Philippines enjoys post-poll pick-up (Asia Times Online)

Written for and published by Asia Times Online on September 14, 2010. Click here for original article.

Philippines enjoys post-poll pick-up
By Jennee Grace U Rubrico

MANILA - Business sentiment is rising in the Philippines, buoyed by the May election of President Benigno Aquino and the rising tide of global economic recovery. Whether Aquino can sustain the economic good times amid signs of a slowing global rebound will depend largely on his ability to enact quickly badly needed reforms.
The latest quarterly Business Expectation Survey, conducted by the central bank between July 1 and August 10, showed that business confidence touched 45%, its highest level in two years and a dramatic improvement on the 18.4% recorded over the same period last year.
Indeed, there are reasons to be cheerful. The stock market jumped almost 5% in the first week of September to hit a 32-month high, while the Philippine peso continued to strengthen against the US dollar in line with several other currencies in the region.
Election-related spending, including on advertising and other recreational campaign activities, gave the economy a big first-half boost. After growing an anemic 1.1% in 2009, Philippine gross domestic product (GDP) expanded 7.8% in the first quarter this year and 7.9% in the second.
The World Bank noted that first-quarter growth was "far faster than expected", but in line with equally strong regional country recoveries, including 15.5% in Singapore, 12% in Thailand, 10.1% in Malaysia, 5.8% in Vietnam and 5.7% in Indonesia.
After contracting by 5.7% in 2009, investment grew by 24.3% in the first quarter. Remittances from overseas Filipino workers (OFWs), meanwhile, hit US$9.1 billion in the first half, a 6.9% jump over the same period last year, according to official statistics.
Before Aquino's election, sovereign analysts had raised concerns about the country's deteriorating fiscal position, which was aggravated by aggressive pump-priming to offset the negative impact of the global crisis. Fitch Ratings places the Philippines on the second-lowest tier of its bank systemic risk matrix, on par with Hungary, Sri Lanka and Ecuador.
Some analysts had earlier wondered whether the Philippines would follow in the footsteps of Vietnam, whose credit rating was downgraded in August due to a sharp deterioration in its external finances. Although still in surplus, the Philippine balance of payments weakened year-on-year in the first quarter, falling to 3.2% of gross domestic product (GDP) from 4.8% in 2009.
Aquino's strong reform message appears to have given the country at least a temporary reprieve. "The new administration of President Benigno Aquino III, who took office on June 30, has set the tone for accountability and transparency, reviving programs aimed at improving tax collections and emphasizing budgetary restraint," United States-based credit rating agency Moody's wrote in its most recent credit opinion on the Philippines.
"The departments of Finance and Justice have aggressively pursued legal means to deter tax evasion, while the president has outlined a 'zero-based budgeting' approach to expenditure outlays going forward," the Moody's report said.
The government has penciled in projects worth 180 billion (US$4 billion) to 200 billion pesos under the zero-based budgeting scheme, which would allow it to implement projects without state capital outlays through partnerships with the private sector. The plan aims to allow the government to implement crucial infrastructure projects without putting pressure on its fiscal position.
Aquino's early push to rationalize fiscal incentives has sent a positive signal to the business community, according to Donald Dee, vice chairman of the Philippine Chamber of Commerce and Industries, the country's biggest business organization.
"It's our belief that people invest in the country not just because of the incentives, but because they see value in the Philippines," Dee told Asia Times Online.
Benjamin Diokno, a former budget secretary, doubts that the recent rapid economic growth clip is sustainable and predicted the government's 7%-8% GDP growth target for next year would be "tough" to meet.
"Many growth drivers that were present in the first half of the year will be missed in the second half of the year," including election spending, front-loading of public infrastructure outlays and above normal government spending, he wrote in his blog.
"The decision of the Aquino administration to pursue a conservative fiscal policy and to calibrate spending as resources materialize could seriously slow the contribution of the public sector to stronger growth," he added, warning that the global economy was at risk of a double-dip recession.
"Perhaps they want to be conservative, or they realize that there are looming dark clouds in the horizon," Diokno wrote.
One potential cloud is a high budget deficit. Finance Department figures show that the deficit-to-GDP ratio reached 4.9% in the first half of the year, exceeding the 3.9% ceiling set for all of 2010. For the seven-month period ending in July, the national government posted a budget deficit of 229.4 billion pesos, comprising 70.6% of this year's ceiling.
Moody's, which has assigned a Ba3 rating with a "stable" outlook for Philippine sovereign bonds, says that pressure to revise the rating downwards "would arise from an inability to improve government finances or a structural weakening in the balance of payments".
Some economists believe the government still has room to maneuver. "Domestic interest rates remain low historically, suggesting there may be room to move around to finance the deficit," says University of Asia and the Pacific economist Peter Lee U.
"The deficit is manageable - the counterweight to that is the amount of liquidity in the system," said Roberto Juanchito Dispo, executive vice president of First Metro Investment Corporation. "The [government's recent bond] issue was well received by the market, and this acts as a buffer to the deficit."
Dee stressed that local businesses were not looking for a quick fix to the fiscal gap. "As long as we keep the deficit to 3%-3.5% of GDP next year, business will consider this as managing the deficit." He said that while the government's belt tightening measures were laudable, there was still a need to raise tax revenues, a perennial problem in the Philippines.
Aquino ran on the campaign promise that he would not raise taxes, but he has backtracked slightly since taking office. He has said his administrations would impose new taxes only as a "last resort" to address budgetary gaps.
Jennee Grace U Rubrico has been a journalist for over 10 years.
(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

Sex vs God in the Philippines (Asia Times Online)

Written for and published by Asia Times Online on July 21, 2010. Click here for the original article
Sex vs God in the Philippines 
By Jennee Grace U Rubrico

