Books on The Philippines
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Update No: 024 - (01/01/06)
Always look on the bright side of life
While some of the shenanigans of the local polity show an almost Monty
Pythonesque character, the Philippines has a knack of eventually getting things
done in its own way. We would like to end the year on a positive note and look
at what has been achieved in 2005 in spite of all the political noise and
tensions surrounding the presidency and the legitimacy thereof. So what about
the good news? There is quite a bit actually, but much of it has been lost in
At one point in mid-year it looked as though the Arroyo presidency was not only
a lame duck but also a dead one. That proved to be a major miscalculation. The
fact is that by the time the Arroyo Cabinet fell apart in early August, much of
the needed reform programme was already in place.
The first major stroke of fortune came in December 2004 when the Supreme Court
upheld the validity of the Mining Law and particularly the Financial and
Technical Service Agreements by which foreign companies obtained effective 100
percent ownership of large scale mining projects. National policy is now firmly
on the side of developing a world-class minerals industry for the Philippines
although, as often happens in this country, many local governments appear to be
confounding large-scale investment for their own reasons - which for the most
part, while couched in altruistic phraseology, are just the opposite.
Back in late 2004 also, Congress passed the law raising excise taxes (albeit in
a manner that many believe skewed the playing field in favour of some companies
at the expense of others). That tax measure, modest as it was, is now starting
to bite. Then came the lateral attrition law that was supposed to clean up the
public service. Here the story is mixed. There has been no major reform of
public administration so far - at least not at the national level (although some
local provincial and municipal governments appear to be making greater headway)
- but within the major revenue collection agencies, receipts have been
increasing. Campaigns to bring non-compliant taxpayers to heel appear to be
starting to bite.
In the first half of 2005 the expanded Value Added Tax (eVAT) law was finally
passed by Congress. Due to enter into force on July 1, legal wrangling delayed
implementation until November 1. That law is expected to raise a an additional
PhP82 billion for 2006. In February 2006 the VAT rate will be increased from the
current 10 percent to 12 percent as allowed under the law. Also next year the
business income tax rate will increase from the present 32 percent to 35 percent
for three years. The combination of these measures, plus delayed spending by
government, has allowed the administration to narrow its budget deficit this
year to PhP140 billion, lower than the announced target of PhP180 billion.
The government's target for the 2005 budget deficit represents 3.4 percent of
gross domestic product (GDP). In 2004, the shortfall was PhP187 billion, or 3.9
percent of GDP. Its ultimate goal is to achieve a balanced budget by 2010
although there are hopes that this may now be achieved by 2008.
There are other milestones too and hopefully they represent straws in the wind
rather than flashes in the pan. Recently, we have seen the first conviction for
the murder of a journalist in this country and a conviction also of a senior
military official for corruption. The significance of these events in a society
in which loyalty to kith and kin is often held in higher regard than adherence
to the law and to due process, should not be under-estimated.
So the outcome for the year is not entirely negative, but much remains to be
done. Corruption and poverty continue to haunt this country and, many believe,
represent two sides of the same coin. Many observers, both local and foreign,
continue to believe that the administration of President Arroyo is among the
most corrupt even this country has seen. The high moral ascendancy that marked
the early period of her term of office has been lost - probably irrevocably. But
this does not mean the presidency cannot be redeemed.
Certainly, at the macro level, the numbers look good. Economic growth continues
to be robust under this watch and especially when compared with her predecessor,
but for the most part, the benefits of this growth have yet to reach the lower
levels of society. According to the World Development Report, per capita annual
economic growth in the Philippines over the past 28 years has averaged a miserly
0.75 percent - the lowest in Southeast Asia. As one local economic journalist
and publisher pointed out recently, even Laos, Myanmar and Cambodia did better
than the Philippines. According to an SWS poll, hunger affects some 10 million
Filipinos. According to a UN Human Development Report, 14.6 percent of Filipinos
were living on less than US$1 per day in 2003. The official incidence of poverty
in the Philippines is 35 percent - more than twice that of Malaysia (15.5
percent) and higher than Indonesia (27.1%) and Thailand (13.1%).
Yet, the disposable income of the richest 1,000 households in the Philippines
has been increasing by almost 12 percent a year. The rich are getting richer and
the poor? - well, decidedly poorer.
So while we would like to believe that this year should not be considered a
wasted one, the foundations for improved governance (we think that
"good" governance is still some way off) need to be strengthened
quickly. President Arroyo is probably correct when she says that the current
political system is flawed. Of that we have no doubt. But will a mere shuffling
of the constitutional cards change the flawed and tribal nature of local
politics? We doubt it. If Ms. Arroyo can, in the remaining years of her
presidency (and note, she appears now to be in power for the full duration of
her term), bring the tribal groups to heel and deliver sustained and principled
growth then she may yet go down in history as one of the better presidents this
country has had.
It is worth remembering, that as much as we hold democratic principles to be
sacred, no nation in Asia has yet achieved economic take-off by means of the
democratic model. Be it Japan, Taiwan, Korea or other emerging nations,
democracy has usually evolved from economic emancipation and not the other way
around. (India may be the notable exception to this rule but then India is a
rather atypical case and the Philippines has never had a Ghandi to inspire the
Proposed Constitutional amendments submitted
The 55-member Consultative Commission, which was convened to consider
amendments to the 1987 Constitution, has submitted its report to President
Gloria Macapagal-Arroyo. Originally the entire issue of constitutional reform
was to have been kept on the back burner this year while the administration and
Congress dealt with economic policy reform. However, with the mid-year crisis
within the presidency, and the questioning of the legitimacy of the 2004
election win by President Arroyo, proponents of constitutional change were
successful in moving the issue to the fore. Convened only in September last, the
commission members were given the seemingly impossible task of reporting to the
president within 3 months.
