Carlito Anonuevo, Jenina Joy Chavez, Sylvia Estrada-Claudio, Nepomuceno Malaluan, Cristina Morales, Rene Raya, Jessica Reyes-Cantos, Filomeno Sta. Ana III
A full-blown economic crisis is looming. This is no exaggeration, even as we emphasize the gravity of our collective concern.
In truth, we are already experiencing a fiscal crisis. This description came from no less than former Finance Secretary Jose Isidro Camacho. The Asian Development Bank (ADB) and the International Monetary Fund(IMF) had also expressed their fear—and dismay—in more subtle words. But Today’s top business story on 1 April 2004 was: “IMF gives government stern warning.” The report said: “Long-time IMF economic observers noted that the tone of the Fund’s latest public information notice was ‘unheard of’ in the recent past, and is usually reserved for warning belligerent governments about imminent trouble if immediate steps to correct economic imbalances are not taken.”
Despite ADB and IMF prescriptions to ensure that we toe the international finance system line no matter what—sometimes against national interest—here we should heed their dire warnings.
To repeat, what we have is a fiscal crisis, not just a problem. Consider the following facts:
The government is at least five years behind in trying to meet
The fiscal deficit is at a critical level. It increased from 4.0
In the meantime, the consolidated public sector deficit was 5.8
The relative decline of the fiscal deficit in 2003 is attributed
The debt-to-GDP ratio of the national government is 70 percent.
All told, the country’s fiscal sustainability is seriously undermined. Moreover, the figures we have enumerated indicate that the economy, despite the current growth rate, has not extricated itself from the boom-and-bust cycle.
We must likewise point out that the economic cycle goes hand in hand with the political cycle. That is, the economy’s busts occur during election periods or political turnovers.
We nevertheless pray that the economic crisis be prevented. Time is running short, but there is still that space, no matter how narrow, to undertake the bold and tough measures to avert a crisis.
Pity the incoming President. The incoming President must be prepared to become unpopular. He or she has to immediately prepare the ground for a soft landing. To alleviate the fiscal crisis and avoid an economic crash, he or she must lead and convince the people to rally behind the key tax and other fiscal measures, which will hurt in the short term.
These measures include the following:
1. The indexation to inflation of the excise tax on sin products.
It is not entirely correct to say that Congress is solely to be blamed for the non-passage of this measure, which could have generated revenues amounting to at least PhP14 billion. It is a fact that the President can dominate Congress. The Congress is controlled by GMA’s party and allies. As Emannuel S. de Dios and and Hadi Salehi Esfahnahi (Centralization, Political Turnover, and Investment in the Philippines, in Campos J. Edgardo, ed., Corruption, The Boom and Bust of East Asia, Ateneo de Manila University Press, 2001) explains: “It is important to point out that, while its powers have been diminished relative to the dictatorship, the presidency has remained a powerful office that by and large dominates other branches of government. Among the powers of the presidency that have remained are the item or partial veto and the use of large discretionary funds not subject to congressional appropriation or scrutiny (contingency, calamity and intelligence funds). Notably, the president also wields a powerful influence over Congress through bureaucratic discretion over the timing of the release of funds for projects of locally elected officials, especially the ‘pork barrel’ of members of the House of Representatives.”
2. The rationalization, nay, reduction of fiscal incentives.
These fiscal incentives have increased as the current administration, in an election year, has given favors to different vested interests. The irony, too, of the fiscal incentives, is that while the tax effort is low, the high-growth sectors have been exempted from paying taxes. Take the case of the Agricultural and Fisheries Modernization Act(AFMA) that provided certified agriculture and fisheries enterprises exemption from the payment of tariff and duties for the importation of all types of agriculture and fisheries inputs, equipment and machinery. While intended primarily for small and medium enterprises, it is the big corporations such as Purefoods, Vitarich, San Miguel Corporation and Swift Foods that have benefited heavily from the program.
3. Pollution taxes based on the principle that polluters pay.
A tax on gasoline consumption would be a smart and even progressive tax.. A well-designed tax on gasoline can help alleviate traffic congestion and reduce urban pollution. The majority of gasoline consumers are the middle and upper classes. To protect the vulnerable poorer sectors (fishermen and mass transport drivers), a subsidized voucher system can be put in place.
4. A definite end to politicized bailouts and subsidies to government corporations and the private sector.
Overgenerous subsidies and irresponsible bailouts, without rhyme and reason, have worsened the consolidated public sector deficit. Recently, the national government bailed out the corruption-ridden Public Estates Authority (PEA). The Philippine Deposit Insurance Corporation (PDIC)bailed out two private banks, even though the closures of these banks would not have led to a loss of confidence in the whole baking system. The review and renegotiation of Napocor contracts with independent power producers must be reopened, even as consumers must anticipate higher tariffs. The list goes on. In short, the incoming president must undo these onerous arrangements or contracts.
The tasks are daunting. That is why the incoming President must muster all the courage and resolve to undertake these hard measures, among others. It is thus absolutely necessary for the incoming President to gain substantial credibility and legitimacy to weather the storm.
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