MANILA - Armin Luistro is embroiled in a fierce debate between church and state. As the Philippines education secretary, it's his job to steer government plans to introduce sex education into elementary and high schools in the predominantly Catholic nation.
Since announcing last month that he planned to review the program, Luistro, a member of the De La Salle Brothers - a group of full-time religious educators who are not priests - has sought to distance himself from a longstanding issue that is putting politically powerful church leaders at loggerheads with the government for the second time in five years, saying it is not his priority.
As in a similar tie-up between the department and the United Nations Population Fund in 2005 - which was suspended at its pilot stage - the government again finds itself at odds with the politically powerful Catholic Bishops Conference of the Philippines (CBCP), which wields enormous influence, including the formulation of national policies. While Luistro has yet to decide on the future of the program, he has met with church leaders, whose stance on the issue is clear.
"The position of the CBCP even before is that it [sex education] should be left to parents, especially if we are talking about children who are underage," CBCP spokesman Pedro Quitorio III said.
Spearheaded by the Education Department, the government's initiative aims to teach students about health, wellness, values and character development through modules that include discussions on the human reproductive system, parts of the body and puberty. As planned by the previous Gloria Macapagal-Arroyo administration, sex education is to be integrated in subjects including geography, history and civics and mathematics, with the church's position on pre-marital sex included alongside data on pre-marital sex, teenage pregnancy and sexually transmitted infections.
In a memorandum detailing the focus of the earlier program, the Education Department stressed the need for sex education by pointing out that 71.1% of young females and 35.7% of young males reported contracting genital diseases. It had also noted a 5% rise in early unprotected sex between 1994 and 2002, as well as a lack of adequate knowledge among adolescents to prevent unwanted pregnancies and sexually transmitted diseases.
To address those matters, the Education Department had pushed for "more specific and focused topics", including safe motherhood, fertility awareness, misconceptions and myths on family planning methods, and adolescent reproductive health, and for parent-child counseling. The revived program was scheduled to be pilot tested this year in 79 public secondary schools and eight elementary schools across the country.
The church is not without its backers since about 82% of country's 90 million people are Roman Catholic. The Education Department now faces a lawsuit filed on behalf of 30 parents who oppose the sex education plan for allegedly promoting “contraceptive imperialism” that assaults Christian sensibilities and values.
The Moro Islamic Liberation Front (MILF), a political force that claims to be fighting for the right of Muslims in the Philippines, has also joined the fray. "This is like preparing the child to be competitive for the next world of sex," said Sheikh Muhammad Muntassir, head of the MILF Da'wah committee, who also added that the policy was "hastily designed" and did not consider child psychology.
The Education Department has for the last month been firefighting, giving out interviews and issuing press statements to defend the program. In an attempt to manage the backlash, former education secretary Mona Valisno clarified that "classroom discussions on sex education [are] not about the sex act but on the science of reproduction, physical care and hygiene, correct values and the norms of inter-personal relationships to avoid pre-marital sex and teenage pregnancy.
"Our role here is to educate our young people on issues that directly affect them and empower them to make informed choices and decisions," Valisno said, adding the modules were prepared by psychologists "to ensure that specific topics for discussions will be made in the appropriate year levels".
She admitted, however, that it would be up to the new administration to decide on the implementation or scrapping of the contested project. Many take a pragmatic stance, citing the dismal results of the country's population control drive to argue their point. Now the twelfth-most populous country in the world, the Philippines has a population that grows at a rate of 1.96% per year.
Of its 90 million people, 40% are aged 14 years old and below. East Timor is the only Southeast Asian country that has a faster population growth rate, at 2.03%. Indonesia, the world's fourth-most populous country, has a population growth rate of 1.14% per year, while China and India, the two most populous countries in the world, see their population grow yearly by 0.66% and 1.55% respectively.
"Personally, this is not a moral issue. Whether we should follow the church's teaching, I don't agree. The situation is that the country needs to manage its population," said Donald Dee, vice chairman of the Philippine Chamber of Commerce and Industry, the country's largest business organization. "But when and how sex education should be taught is something that we leave to the child psychology experts."
Ramon Casiple, executive director of the Institute of Political and Electoral Reform, notes that population growth control is paramount, as a runaway population puts the country at risk of running out of resources.
"Having a big population has some advantages, like having a big labor pool, but there's a possibility that we would run out of food to feed our people," he said.
He raised the possibility that the name - the Adolescent Reproductive Health program - and approach of the initiative may have contributed to the conflict between the church and government. While acknowledging that the church as an institution was not likely to change its position, Casiple said he still believed that the program had a good chance of survival.
Luistro's move to review the program, he said, would open up discussion and debate. He added that even within the church, the sex education initiative enjoyed some support.
"The beauty of having a cabinet [in government] is that issues can be discussed and resolved by consensus. The country needs to manage its population, and most likely, the [government's position] will be leaning towards reproductive health, including sex education," he said.
Jennee Grace U Rubrico has been a journalist for over 10 years.

Aquino's first challenge: Arroyo (Asia Times Online)

Written for and published by Asia Times Online on May 26, 2010. Click here for the original article.

Aquino's first challenge: Arroyo
By Jennee Grace U Rubrico

MANILA - When Philippine President Gloria Macapagal-Arroyo steps down next month after nine years in office, the scandal-plagued leader will soon find herself on the political and possibly legal defensive. President-elect Benigno "Noynoy" Aquino ran partially on a clean governance vow to prosecute her administration's alleged crimes. Voters who overwhelmingly elected him earlier this month will expect prompt justice.

How he calibrates politicized law suits with forward-looking economic policies will be pivotal to his government's early success. Political analysts note that Arroyo is still a powerful force after winning a congressional seat in her home province and with sway over a large parliamentary voting bloc. She is expected to vie for the powerful house speaker position in the new parliament.

In an April report, GlobalSource Partners Inc, a local research firm, said that because Aquino campaigned on prosecuting Arroyo, "he may find it hard to push through with fiscal and economic reforms".

Aquino will need strong legislative support "to get the government running and put the economy on track" and he will need to use all "the tools at the disposal of the presidency to navigate through transaction-driven Philippine politics to take control and neutralize, co-opt, or cooperate with the forces aligned with the [Arroyo] administration," according to the report.

It added: "Failure to do so skillfully, Aquino and the country may end up in a stalemate, meaning lost years for the economy moving forward as it locks horns with congress."

Although Aquino won the presidency by a large margin over the second running candidate, his Liberal Party will be a minority in both congressional chambers. His party won just 45 seats in the House of Representatives, much less than the 107 controlled by Arroyo's Lakas-KAMPI-CMD coalition. In the senate, Aquino's party only has four representatives in a full complement of 23.

Donald Dee, vice chairman of the Philippine Chamber of Commerce and Industry, the country's largest business organization, is optimistic about Aquino's reform prospects. He believes that the early concession by Senator Manuel Villar, the second running candidate in the presidential race, and his move to publicly congratulate Aquino signaled a willingness to cooperate with the new government. Villar ran independent of Arroyo, but many believed he was her preferred candidate.

"I think that a lot of people who were not really supportive of [Aquino] are willing to give him a chance to prove them wrong," said Dee. "However, the next actions, policy direction-wise, in the next 100 days will be important to see not only if he can get the executive and legislative to work together, but also in convincing people to work together in achieving unity in the country."

Judging by Aquino's modest record in the senate, where critics say he championed few important laws, it's not immediately apparent he has the political skills to build such a consensus.

Aquino will also face "the challenge of changing his 12 years of non-performance in congress", said Clarita Carlos, a political science professor at the University of the Philippines. The academic said Arroyo was "an exceptionally hard worker" but that the various corruption charges "diminished her effectiveness because there was no closure in all of them".

Arroyo's approval rating was at an all-time low of 14% in April, dooming the electoral bid of her party's anointed successor, the Harvard-educated Gilbert Teodoro. While Aquino will aim to differentiate his policies and leadership style, analysts say he would be wise to follow certain of Arroyo's economic leads. Those include fiscal and monetary policies that supported the country's fastest gross domestic product (GDP) growth in over 31 years in 2007, and an average annual economic growth rate of 4.9% during her nine-year term.