A number of luminaries who were approached to serve on the advisory body refused
to do so believing that the outcome had been predetermined in favour of a
federal and parliamentary form of government. This belief was reinforced by a
pro-active chair who openly advocated the federal-parliamentary model and the
circulation at the very first plenary session of a draft that supported changes
to such a model.
Four major recommendations were included in the final majority report. These
include firstly, a shift in the government form from presidential to
parliamentary system with a president and a prime minister; secondly, the
adoption of a federal structure of government; thirdly, the further
liberalisation of the economy and opening to foreign investors and finally, a
controversial provision seeking to scrap the 2007 national elections in favour
of a smooth transition to the parliamentary system.
The Commissioners explained that they favoured a "classical"
parliamentary system with a ceremonial president as head of state (elected by
the parliament) and with the prime minister (also elected by his or her fellow
members of parliament) as head of government. The prime minister would be
bestowed with both executive and legislative powers and would choose his/her own
cabinet from the members of parliament. A unicameral legislature was also
The 121-page report was submitted to President Arroyo on Friday 16th December.
In turn, the president immediately endorsed it to Congress without further
review. President Arroyo said the report should serve "as a point of
reference for historic deliberations of Congress".
"I bear faith that our legislators will take the historic political process
to a higher level as the nation strikes a bold decisive sweep of fundamental
reforms," she said.
Critics of the administration quickly assailed the proposal to scrap the
scheduled elections in 2007, saying this would allow the incumbent political
leaders to lengthen their hold on power. Under the proposal, all incumbent
elected officials would be allowed to continue their terms until June 30, 2010.
Some considered this to be tantamount to a "bribe" since those voting
to accept the amendments would be among the chief beneficiaries. Opposition
senators accused Malacañang Palace of attempting to bribe its critics with
extended terms in exchange of their support for a parliamentary system.
For his part, Commission chair and former University of the Philippines
president Jose Abueva defended the proposal to delay the elections, saying this
would save billions of pesos and resources that should instead go to poverty
Under the transitional provisions an interim parliament would be formed with the
president appointing the interim prime minister. President Arroyo would thus be
allowed to retain her powers as both head of state and effective head of
government with corresponding executive and appointing powers. She and Vice
President Noli de Castro would be allowed to serve out their full terms until
President Arroyo would have control of the first proposed parliament. From 2010,
however, the parliament would follow the British system whereby the head of
state would be largely ceremonial and executive powers would be vested in the
prime minister. India, Germany and Singapore follow similar models.
The recommendations of the Constitutional Commission are mere proposals until
Congress acts on it. Both houses of Congress - the Senate and the House of
Representatives - have to pass a resolution calling for the formation of either
a constituent assembly or constitutional convention to amend the Constitution.
Once formed, the constituent assembly or constitutional convention will have the
final say on the amendments. It appears that Congress is more amenable to
charter change via a constituent assembly, which will be composed of congressmen
and senators. For the moment however, the Senate remains hostile to the proposed
Government expects 5.1 percent growth in 2005
The National Economic and Development Authority (NEDA), the government's
highest economic planning agency, is optimistic that the gross domestic product
(GDO) will achieve a full-year growth level above 5 percent in 2005, despite the
lower-than-expected figures in the first three quarters.
Socioeconomic Planning Secretary and NEDA director general Augusto Santos said
he even sees the GDP growing 5.1 to 5.3 percent this year, buoyed by the
expected pickup of the economy in the fourth quarter. The government was
originally targeting a GDP growth of 5.3 to 6.3 percent in 2005, but high oil
prices, coupled by weakening global demand for electronics, weighed on economic
performance of many Asian economies this year.
Actual growth in the first three quarters of 2005 reached 4.6 percent, slower
than 6.3 percent registered a year ago. The National Statistical Coordination
Board reported that growth slowed to 4.1 percent in the third quarter of 2005,
because of the lingering effects of El Niño, reduced government spending, and
high prices of commodities that have forced many consumers to delay spending on
Several economists suggested that the Philippine economy is heading for a
meltdown, as indicated by the weak third quarter growth. However, Secretary
Santos stressed that while the economy is probably not at the takeoff stage,
"neither is it, by any stretch of imagination, on the road to
"A meltdown implies sustained decline, but the reality is that the economy
has gone through the usual ups and downs. This is no meltdown," he said.
The NEDA chief said annual growth in real per capita income has in fact been on
the up trend, since its nadir in1998. At the same time, Secretary Santos said
the delay in spending in the third quarter would be good for the economy in the
fourth quarter and would propel the economy into positive growth in the New
"Revenues from the expanded value-added tax and other measures should be
available for public infrastructure spending in 2006. Savings from overseas
Filipino workers should drive housing demand," he said. Remittances from
overseas Filipinos are expected to reach an all-time-high US$10.3 billion for
2005 and continue to climb.
"Families of OFWs are not splurging their remittance income. The
consumption growth rate is still 4.8 percent for the third quarter, the same as
in the second quarter. Rather, families are saving the money in banks," he
said. "We are optimistic that the implied savings will augur well for
growth in investment and consumption in 2006. As of August 2005, peso time
deposits have grown by 65.4 percent."