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.)

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.)