Dee identified Arroyo's infrastructure development drive as among her greatest achievements, including the construction of the Subic-Clark-Tarlac Expressway, a highway that linked three central Luzon areas to Manila, and the creation of the so-called Roll On/Roll Off system, a nautical highway that connects the country's three major islands and allows for faster transport of agricultural products.
But widespread corruption allegations took the shine off those accomplishments. Arroyo survived four different impeachment motions and was directly implicated in allegations that her husband, Jose Miguel Arroyo, diverted 300 million pesos (US$613,000) in campaign funds and contributions into a secret bank account. She was also accused of buying votes in the 2004 national elections using a Department of Agriculture fertilizer fund and of rigging the polls in her favor.

Her government also came under fire for accepting bribes in awarding a multi-million dollar broadband Internet project that would have wired the country's creaky and far-flung bureaucracy. Amid uproar, the project was eventually scrapped. While the allegations stirred the media and sustained calls for Arroyo's resignation, none led to evidence-based court convictions. Aquino will be expected to reopen certain of those cases and push to recapture allegedly pilfered state funds.

Federico Macaranas, former executive director of the Asian Institute of Management's Policy Center, said that the steady stream of corruption allegations against Arroyo substantially weakened the Philippine economy. The eVAT policy, the centerpiece of Arroyo's economic reform agenda, "helped attract foreign direct investors ostensibly" but not as much as it could have because of "the perception that graft and corruption is the pervasive factor debilitating the economy."

"The minimization of graft and corruption becomes the major challenge" for Aquino, he said. "He faces the legacy of cleaning up the image that the country is hopelessly ungovernable in terms of clean and honest leadership, showing [a new] way to the masses of people whose lives are made poorer by democratized graft," Macaranas said.

At the same time, Aquino will inherit a spiraling budget deficit that Arroyo failed to rein in despite raising taxes. Like many regional countries, the Philippines resorted to heavy fiscal pump priming to mitigate the negative impact of the US-triggered global economic crisis of 2008 and 2009. Arroyo's government posted a record budget deficit of 298.5 billion pesos last year, representing 3.9% of GDP.

Meanwhile, the revenue shortfall for the first four months of this year amounted to 131.6 billion pesos, or 45% of the full-year forecast. Despite all the state spending, unemployment and underemployment were a stubbornly high 7.5% and 19.1% respectively last year, according to official statistics. The lack of local employment opportunities drove more than one million Filipinos abroad in pursuit of work.

"We turn out college graduates who are hardly absorbed by the local economy and thus leave to form part of the diaspora. The most educated seek greener pastures abroad - indeed a policy of the POEA [Philippine Overseas Employment Agency] now is to send the less vulnerable to earn foreign exchange for the country," said Macaranas.

To address these and other economic challenges, Aquino will need strong parliamentary support for his various proposed reform initiatives. But with Arroyo's still strong pull in parliament, and the legal threats to her and her administration's legacy, she could play the spoiler to Aquino's political and economic success.

Jennee Grace U Rubricohas been a journalist for over 10 years.
(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

EU ban darkens Philippine skies (Asia Times Online)

Written for and published by Asia Times Online on April 20, 2010. Click here for original article.

EU ban darkens Philippine skies
By Jennee Grace U Rubrico

 MANILA - A European Commission decision to ban Philippine carriers from European airspace, which took effect on April 1, threatens to undermine the country's crucial tourism sector.
The prohibition, the most recent in a series of problems for the Philippine aviation industry over the past two years, was issued on the basis of safety assessments by the International Civil Aviation Organization (ICAO) in September 2009 and the downgrade of the country's safety rating by the US Federal Aviation Administration (FAA) in 2008.

In a statement, the 27-member European Commission said that it had been in constant communication with Philippine regulatory bodies prior to reaching its decision, and acknowledged efforts of the two-year-old Civil Aviation Authority of the Philippines (CAAP), the new regulatory body that was formed after the dissolution of the Air Transportation Office, to reform the country's civil aviation system.

It also recognized measures taken by the two biggest airlines of the country - Philippine Airlines and Cebu Air - to better ensure aircraft safety. These efforts, however, did not prevent the community from adding Philippine airlines to its blacklist.

EU ambassador Alistair MacDonald said: "The commission considers that the supervisory authority is currently not able to implement and enforce the relevant safety standards, and decided therefore to ban from EU airspace all air carriers licensed in the Philippines until these deficiencies are corrected."

The head of the CAAP, Alfonso Cusi, acknowledged the reasoning for the EC's decision, but said that it was based on outdated information. "There has been no audit after the FAA downgrade two years ago. Then there was an ICAO audit. The EU was acting on findings of ICAO but that was still in October," Cusi said.

Cusi, who assumed his post last month, said that the concerns raised by the EC included monitoring of airlines' business processes to check whether they are on par with international standards. "The question is how we check it. There must be a process that is acceptable. There must be manuals, systematic procedures. They [European Commission] did not see this," he said.

What the European Commission weighed were processes used by the Philippine civil aviation regulators two years prior, which were then deemed unsatisfactory. "Now, we want to show them that [the reforms are] here. We want to correct the impression," he said, noting that the CAAP has reiterated a request that the EC visit the country in May to check the progress of recent reforms.

No carrier licensed in the Philippines at present services Europe, so technically the ban does not affect any Philippine airlines' revenues from ticket sales. Industry players, however, note that the repercussions of the EC's preemptive restrictions are far-reaching and damaging both to Philippine carriers and the country.

Aviation industry analyst and Asian Institute of Management (AIM) associate professor Wilfred Manuela said that because the ban is on Philippine-licensed airlines, the reputation of local airlines is at risk.

"If a country's civil aviation authority appears not to be implementing what the ICAO requires ... the validity of the certifications issued by the civil aviation authority to airlines is now in doubt," he said. "Perhaps even local passengers will now entertain some doubts regarding the safety of local carriers."
Cebu Air, which operates Cebu Pacific flights to other Asian destinations, claims to have a fleet with an average age of 17 months while Philippine Airlines' planes are reportedly eight years old on average.

Tourism deterrent
The EU ban may also erode tourist arrivals and eventually airline revenues, analysts say. In 2008, when the FAA downgraded the safety ratings of the country to Category 2 from Category 1, the US Embassy issued a travel advisory discouraging its citizens in the Philippines from using local airlines.
Category 2 indicates that the FAA had assessed that the Philippines' civil aviation authority had failed to comply with ICAO safety standards for the oversight of air carrier operations. While in Category 2, Philippine air carriers are permitted to continue current operations to the US under heightened FAA surveillance.

"Whenever possible, Americans traveling to and from the Philippines should fly to their destinations on international carriers from countries whose civil aviation authorities meet international aviation safety standards for the oversight of their air carrier operations under the FAA's International Aviation Safety Assessment (IASA) program," the advisory stated.

Philippine Airlines, the only local carrier that services the US, was badly affected by the US advisory since the US market, with its huge population of Filipinos, contributed 30% of its revenues. Expansion plans were also put on hold until the Category 2 classification could be lifted.

