippines had been to the forefront of the fight against global terrorism well before the 9-11 incident and that "four generations of Filipinos have ceaselessly struggled for freedom." Naturally she drew loud applause from the gathering.
Warming to her theme, President Arroyo proclaimed, "We must seize this unity, to save the economy." She touched briefly on her performance over the past three years noting that the price of rice and fish - both basic staples for much of the population - had been stable and that three million new jobs had been created in the past three years as compared to only half a million jobs in the preceding three years.
She noted that despite her slender majority she had received more votes than any previous president - conveniently overlooking the fact that this was because of the runaway population problem, which she did not touch upon during the address. She also noted that her administration now had a "huge majority" at both the Congressional level and at the local government level.
In setting the tone for the new government agenda, she said bluntly that things would get much tougher for those who so far had had it easy - a case of "sharing the pain to enjoy the gain". The most urgent problem facing government she said was that of addressing the chronic budget deficit. This problem would not wait and, addressing directly her Congressional critics said that the government needed both new revenue raising measures while at the same time making tax collection more efficient. The daunting task ahead of the government was to increase government services while cutting costs: the solutions were known but applying the right ones was a tricky problem. From government she promised toughness; from the business community she asked for cooperation; from the people she asked for patience and from Congress she demanded their active support for the legislative measures she was proposing.
The debt problem of the country was not directly mentioned at all.
Her new administration would have a renewed focus on the elimination of corporate corruption: tax acceptance and not tax evasion was needed from the business community since only a financially stronger government would be able to create a more congenial business environment which in turn would lead to more business opportunity.
The government would take immediate measures she said to save P100 billion pesos. However, she wanted Congress to enact her 8 proposed new revenue measures to increase collections by a further P80 billion.
The public service, she said, should be leaner, meaner and more effective. Government would be downsized and "fixers" would be eliminated. As a start, she had already abolished some 80 offices under the Office of the President and she announced that a further 30 would shortly be cut. Instead of "golden parachutes" redundant public officials would be offered "silver" ones. Where the private sector could do things better and cheaper than government, then government should step aside.
Power sector reform is high on the government's agenda: the country, she said, needs cheap efficient energy in the near term. In order to achieve this, NAPOCOR power plants as well as associated transmission lines would be privatized - but not sold off at "fire sale" prices. She urged Congress to pass the Transco bill that had already passed the House debate during the 12th Congress before it lapsed in the Senate.
She also called for reform of the urban land titling system and the need to ensure that land could be used as collateral.
Using a quotation from Adam Smith as her focal point (and perhaps stretching it well beyond its original meaning), she said that in the era of the global economy, division of labour could only carry a country so far; what matters even more is the quality of education. Delivering a better-educated workforce was also high on the government agenda. However, instead of introducing an additional year of secondary schooling as had been earlier proposed, the government would focus on standardizing the educational program of barangay level pre-schools. English teaching as well as science and technical education would all be strengthened and there would be a renewed focus on installing pride in the achievements of the country.
President Arroyo also touched on the issue of judicial reform and in one tantalizing remark called on the Office of the Ombudsman to be an "efficient and independent agency against corruption." Perhaps sensing that there would be no chance of having Congress establish a new ICAC, the best possible option would be to remodel an existing agency. At least that is how some have read the proposal.
It was only towards the end that she raised the subject of charter change. Her statement that she "expected next year to start considering charter change" drew the loudest and prolonged applause. As if to reinforce the quid pro quo she went on to add that she wanted the relationship between the presidency and Congress to be a marriage - based on conviction and not on convenience and she wanted that marriage to last "at least for the life of this Congress." There had to be an end to "unproductive obstructionism." "The time for change is already well past, "let's just do it!"
Passage of new tax measures may face an uphill battle
As part of its reform package, the government is proposing a major overhaul of the domestic tax regime. Tax reform measures foreshadowed by President Arroyo have included:
1. A shift from net income taxation for corporations and self-employed individuals to a gross tax scheme;
2. Repeal of the Value-Added Tax (VAT) law and the conversion of VAT into a sales tax;
3. Collection of tax on the windfall income of telecommunications companies;
4. An increase in taxes on tobacco and alcohol products as well as on petroleum products;
5. A limiting of fiscal incentives available to investors;
6. A targeted tax amnesty; and
7. The creation of a performance-driven system for government agencies.
The business sector, especially as represented by the Makati Business Club, appears to be ready to support the government effort provided the new tax measures are implemented in a "fair and equitable" manner. Support will quickly evaporate if the government ends up increasing the burden of honest taxpayers while allowing others who cheat on their taxes to continue to get away with it.
Makati Vice-Chair, Ramon del Rosario Jr, announced in front of the president that prominent members of the business community had agreed to create a fund that would aim to reduce corruption by at least 50 percent over the next 10 years. This initiative meshes with another recent proposal, from the (Roman) Catholic Bishops' Conference to become involved in ensuring transparency and accountability in dealing with government.
While the business community appears to be onside for the present, the same may not necessarily be true of all members of Congress. Senate Committee on Public Services chairman Joker P. Arroyo has laid down two conditions the administration should meet before Congress considers the new tax measures. Firstly, a 10 percent increase in revenue collections for the next six months using existing tax laws and secondly the re-enactment of the Attrition Law that would compel the heads of revenue-generating agencies to meet their targets or lose their positions. An Attrition law came into effect during the time of the Estrada administration and law provided that if revenue goals are missed, the commissioner, regional directors and district officers of revenue agencies would be relieved. However, on assuming power in 2001, Ms. Arroyo allowed the law to lapse.
Finance Secretary, Juanita D. Amatong, has urged Congress to pass at least three of the eight Palace-initiated tax bills in the next six months so as to send a strong signal to the international community that the government is serious about dealing with its budgetary problems. Government, she says, needs to be seen to be acting immediately in order to improve the international credit ratings of the country. This in turn would translate into lower interest rates on borrowings that would yield further savings to government. She has a point.
How realistic is it all?
Mrs. Arroyo has an uphill battle in front of her. She has to improve service delivery to the country's poor (more than 40 percent of the population lives below the official poverty line). Yet the government coffers are empty. Indeed, in spite of pulling in the reins, the government is still running a deficit to the tune of P200 billion (GB£1.94 billion) a year. It owes P235 billion (GB£2.3 billion) and 40 percent of government revenue goes just to pay the interest on this debt. At this time there is no guarantee that the president will get her way with Congress on tax reform; many legislators are arguing that they want to see an improvement in tax collection before they legislate additional tax burdens on the community. The government retort is that action is needed immediately if the international investment community is to be reassured and sovereign ratings are to improve - any improvement in the ratings would reduce the cost of borrowing to the government and free limited resources.
Then there is the problem of the energy sector to deal with. Energy costs in the Philippines are already among the highest in Asia. As a result of deals entered into during the past decade to avert a power shortage, investors were guaranteed high purchase power costs well above the prevailing norm. Now the government is reaping the consequences. Added to the problem is that much of the investment that went into the power sector was on borrowed capital - borrowed that is at a time when one US dollar purchased around 26 pesos. Now 56 pesos have to be used to repay that same dollar even before adding interest. No wonder many of the privately owned power utilities are close to bankruptcy. Worse yet, the government's National Power Corporation is in the red to the tune of US$3 billion dollars. As a result much of its asset base is now being sold off. The president has promised cheap and efficient energy in the near future - how she is going to achieve her promise while at the same time keeping new investment flowing into the power sector, nobody has quite worked out yet.
"No pain without gain" is what the president told the country. However, everyone seems still to be clutching to the idea that it will be somebody else's pain that will heal the country. The truth is that there are no easy answers.
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