Charting a course for the Philippines

Filipino President Gloria Macapagal Arroyo initiated a policy debate of a kind never seen before in Manila, when she announced the country’s fiscal deficit had become its biggest problem.

The State of the Nation Address—an occasion generally dominated by pro-poor rhetoric and visions of national unity—raised more than a few eyebrows when President Arroyo presented a list of eight tax measures to address the looming fiscal crisis.

Whilst critics were quick to dismiss her legislative agenda, it was supported by a group of economics professors from the University of the Philippines, who warned of economic collapse in the next two to three years if certain strategies were not implemented.

Although the Philippines’ budget has been running at deficit for several years, the prospects are indeed grim. The current fiscal deficit is over A$7 billion. Public sector debt is at an astounding A$130 billion and has been exacerbated by the devaluation of the peso (around half of the debt is in foreign currency). The government is currently trying to prevent a credit downgrade by foreign lenders, which would affect lending rates, debt serviceability, and availability of funds for development projects.

At first glance, Arroyo seems to possess the necessary skills to navigate the economy through these turbulent times. She is, after all, an economist.

First catapulted to the presidency by a popular revolt against Joseph Estrada in 2001, her penchant for detail came as a relief to non-government organisations and advocacy groups who feel they can engage the new administration in policy reform.

However, a pattern of politically expedient decisions have undermined Arroyo’s credibility and belie her image as a strong president.

Her decision to lift the moratorium on the death penalty late last year, was widely perceived to be a reaction to increased pressure from the local Chinese community, whose members were being targeted for kidnapping (a capital offence in the Philippines). This decision contrasts with the withdrawal of Filipino humanitarian troops from Iraq, in order to save the life of abducted truck driver Angelo de la Cruz.

While the comparison may be weak, it is worth noting the underlying inconsistency between wanting to be seen as tough on local issues yet conceding to the demands of foreign terrorists. To understand these actions, one must consider the political value of populism. In both situations Arroyo revealed her vulnerability to pressure.

Inadequate government policy on population control further highlights the issue of Arroyo’s credibility. The Philippines has a population of more than 84 million, with an annual population growth rate of 2.36 per cent. One might expect a person with an economics background to understand that high population levels and high public debt will lead to dire consequences. One clear illustration is to be found in education. At the start of the school year in 2003, there was a shortage of over 44,000 classrooms and 38,000 teachers.

Arroyo’s government has not addressed the issue of population growth on a national scale. It is suggested that the absence of a clear policy is to avoid antagonising influential Catholic Church leaders, who oppose artificial population control. In contrast, major business leaders are urging Arroyo to establish a national policy on population control, including the provision of artificial contraceptives to the poor. Described as a devout Catholic, Arroyo maintains a ‘hands-off’ approach, even as she sets a target of a 1.9 per cent population growth rate by the end of her term in 2010. How too might one reconcile her ‘pro-life’ stance on population control while permitting the resumption of executions for some capital offences?

The most infamous blow to her credibility, however, involves her decision to run for president at the May election. Arroyo had declared in 2002 that she would be able to govern better if she eschewed campaigning, and therefore would not stand for the presidency after her term.

Analysts in the media remarked that her decision was a welcome change in a culture where positions of power are held until such time as they can be bequeathed to the next generation.

However, Arroyo reversed her decision a year later, saying that she would put aside her own wishes for peaceful retirement in order to offer herself as a leader with vision and experience.

Arroyo caused further disappointment when, after winning the election, she was believed to have coerced well respected cabinet member, Dinky Soliman, into resigning from the Department of Social Welfare and Development, in order to hand over the portfolio to Vice President Noli de Castro, a media personality credited with helping Arroyo win the election. De Castro has since declined the post, undoubtedly due to the backlash from civil society stalwarts. Indeed, serious discontent exists over Arroyo’s leadership. To many Filipinos she comes from a long line of ‘traditional politicians’ who run for government in order to maintain the status quo from which they benefit. Lacking credibility, she has so far been unable to galvanise or inspire the people.

While Arroyo’s coalition may hold 14 of 24 Senate seats and over 70 per cent of the House of Representative seats, the strength of her power base is deceptive. She was elected on a margin of 1.1 million votes—a small proportion of the 35  million votes available. Many legislators are influenced by business or populist interests and may not fast-track the necessary fiscal measures Arroyo has proposed. The previous Congress passed only one of 13 bills that she had endorsed.

Taxation is never a popular policy for government. Although some of Arroyo’s proposals merely adjust certain excise taxes to current inflation levels, one can assume that people already struggling with poverty will be hardest hit by an increase in taxes or the creation of new ones.

An argument could instead be made for properly enforced tax collection. It is pervasive tax evasion, through illegal practices such as smuggling, which keeps revenue low.

In this respect, the challenge for Arroyo and her government is to initiate significant change in the ways in which government conducts and manages business, while balancing this against social asset reforms (with which she has identified herself) such as housing for the poor and agricultural land for tenant-farmers. Unfortunately, there is little evidence that people accept the changes needed to turn the economy around.

For example, a nationwide donation drive initiated by a prominent congressman to help close the deficit, may have attracted considerable contributions from corporate and church groups. However, it inadvertently raises the question of taxation. If people were indeed sincere in helping government raise revenue, paying prescribed taxes and eradicating corruption ought to be the solutions to which they subscribe.

There is also a case to be made regarding debt relief or at least debt renegotiation. Current legislation mandates 30 to 40 per cent of the annual budget be allocated to foreign debt servicing; a policy that has been upheld for the past 30 years and continues to keep one of the largest economies in south-east Asia from moving forward. (Some of these debts were incurred during the Marcos regime and are widely perceived to be under disadvantageous terms.)

Unfortunately, the Philippines does not qualify under the existing categories of the Highly Indebted Poor Countries Initiative, launched in 1996 to secure debt relief for 42 of the world’s poorest nations. If it did and government advocated for its inclusion in the program, it would need to demonstrate adherence to International Monetary Fund criteria, including a proven track record in implementing a national
poverty strategy.

To be fair, Arroyo is making progress in this area, albeit slowly, through programs on food security, micro-finance, housing, and agrarian reform. Much more needs to be done and a lot more guts is required to do it.
Many Filipinos feel that they need to rally behind her, despite their reservations about Arroyo’s capacity to govern wisely, decisively and courageously. There is no solid alternative at present.

It could have been worse: presidential candidates at the recent election included an ageing actor with no educational or public service background, a former police chief believed to be the mastermind of certain summary killings, and a religious leader equipped only with good intentions.

With a history of voting for flashy public figures instead of policymakers, perhaps Filipinos should be given credit for electing a person with a proven work ethic and a commitment to good governance. Time will tell if they will be rewarded for their circumspection.     

Fatima Measham is a Filipino writer residing in Melbourne.



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