While the European Commission ban would not have a direct impact on Philippine-licensed carriers, the reputational hazard could be costly. Europeans who come to the Philippines for business or tourism are expected to stay away while the ban is in place. Tourist destinations in the Philippines are generally reached through transfers from international airports.

Since only Philippine-licensed carriers service domestic routes, an advisory that discourages European and American citizens from using local carriers could prevent them from visiting the country altogether and severely impact the tourism industry.

"Since the Philippines does not allow foreign airlines to pick up passengers from gateway airports to other domestic destinations, visitors are forced to take local airlines. They may stop coming to the Philippines if they start to entertain the idea that local airlines are unsafe," said AIM's Manuela.

"For European tourists who have taken local flights before, this may not be a problem. For those visiting the Philippines for the first time, either they ride at their own risk or cancel their travel plans to the Philippines altogether," said Manuela. "I don't think they would ride at their own risk."

The local tourism industry is already feeling the heat. Tourism Secretary Ace Durano said that European insurance companies have stopped covering travelers for domestic air travel in the country, leading to the cancellation of bookings for April to August to the Philippines by travel operators from Germany, the United Kingdom and France. Figures from the National Statistics Coordination Board show that European visitors made up 10% of the total tourist arrivals in the Philippines in 2008.

Code-sharing arrangements between Philippine-registered airlines and international carriers may also be jeopardized by the EC's decision to blacklist local carriers. Philippine Airlines has code-sharing arrangements with airlines of the Gulf States for Middle Eastern destinations, to which around half of the more than one million Filipino overseas contract workers are deployed each year.

These destinations are also used as transfer points for passengers going to Europe from the Philippines. "If the Gulf States think that the EU ban has any merit, they might take a second look at the code share agreements with Philippine Airlines. If they are convinced that the EU ban is credible, they might suspend or withdraw code share agreements," said Manuela.

Other civil aviation bodies may also take their cue from the European Commission, in the same way the bloc took its cue from the FAA and the ICAO, and institute a similar ban on Philippine-based airlines in their airspace. Manuela, however, noted that the FAA was not likely to impose harsher measures for US routes given that the agency has not taken further adverse actions in the two years since it downgraded the Philippines to Category 2.

The government is in damage-control mode. Cusi said that as soon as the European Commission advisory came out, his CAAP got in touch with other aviation authorities to assure them that the concerns of the European bloc are already being addressed.

"Immediately after the advisory came out, we wrote to the authorities in the other countries and parts of the region informing them that we are safe. For instance, we wrote to IOSA [IATA Operational Safety Audit] to let them know that our airlines are very compliant. They said they understood. So far I think we're holding on," he said.

Jennee Grace U Rubrico has been a journalist for over 10 years.
(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

Philippines' power at crisis point (Asia Times Online)

Written for and published by Asia Times Online on April 10, 2010. Click here for original article

Philippines' power at crisis point
By Jennee Grace U Rubrico

MANILA - Recent electricity outages in the Philippines has sparked concern that the country is on its way to its second power crisis in 20 years. For over a month, the Luzon, Visayas and Mindanao grids have been registering insufficient capacity, resulting in frequent-to-regular power outages that last anywhere from an hour to half a day.

Mindanao in southern Philippines, which is the hardest hit, now suffers a daily power outage that lasts up to 11 hours. President Gloria Macapagal-Arroyo has declared a state of calamity in the island in response. The declaration of a state of calamity is a prerequisite for the release of disaster funds, which local governments can use at their discretion. Her detractors claim this could lead to widespread cheating in the country's first automated national polls, which are due to be held on May 10.

Widespread drought and ill-timed maintenance work are being cited as factors for the inadequate power capacity. Of the country's 15,572 megawatts (MW) of installed capacity, 3,291 MW comes from hydroelectric power plants. Mindanao, in particular, is susceptible: 55% of the power generated in the island is sourced from hydroelectric power plants, whose dams are now approaching critical levels.


Mindanao's available capacity was capped at 785 MW as of March 24, against a dependable capacity of 1,682 MW, according to data from the National Grid Corporation of the Philippines, which operates the country's transmission lines. Peak load for the day hit 1,251 MW, resulting in a shortage of 466 MW. The deficit in the power supply is expected to be sustained. Officials of National Power Corp (Napocor), the state-owned power generator in the region, have warned that with the water level at the dams continuing to recede, a shutdown of the 700 MW Agus and the 200 MW Pulangi hydroelectric power plants might be imminent.

Most state-owned power plants have been sold off in line with the Electric Power Industry Reform Act of 2001 (EPIRA), but the Agus and Pulangi plants are owned by the government through Napocor by virtue of a provision in the law which stipulates that the complexes are not to be privatized within 10 years of the law's passage.

In the Visayas grid, which covers central Philippines, a much smaller deficit of 34 MW was recorded on March 24. Luzon, which earlier suffered sporadic outages due to some power plants being shut down at the same time due overlapping maintenance schedules, has gone back to posting gross power reserves of 158 MW. Both grids are less dependent on hydroelectric power than Mindanao, with the Visayas relying on geothermal energy and Luzon on electricity generated from natural gas.

The Arroyo administration has announced a slew of stop-gap measures for the power situation in Mindanao. Power barges have been deployed to cover the shortage for the time being. Other steps include allowing private firms to connect their generators to the grid, scheduling industrial activity in the island during off-peak periods to lessen the peak load, and opening lending windows for firms that wish to lease generators.

The president has also authorized the state to contract additional capacity from a power plant that is based in the island, a measure that requires congressional approval, as stipulated in Section 71 of the EPIRA.

The outages are expected to end once the rains start, and resupply reservoirs behind hydroelectric dams. The overall problem of a capacity shortage still has to be addressed and power experts say deeper fundamental problems in the Philippine power sector could again plunge the country in darkness - issues that are likely going to be placed on the backburner when this round of blackouts ends.

Fernando Roxas, Asian Institute of Management professor and a power sector expert, notes that nine years after the passage of the EPIRA, power sector reform has not been completed. The mandated sale of the government's power generation assets, for instance, has not been completed 14 years after President Fidel Ramos announced the plan in 1996 and nine years after the EPIRA was passed.

A January 2010 update of the asset privatization plan that was released by the Power Sector Assets and Liabilities Management Corp, the body set up by the EPIRA to dispose of Napocor assets and pay its debts, reveals that of the 30 generating facilities earmarked for disposal, only 20 have been sold and transferred to the winning bidders. Of these, only two are servicing the Mindanao grid.

Roxas noted that delays in the sale of these assets have led to delays in their rehabilitation - which in turn contributed to the power deficiency in Luzon. "The delayed privatization schedule meant that required major rehabilitation was not done because the government intended to sell the assets anyway," he said.

