Sta. Ana coordinates Action for Economic Reforms. This piece was published in the August 2, 2010 edition of the BusinessWorld, pages S1/4 to S1/5.

Non-governmental organizations (NGOs)—especially the progressive advocates—pride themselves as visionaries. And so, they are most concerned about the Noynoy Aquino (P-Noy) administration’s vision.

Congressman Walden Bello of the the left-wing Akbayan, which is an ally of the administration, criticized P-Noy’s state of the nation address (SONA) for being “trapped in the 1990s free market and globalization mentality that advocated privatization and removal of subsidies.” The national democrats under the aegis of Bayan—incidentally, the arch-rival of Akbayan—have been hostile to P-Noy even before he was proclaimed President. The Bayan forces have caricatured the President “P-Noy American,” which is but a catchy term for “US-Aquino” regime. And they echo the line of Bello, their nemesis, regarding the SONA: “What’s new?”

Former President Fidel Ramos might have spoken for the whole spectrum of the Left: that P-Noy needs a “road map for the future.”

Even supporters of P-Noy were surprised, even dismayed, that the SONA omitted unqualified support for key reforms, especially the legislation of Freedom of Information.

The economists—whether of the orthodox or heterodox variety—question “public-private partnerships” (PPPs) as the solution to the fiscal problem. This is not to say that PPPs are bad. Rather, they cannot be the centerpiece of fiscal reforms, which first and foremost must address the problem of very low tax collection.

The debate will continue. And the reform-oriented NGOs will be at the forefront of stimulating the discussion about P-Noy’s development program and vision.

It is nice to know that the Freedom from Debt Coalition (FDC) and the Coalition of Development NGOs (CODE-NGO), despite their conflicting positions on some issues, have banded together to review the development strategy of the P-Noy administration. For the conference that will process NGO inputs for the government’s medium-term development plan, FDC and CODE-NGO have devoted the opening session to an analysis of the administration’s development policies.

I disagree with those who say that P-Noy does not have a road map. He is quite clear about what he wants to do, and this revolves around his campaign promise Kung walang corrupt, walang mahirap. We can set aside criticisms regarding the slogan’s reasoning, but its message is direct and apparent: P-Noy is going to fight corruption and bad governance towards combating poverty,

The debate therefore should focus not on the lack of the so-called road map but on the content of the strategy and plan to fulfill this campaign promise.

Yet, some of the critics belittle the problem of corruption, arguing that a focus on anti-corruption does not translate into growth and progress. And they can argue that countries like China and Vietnam, even with corrupt governments, have enjoyed sustained high growth and have substantially reduced poverty.

But we should emphasize the point that in the Philippines, corruption and bad governance have become the major obstacles to sustaining growth, stimulating investments, and generating jobs.

In analyzing national economic and development policies, I benefit from the growth diagnostics approach pioneered by Dani Rodrik. This is no different from what the Left favors—doing “concrete analysis of concrete conditions” to come out with appropriate, timely solutions and thus overcome society’s principal problems. Through growth diagnostics, we are able to identify the few binding constraints that obstruct growth and development. By targeting the binding constraints, we resolve the principal problems at one period and once addressed, move to tackle another set of problems. In this manner, we avoid being overstretched and wasting resources, including political capital.

The Philippine growth diagnostics studies, as done by different individuals and organizations, yield the same outcome. The binding constraints include: a) corruption, bad governance, or elite capture and b) worsening fiscal situation, mainly because of low tax effort.

In this context, the P-Noy administration has correctly identified the main challenges at this critical moment.

His pronouncements on fighting corruption, ensuring accountability, and promoting transparency are powerful and unequivocal. His actions and proposed reforms—the appointment of a tough and unimpeachable Justice Secretary, the commitment to prosecute corrupt government officials, the resolve to end extra-judicial killings, the creation of a Truth Commission—will not only serve justice but will also help rebuild the Philippines’ damaged institutions.

It is however disappointing, that given his strong stance on good governance, he has not certified urgent the legislation of the bill on Freedom of Information—a very important component of transparency reforms.

P-Noy is also fully aware of the gravity of another binding constraint—the fiscal problem. In his SONA, he illustrates the link of corruption, the waste of resources resulting in the aggravation of the fiscal deficit, and the adverse effects on the poor. He detailed the Gloria Arroyo administration corrupt activities that affected the delivery of services to the poor (rice, water, transportation, power, disaster relief).

The fiscal problem is perhaps P-Noy’s toughest challenge. He promised not to impose new taxes, but this limits his room for maneuver to solve the fiscal constraint, which is essentially a problem of low revenue collection. This is the context in which P-Noy welcomes PPPs (public-private partnerships). Yet, PPPs will not result in higher tax effort.

Improving tax efficiency (like catching tax evaders) and rationalizing fiscal incentives are most welcome. They will increase tax effort (tax collection as a percentage of Gross Domestic Product or GDP), currently at around 13 percent, by a few percentage points. Unfortunately, these actions are not enough to boost the tax effort to a secure level, say, 17 percent of GDP. One measure that should be immediately taken, without breaking P-Noy’s campaign promise of new taxes, is the indexation to inflation of the specific taxes on alcohol and tobacco. Adjusting the tax to inflation is not a new tax.

The NGOs can take up a great challenge: Take the lead in having a fiscal covenant with the P-Noy administration. The NGOs should demand fiscal efficiency, accountability and transparency. They should demand higher spending for education, health and infrastructure, which will benefit the poor. As part of the covenant, they should be open to introducing progressive taxes to finance development. P-Noy will also benefit from this type of NGO intervention. He gains political space and additional political capital to resolve the fiscal constraint.