Power subsidies that increased the government's debt while making the public resistant to rate increases have also derailed the reforms, he said. "The power sector was a convenient subsidy mechanism, and like in many developing countries in Asia, people have come to expect electricity to be subsidized. In tandem with politics, this has slowed down the reform process tremendously."
Structural weaknesses in the Philippines and the global economic crises of 1997-1998 and 2008-2009 have also slowed investments in the power sector, he said.

As a result of feet-dragging in implementing the reforms, the capacity shortage that caused a power crisis in the 1990s has not been eradicated. At that time, the Corazon Aquino administration decided to decommission the 600 MW Bataan nuclear power plant, which in turn led to massive blackouts, the rationing of power supply and economic losses which the World Bank calculated to have reached between $600 million and $800 million a year.

Power supply is declared critical when the existing generating capacity is not enough to cover peak demand, and reserves go below 23.4% of dependable capacity for Luzon and the Visayas and 21% for Mindanao. Mindanao is expected to hit a critical period this year if no additional capacity goes onstream, according to government data. The Visayas, which hit critical levels last year, face a new critical period in 2011, the same time that Luzon is expected to hit its critical period.

While the Visayas will secure an additional 328 MW of power supply this year, only 42.5 MW of capacity will be added in Mindanao when another hydro power plant goes onstream. Luzon is not scheduled to augment its capacity until 2012, when 600 MW is added to the grid.

Economist Peter Lee U notes that there are no shortcuts in addressing the worsening power situation. "It is a fundamental demand-supply gap, and it takes time for new power plants to be built," he said.
Analysts maintain that the additional capacity should come from the private sector and not from the government, with Roxas saying that having the state contract power, while provided for by law, "would undo all the [power sector reform] effort of the past 10 years" if it is again adopted as a policy.

"Government already proved, beyond reasonable doubt, that it will produce a crisis such as the one in the 1990s and the current one in Mindanao. Invoking Section 71 of EPIRA is declaring market failure, which is a pity because the market wasn't even allowed to touch Mindanao 10 years after the enactment of EPIRA," he said.

In the meantime, power rates are increasing and the country's energy stability - and economic growth - remain threatened. Electricity from power barges and generators, for one thing, costs much more than power from water.

"In 2000, the accounting cost of running power barges was about 35 pesos per kilowatt hour because you're basically running a ship and a generator at the same time. But politicians are saying consumers in Mindanao are only willing to pay 2.30 pesos/kWh - that's what is being charged for [power from the hydroelectric plants]. Who will pay the cost of the barges and the leased generator sets?" Roxas asked.

U also noted that while reliable power supply "is vital to attracting investments in all industries", higher power rates would drive up business costs "and be a drag on the economic recovery".

The Department of Energy has a long-term plan that determines the additional capacity needed by the different grids based on projected increase in power demand. It indicates that 1,354 MW of power is set to be added between this year and 2014, but very little of it - around 100 MW - is going to Mindanao.

The energy department is also exploring indigenous sources of energy, including natural gas, oil reserves and geothermal energy. It is also studying the possibility of putting up nuclear power plants by 2025.

Much of the success of the energy plan depends on the next administration's policies. Presidential race frontrunners Benigno Aquino III and Manuel Villar both say their strategy to address the supply lack is to entice private investors to the country.

For government to contract additional capacity "is contrary to ... the adopted policy of government to privatize power generation - which is what investors have been complaining about: lack of consistency of [government] policy, and it will undo years of hard work to institute reform in the power sector and put at risk future investments," said Aquino, the only son of Corazon Aquino, whose term ended the regime of Ferdinand Marcos regime but also saw the start of massive blackouts.

An Aquino government would pursue an optimal energy mix "immediately and aggressively if we hope to meet our future needs", he said. "Neither renewables nor fossil fuels nor nuclear power alone can bring energy self-sufficiency. The energy mix should be able to reduce risks associated with the supply, price volatility and production cost."

Villar noted that going back to having government contract power would open the country to another round of take-or-pay arrangements. In the 1990s, Napocor entered into take-or-pay deals with the private power producers that were tapped to help address the shortage of power. The deals ensured that the generating companies would get paid for the power they produced, used or not. The result was spiraling power rates when the 1997-98 Asian financial crisis struck and demand for energy slackened along with economic activity. Napocor, which was saddled with excess capacity it could not sell, passed on the cost of contracting power to consumers.

"What I am trying to avoid is the repeat of the 1990s situation where the public ended up paying for power it never used," Villar said. "This is mainly the downside of invoking Section 71 of the EPIRA, which enables the government to enter into new contracts for additional capacity, usually at a much higher cost for the emergency power. Overcompensation will result in buying expensive power that will later migrate to monthly electric bills of consumers as stranded costs."

As for addressing the situation in Mindanao, the candidates did not give specific proposals, saying only that they would leave it up to the "stakeholders" to resolve the crisis in the region.

"We have two choices: do we want to have low electric rates at the expense of no power, or do we want to have sustainable, available and reliable source of power," Aquino said. "It is the government's job to build a consensus among various stakeholders to make it more acceptable to them. The government should adopt a policy of pricing power rate to reflect the true cost of electricity in a transparent manner through the EPIRA."

Jennee Grace U Rubrico has been a journalist for over 10 years.
(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

Philippines catches recovery wave (Asia Times Online)

Written for and published by Asia Times Online on March 9, 2010. Click here for original article

Philippines catches recovery wave
By Jennee Grace U Rubrico
MANILA - As the global economy shifts from crisis to recovery, the business processing outsourcing (BPO) industry is sparking new demand and buoying employment and investment in the Philippines, where it is one of the country's most important industries.
BPO firms in the Philippines are hiring new personnel on expectations of strong business growth from the United States and Europe. Convergys Corp, an American customer support service provider that operates 12 sites across the country, says it plans to expand its 20,000 workforce by 6,000 employees this year. Stream Global Services, another BPO firm, says it plans to add 5,000 workers this year.
With the pick-up in hiring, property consultant Colliers International Philippines expects BPO firms quickly to take up oversupply in office space and spur new building. In the third quarter of last year, office space vacancy rates ran at 11.6% in Metro Manila, according to industry estimates.
Ayala Land, the country's largest property developer, has said it plans to build more BPO complexes in Pampanga and Davao City and a new technology hub in Iloilo City similar to the 37.5-hectare Technohub that now houses BPO centers and back-office operations for banks and other service sector firms in Quezon City.
Revenue growth in the Philippines' BPO sector, which averaged around 40% annually between 2002 and 2007, slowed to around half that pace in the wake of the global economic crisis. The overall sector accounted for 3.5% of the country's gross domestic product in 2008 and generated US$7.2 billion in revenues last year, up by 19% year on year.
The government says it expects BPO revenues to hit $9 billion this year; industry representatives estimate revenues will reach $12 billion and employ 700,000 workers in the Philippines by 2011. The sector employed 442,000 workers as of the end of 2009.
With its English-speaking population and cultural affinity with the United States - the world's biggest off-shoring client - the Philippines accounts for between 7% and 15% of the global BPO market. The country lags only India, which accounts for between 35%-50% of the global market.
Traditional call centers still account for the largest portion of the Philippines' BPO revenues, amounting to $5 billion last year, or 69% of the industry's total take. That segment's growth, however, has recently been outpaced by newer, non-voice services.
Computer game development posted a 50% rise in revenues last year, while the sector known as knowledge process outsourcing (KPO), which offer higher-value services than the likes of call centers, grew by 35% to $1.1 billion. Other non-voice segments also have room for growth: transcription revenues grew by 3% to $186 million, while IT design and animation held steady at $228 million and $120 million respectively.
"The back-office and KPO sector has been growing at a faster rate than the voice-based sector and we believe this trend will continue," said Gigi Virata, information and research director of the Business Process Association of the Philippines (BPAP), a trade organization. "In the next four or five years, we may see the voice and non-voice sectors at about the same size in the Philippines," she predicted.
That said, some analysts believe local companies may be overestimating how strongly the industry will bounce back. In the United States, an important source of business, high unemployment has become a political issue and there is a risk that populist segments of the US Congress may attempt to legislate against shipping potential domestic jobs off-shore.
BPO industry groups have scaled back some of their previously optimistic growth targets. In a roadmap for 2010 drafted three years ago, the industry had aimed to hit the $12 billion revenue and 1 million worker mark this year.
The targets were calculated on the assumption, undermined by the global economic crisis, that industry revenues would grow by a constant 40% from 2008 to 2010. The projection also failed to take into account productivity and efficiency gains accomplished through economies of scale.
"In 2007, it was estimated that more than 900,000 employees would be needed to generate $12 billion in revenues. This is no longer the case - we can reach this revenue level with about 700,000 employees," Virata said. "We will however have the capacity to employ one million Filipinos in this industry within the next five years."
Still, Philippine BPOs face challenges from shifting industry trends. European firms' growing participation in the outsourcing and off-shoring industry (O&O) is starting to tilt the competitive scales in favor of locations where English is not necessarily the dominant language - as it is in India and the Philippines.
Consulting firm AT Kearney noted that while US companies at present account for 70% of offshore outsourcing spending, Europe is now becoming a more aggressive player in the market. Philippine BPO firms have yet to penetrate non-English speaking Europe on a wide scale, but industry players have been taking steps to tap those potentially lucrative markets.
BPAP officials said the industry is wooing other English-language speaking countries such as Australia, New Zealand and the United Kingdom, as well as countries in the Middle East where English is widely used.
That expansion, some analysts say, will require Philippine BPO firms to enhance their competitive edge. In AT Kearney's O&O ranking for 2009, the Philippines ranked as the world's seventh most attractive off-shoring site, ranking below India, China, Malaysia, Thailand, Indonesia and Egypt.
The Center for Research and Communication Foundation (CRCF), a research organization based in the Philippines, identifies the lack of BPO professionals as the country's main competitiveness stumbling block. The CRCF has urged the government to address the deteriorating levels of education in relation to language proficiency, computer skills, critical thinking, analytics and problem solving.
Others say the industry and government need to do more to promote the Philippines as a BPO destination by streamlining legislation and regulation, improving infrastructure and helping to enhance operational excellence.
"Emerging markets like Vietnam, Malaysia, Thailand, Egypt and even Mauritius and Sri Lanka have done a great job in positively showcasing their countries as investment destinations," said BPAP chief executive Oscar Sanez. "The Philippine government has been very slow in this respect."
Jennee Grace U Rubrico has been a journalist for over 10 years.
(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

Inflation risis with Asia's recovery (Asia Times Online)

Written for and published by February 25, 2010. Click here for original article

Inflation rises with Asia's recovery
By Jennee Grace U Rubrico

MANILA - Asian economies, buoyed by fiscal pump-priming, loose monetary policies and growing intra-regional trade, have generally rebounded from recession faster and in better financial shape than other regions around the world. But as economic recovery comes quicker to Asia than in Europe and the United States, inflationary threats are rising as regional governments remain reluctant to rein in their crisis-induced stimulus measures, including, in many countries, record low interest rates.
Asia's economies are on the upswing, with China leading the way. The International Monetary Fund (IMF), in its World Economic Outlook, in January adjusted up its previous gross domestic product (GDP) forecast for China this year to 10% from 9% after the country reported 8.7% growth in 2009. It also raised its projections for India and the Association of Southeast Asian Nations' (ASEAN) top five economies - Indonesia, Thailand, Malaysia, Singapore and the Philippines.
As fast economic growth resumes, so too are pricing pressures that some say could undermine the medium-term effectiveness of government stimulus measures and, if poorly managed, open a new Pandora's box of economic troubles. Food and energy are major components of Asia's consumer price indices - accounting for as much as 60% and 15% respectively in certain economies - and are where new pricing pressures are expected to be most acutely felt.
In 2008, regional food prices rose to crisis levels and raised fears of severe shortages. The numerous factors involved included low levels of cereal stock, crop failures in exporting countries, demand for biofuel, rising oil prices, export restrictions, a weakening US dollar, price speculation, and enormous liquidity in the global financial system, according to the United Nations' Food and Agriculture Organization (FAO).
Current market conditions lack that same confluence, yet food prices are now approaching levels last seen in 2008, when a record spike in global oil prices contributed to a surge in cost-push inflation across various commodities. Oil prices collapsed with the global economic downturn, falling from a record high of US$147 per barrel in July 2008 to below $35 in February 2009. They are now again on an upward trajectory.
Market prices were just below $80 per barrel at the start of 2010 and are expected by many analysts to rise higher as economic recovery among Asian importers pushes up global demand. The countries seen by economists as most vulnerable to escalating food and energy prices are Vietnam, India and Sri Lanka, with the Philippines, Hong Kong and Korea representing the second tier of those most at risk.
Vietnam is a case in point, with inflation on course to return to double-digit levels by the second quarter of this year. Rising inflation expectations pushed the Vietnamese government into devaluing the currency this month for the second time since last November. Its not clear that Vietnam's rising inflation will have a contagion effect on other regional countries, but economists are closely tracking the situation.
In the FAO's price situation report released on January 25, the United Nations-affiliated agency reported that its Food Price Index had hit its highest level in November since the 2008 surge in inflation. The upward trend, it said, was driven by higher prices of rice, sugar, oil seeds and dairy products.
"Prices of rice are rising in several [Asian] countries, mainly in Vietnam, where they are 50% higher than two years ago; in Sri Lanka, where they have been at record levels in January; and in Bangladesh, where they have increased 30% in the past three months," the FAO report noted.
In India, the world's second-largest rice producer, the crop's price was well above the inflationary levels of two years ago and drought conditions have caused the government to scrap import taxes it maintained on the commodity through 2010. The need for more Indian imports is expected to push rice prices up across the entire region, according to the FAO.
Multinational bank HSBC noted in a recent research report that "Even in China, which has enjoyed a relatively good harvest over the past year and maintains ample stocks, food prices have risen 11.8% [quarter on quarter] in November."
Pricing pressures
What worries some economists is that unlike in 2008, commodity prices and core inflation are now pushing prices up in tandem. The HSBC report said that core inflation is no longer as "well-behaved" as previously, indicating "structural changes" in the behavior of inflation in the region driven by labor shortages and flexible wage policies.
Indeed, the bank's Asian Business Index (ABI) points to soaring input and output costs, with the latter "well correlated with core price inflation in most Asian economies". While Asia's flexible wage policies allowed many countries to avoid the massive lay-offs seen in some Western countries at the height of the global financial crisis, those same policies with recovery are increasing wages and in cycle putting more pressure on core prices.
There is growing evidence of labor shortages across the region, with Chinese firms in the country's export-oriented southern regions complaining of insufficient skilled workers and Taiwanese technology companies reportedly advancing New Year bonuses to avoid staff from being poached by competition. Increasing consumer spending power, too, is contributing to inflationary pressures.
While property prices have approached bubble territory in some markets in the region, particularly in China, Hong Kong and Singapore, many economists believe governments and their affiliated central banks understand the inflationary risks of maintaining overly loose monetary policies implemented against the global crisis and that most will begin tightening in the second half of this year as recoveries take hold.
"We expect monetary tightening will be a key feature of 2010, with higher interest rates and stronger currencies sharing the burden about equally," said Singaporean bank DBS in its first-quarter report on Asian economies. The bank expects monetary tightening to begin in the middle of the year, except in a handful of countries, including India and South Korea, which it expects will start to raise rates earlier.
That will require Asia's central banks to break their historical tendency to shadow movements of the US Federal Reserve and devise monetary policies better calibrated to the region's now dramatically different economic and financial fundamentals.
Noting that central banks may hesitate to adjust monetary policies because of political considerations, HSBC says it is best for monetary authorities to act sooner rather than later. It warned that any substantial delay in raising interest rates "inevitably involves a more aggressive subsequent move [and] may then introduce considerable volatility into financial markets".
If central banks are hesitant to raise interest rates, HSBC suggests alternatively that they withdraw fiscal stimuli; tighten banking supervision, including by beefing up capital requirements or the application stricter lending guidelines, most notably for mortgages; cap aggregate credit growth; or allow exchange rates to appreciate more rapidly. Few of the region's export-oriented countries have taken on board the advice to appreciate their currencies due to fears they will lose market share to regional competitors, including vis-a-vis China and its fixed exchange rate regime.
The IMF, for one, does not support the rapid withdrawal of Asia's fiscal stimulus measures, warning that while economies have recovered they may not be strong enough yet to stand alone. "Due to the still-fragile nature of the recovery, fiscal policies need to remain supportive of economic activity in the near term. The fiscal stimulus planned for 2010 should be fully implemented," the IMF said in a statement.
At the same time, the IMF said "countries that are already enjoying a relatively robust rebound of activity and credit will have to tighten monetary conditions earlier and faster than their counterparts elsewhere". Whether Asia's central banks do so in a timely and effective manner will determine whether Asia's recovering economies sustain growth or set the macroeconomic stage for the region's next bust.
Jennee Grace U Rubrico has been a journalist for over 10 years.
(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

Teves in race to fix Philippines' economy

Written for and published by Asia Times Online on February 6, 2010. Click here for the original article

Teves in race to fix Philippines' economy  
By Jennee Grace U Rubrico

MANILA - Philippines' Finance Secretary Margarito Teves is running short on time. Before a new set of political leaders is elected in May, he is scrambling to contend with a ballooning budget deficit, boost revenues to pay for past pump-priming efforts and manage the way ahead in a recovering but still unstable global economy.
In response to the global economic crisis, President Gloria Macapagal-Arroyo's government ramped up fiscal spending. Last year's budget deficit amounted to nearly 300 billion pesos (US$6.5 billion), or 3.7% of gross domestic product (GDP), compounding what was already a troublesome national debt profile at 58% of GDP.
Before leaving his post, Teves says, he plans to privatize 30 billion pesos (US$642 million) worth of government assets in an effort to begin to plug the budgetary shortfall that will face the new administration to be elected in May. The government failed in 2009 in its attempts to sell the same state assets and it's not clear despite signs of recovery it will be successful in the weeks ahead.
Market analysts have expressed concerns that the election season will distract the government from improving tax collection and that the political flux will stall revenue reforms and weigh against badly needed fiscal belt-tightening. In a wide-ranging interview, Teves rang a warning about the need to reduce budget deficits. He also looked back at his handling of the global economic and financial crisis.
Asia Times Online: Could you elaborate on your budget deficit and privatization plans?
Margarito Teves: The deficit, based on our likely scenario, was 290 billion pesos in 2009, representing about 3.7% of gross domestic product. For 2010, we're projecting 293 billion pesos, representing 3.5% of GDP. Since we're anticipating the GDP to improve, the denominator will be larger, even if in absolute amounts there's a nominal increase of about 3 billion pesos
In terms of privatization, we're trying to dispose of Food Terminal Inc and [a stake in] PNOC-Exploration Corp. These have been on the auction block for quite some time. Last year, we suffered from very unfavorable market conditions, so that's the reason why we deferred disposing of these assets.
A third item - but we're not selling, we're merely leasing - is the Fujimi property. These three assets, together with small-ticket items, will hopefully amount to about 30 billion pesos. Hopefully, we can try to dispose of this by the end of the first quarter if we're lucky, and if not, not exceeding the early part of the second quarter. Our target is really to try to get the proceeds by the end of the first quarter.
ATol: Why are you pushing this before the May 10 election?
MT: I'm not talking about the election, really. It's more in terms of trying to contain the deficit because normally the best time to undertake infrastructure activities is during the first six months because of the weather conditions. And we're coming unfortunately from a low revenue base in 2009.
Probably it's the first time we have experienced this, although I checked with the IMF [International Monetary Fund] and other international institutions, [and] a number of countries have also suffered a decline in their revenue base, largely as a result of the global financial crisis.
We have this situation where we cannot immediately increase the revenues, yet there are expenditures that are necessary during the first six months, so we need to have a fallback. So that's the reason why we're hoping that we can dispose of these assets. But we're not fortunate in convincing congress to approve revenue-enhancing measures. At the same time, there has been an additional burden for us because of a number of revenue-eroding measures.
For example, over the last year and a half, we had major ticket items like the additional allowances granted to middle-income employees; the corporate income tax has been included for a long time in the provisions of the expanded value added tax; the conversion of the way we tax distribution public utilities from value added tax to franchise tax; the PERA [Personal Equity and Retirement Account] law; the incentives given to the tourism industry; the approval of setting up more economic zones.
All of these really unfortunately reduced the gains that we achieved from the expanded value added tax. We have a situation where we suffered largely because of the slowdown in economic growth, which in turn was an effect of the global economic crisis. It came at a time when we needed to spend to counter the adverse effects of the global recession, and congress has decided to pass a number of these revenue-eroding measures without the corresponding revenue-enhancement measures to compensate. That's why it's been a very difficult period for us.
ATol: The government aimed to achieve a balanced budget by 2010, but now we're looking at a likely 293 billion pesos deficit. Is it realistic then to work towards a balanced budget by 2013, the new target set by your government?
MT: 2013 is a possibility. But the situation can be supported based on the target if, (a) the incoming congress, with the support of the new administration, working together, they can decide to restore those losses we have suffered because of these revenue-eroding measures; and (b) the [Bureau of Internal Revenue, or BIR] and the Bureau of Customs will still have to continue improving on their collection efficiency by a combination of tax administration measures, customer enhancement programs and governance measures. And hopefully there are no more revenue-eroding measures in the future.
But if that is not possible, hopefully congress will say, together with the administration, that if there are additional revenue-eroding measures, there will have to be a corresponding set of revenue-enhancing measures. In other words, for every one peso of [revenue-eroding measures] approved by congress, there should be a corresponding peso [for revenue enhancement], and let the rest be handled by the improvement of collection efficiency. Otherwise, it's going to be very tough.
So the medium-term trajectory is there. How long it will take will depend on the new administration because this administration will be phasing out. A lot of the decisions will be done by the new administration, so they can decide whether they would still want to achieve a balanced budget in 2013 or later. We have no control on what the new administration will decide on. They might want to lengthen [the timeframe] a little bit, they might want to increase spending, they might have a different assessment on what kind of deficit numbers they will have over time.
We're just saying that international institutions and investors would normally like to see a medium-term plan which shows a trajectory of the deficit going down, and the debt-to-GDP ratio also moving down. I think that's the most important thing. How fast and to what extent is secondary to the seriousness of the administration in that kind of a plan.
ATol: How would you assess the government's fiscal performance relative to the medium-term plan? Looking back, were the assumptions made to move towards a balanced budget in 2004 realistic?
MT: We've made a comparison of fiscal deficit versus program. Except for 2009, we've hit our target. In fact, we were below the target. 2009 is really an aberration, and that's why the international institutions and private banks are discounting 2009. Without the 2009 figures, it would have been possible for us to achieve a balanced budget.
Without the global financial crisis, the pressure on congress may not also have been intensified in terms of approving these revenue-eroding measures. So in terms of numbers alone, without the circumstances behind the numbers, except for 2009, we were able to achieve our yearly target - in fact we were below our yearly target. I recall we could even have balanced the budget in 2007, but no one expected us anyway to balance our budget.
ATol: You could have balanced the budget in 2007 but decided not to?
MT: If we were just focused on balancing the budget as an end objective, we could have done that. But then behind the objective you have to ask yourself: is there a better objective than purely nominally achieving a balanced budget by 2007? Nobody expected a developing country like the Philippines to balance the budget earlier than programmed.
So we thought that we needed to spend a little bit more to try to have higher economic growth rather than attain the objective of balancing the budget by itself. So that's the reason why we did not decide to balance the budget in 2007. Because we were not expected to anyway, and secondly at that time we thought it was better to spend.
ATol: The Asian Development Bank and others have expressed concern over the government's high debt levels. Between pump-priming and reining in the deficit, what is the government now prioritizing?
MT: It's a very difficult question to answer. We would like to do both. We'd like to make sure that spending for infrastructure and social services will be there to achieve even modest economic growth. If we spend too much without the revenue-enhancement measures, we will end up with a very large deficit. It's not the ideal condition, but a balancing act that we have to go through.
That's the reason why the new administration will be able to address this, perhaps with more flexibility because historically a new administration gets a honeymoon period of anywhere between six months and one year to undertake more aggressive reforms. And hopefully these reforms will include revenue-enhancement measures to compensate for the losses we experienced over the last year and a half. With more revenues, there will be more flexibility to achieve higher economic growth without necessarily going into more deficit and public debt.
ATol: How will a downward revision in collected revenues affect the deficit cap for this year?
MT: You can have two situations. One is to suppose economic growth worldwide is better than what had been forecast earlier. Then it might have a positive effect on the economy of the Philippines. A higher GDP will normally result in more revenues. The assessment or review can be more positive than negative. We have to check, what are the circumstances that will lead us to (a) higher revenues, or (b) to lower revenues? We cannot do that now because the situation is still not very clear.
ATol: Investment bank Credit Suisse noted in a recent report that dwindling tax collection, which fell from 14% of GDP in 2008 to 12% last year, is a cause for concern. How do you respond?
MT: That's in terms of tax effort. That's precisely what I'm saying: 2009 is an aberration. It's a cause for concern, but more so if we don't correct it under normal conditions. Since 2009 is an abnormal condition, it is a cause for concern, but more important is, can we reverse the situation as we move towards a more normal condition?
ATol: The report also pointed out that no large tax evader has ever been convicted in the Philippines.
MT: In a program like "Run After Tax Evaders", we need a combination of other agencies to support us. Strictly speaking, prosecution and conviction are outside the jurisdiction of the BIR and the Bureau of Customs. While we need to improve on the quality of the cases filed, the movement and decisions related to the cases are not strictly within our control.
ATol: Back to privatization, there has been some resistance over the proposed sale of the PNOC-EC stake, that it would erode government revenues from the enterprise. Has this been taken into consideration in the privatization plan?
MT: Let's look at the consequence. The first priority is to collect taxes from existing measures. There's a limitation to what we can do, and there's a time element associated with it. What if we are not able to collect the total resources that we need?
Since congress is not in a position to provide us with revenue-enhancement measures, the next step is, can we dispose of some assets? What if we don't dispose of these assets? The third alternative is to borrow. Is that a better option than tax revenues and disposal of assets? Essentially, that's how we decide. Given the fact that this spending, especially for the poor and to stimulate the economy, is necessary, our options are very limited.
ATol: The FTI property you mentioned earlier has been auctioned and failed on three separate biddings. Why do you think it can be sold this time around?
MT: There's no assurance. Market conditions are a function of the demand for a certain commodity and in this case property, and the decision and willingness of the seller, and this time it's the government to dispose of that property. It's a question of forces of supply and demand.
ATol: Are market conditions better this year compared to last year?
MT: Relatively, but translated into action, we don't know.
ATol: This administration has four months to go before the election. How realistic are the privatization targets we're looking at?
MT: We will not talk about whether they are realistic until the situation is there for us. All we have to do is to keep on plugging until such time when D-day comes, and then we will be able to determine whether we have a buyer that can handle the kind of price [at which] we're willing to sell.
ATol: How would you assess your tenure in office?
MT: I normally have difficulty assessing my own failures and achievements, so I'd rather have somebody else do that. Let's put it this way: between the two, I'd rather make an assessment - and this will be part of my terminal report - on where I have not done too well and what the next administration can probably consider based on what I can convey to them. But I'm not going to telegraph that now.
Jennee Grace U Rubrico has been a journalist for over 10 years.
(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)