Manila, April 27, 2003 -- In support of the American Chamber of Commerce's 
(Amcham) various complaints leveled against the Arroyo government, and 
underlining the need of Malacaņang to heed these complaints, a ranking US 
State Department official who is on a visit to the country yesterday 
relayed to the Arroyo administration the concern of United States 
Assistance for International Development (USAid) officials and American 
investors in the country on the poor revenue performance of the government.

The Amcham in a comprehensive study and survey of political, social and 
economic conditions under which American businessmen have to work in the 
country had tagged the Bureau of Customs (BoC), Bureau of Internal Revenue 
(BIR) and the Bureau of Immigration (BI) as "highly bureaucratic and 
corrupt" under the stewardship of President Arroyo.

The same report also pointed to top Arroyo government officials' penchant 
for demanding kickbacks and payoffs which bespeak of massive corruption in 
high levels of government.

The Amcham report was, however, dismissed by the Palace with the 
presidential spokesman, Ignacio Bunye, telling the nation that the American 
investors keep on complaining about corruption in the Arroyo 
administration, when the US government is also corrupt.

Amcham Philippines has no record of ever having done a comprehensive 
advocacy report on the country and its government in relation to its 
members' business and trade interests. This is first for Amcham Political 
observers said this was one way for the US government to have Malacanang 
know it is displeased with its dismissal of American businessmen's concerns.

US Department Assistant Secretary for East Asia Matthew Daley told Foreign 
Affairs Secretary Blas Ople that Washington is willing to support 
innovative programs for the BIR, BoC and other revenue-raising agencies.

"Daley expressed US investors' and USAID officials' concern on the poor 
performance of the government needing necessary financial reforms that will 
improve the climate for American investors. This is something we do not 
dispute," Ople said. "The revenue collection of the government has been 
rather dismal," Ople said in a press conference.
Daley is in Manila for an official visit. He arrived in the country last 
Wednesday and will fly to Cambodia on the weekend to attend a special 
Senior Officials Meeting of the Asean Regional Forum (ARF).

Ople said Daley informed him that the US will bring in experts from the US 
Treasury to come up with assessments and proposals to increase the revenue 
collections of the cash-strapped government.

The Amcham report released in March this year pointed out that these 
revenue-raising agencies were not seen as " providing outstanding service 
to foreign investors and no improvement in performance was perceived."

This, despite the Chief Executive's claim that her campaign to intensify 
revenue collection is bearing fruit. Risk analysts, rating firms and 
foreign investors in the country, however, appear convinced that 
corruption, which has a direct bearing on lowered revenue collections, 
remains unresolved, which presages yet another budget deficit blowout under 
the country's stewardship of Mrs. Arroyo.

 From the scale of 1 to 10, (1 being poor and 10 being excellent), the 250 
foreign investors when asked to rate the performance of the BoC, BIR and BI 
said the overall average rating of the three agencies was 4.8 and the 
overall average trend was a status quo at 0.94, meaning the situation is in 
a 'dismal poor and deteriorating" state.

In the BoC, respondents said Mrs. Arroyo failed to institute reforms 
saying, "smuggling continues to be an issue across all sectors. Parallel 
imports of products continue to sneak into the country duty-free including 
instances of smuggled sugar...Overall culture here (in the Philippines) is 
one of a spirited game of not following the rules. That makes any income 
producing entity of the government ripe for problems."

The report added that "in an era of liberalized trade, the BoC no longer 
serves an important revenue function. Yet it remains highly bureaucratic 
and corrupt. While shipments of 'green lane" importers move smoothly, 
smaller importers face hassles and delays if facilitation payments are not 
made to obtain an extraordinary number of signatures," respondents in the 
Amcham survey said.

Due to Mrs. Arroyo's inept performance, the Amcham strongly warned foreign 
investors not to give in to the corrupt system in the country's government 
and not to give in to pressures of bribing government officials.

It is the perception of foreign businessmen that "the performance of the 
BIR is a national shame and one of the main reason the Philippines has made 
little economic progress for decades. In the face of an exploding 
population, the government is greatly constrained in providing essential 
public services because of grossly insufficient public revenue. Estimates 
of uncollected taxes run as high as 50 percent."

The Amcham cited President Arroyo's Nov. 30, 2002 speech addressed the tax 
collection challenge, which it found to be untrue.

Quoting the President where in she said, following the Asian financial 
crisis, public revenues steadily declined from 19 percent of gross domestic 
product I 1997 to 17 percent in 1998 to 16 percent in 1999 to 15 percent in 
the year 2000. This trend has robbed us of the resources to spend on 
important initiatives. In my first year as president we were able to arrest 
the decline and sustain the ratio of 15 percent in 2001. However, the 
decline has resumed this year as terrorism added its toll to the global 

Amcham pointed out that what Mrs, Arroyo left unstated was that her 
administration, like its predecessors, does not adequately enforce 
government income tax collection, which is treated by tax collectors as a 
feeding trough for personal enrichment.

"The tax to GDP ratio now stands at its lowest in 14 years and is likely to 
worsen in 2003 in the absence of Congressional approval of new revenue 
measures. Since for every percentage point the ratio is higher an 
additional P40 billion is collected, if the government were collecting at 
the same ratio as 1997, the year the Asian financial crisis began, the 
present deficit would be a small fraction of its size," the Amcham said.

"The obvious solutionto work for a drastic improvement in tax 
collectionshas been a sonorous mantra for every administration. Yet none 
has succeeded in developing the will to confront the resistance of corrupt 
revenue bureaucrats or have the courage to displace rich and well-connected 
tax evaders who are potential contributors to political campaigns."

The Amcham said with Mrs. Arroyo's failure to addressed the high budget 
deficit of P213 billion last year from the supposed target of only P130 
billion, the country's financial system would further deteriorate this year 
since the President "has not learned from her mistakes."

"The deficit for 2002 reached a record of P213 billion ($4 billion). 
Government economic managers project a 2003 deficit of P200 billion and 
state they have learned from their experience last year to release funds 
more slowly in closer relations to actual revenue. The International 
Monetary Fund expects the 2003 deficit to be considerably higher, closer to 
6 percent of GDP. With an election approaching in 2004, we expect 
considerations will dictate no major reductions in public spending," the 
Amcham said.
The Amcham's predictions appear to have precognitive value. Mrs. Arroyo 
approved the new P804 billion budget recently, and despite the already 
bloating budget deficit, little has been earmarked for infrastructure 
projects, a big percentage goes to debt servicing and political interests 
were still at the top of priorities as the budget bill was clearly an 
election campaign expense bill, having failed to veto the P5 billion 
lawmakers added to the supposed P3 billion pork barrel allocated for them.

"...The growing deficit led leading debt rating agencies in 2002 downgrade 
their outlook on Philippine officials debt paper from stable to negative."

S&P just two days ago downgraded the Philippines' rating and pointed to the 
ballooning budget deficit.

"None of the rating agencies believe the government can significantly 
reduce the deficit before the May 2004 elections. With the deficit financed 
about 50-50 between foreign and domestic debt, should the peso depreciate 
substantially and revenue collection remain weak, it will become ever more 
costly to service foreign debt," the Amcham said.

"...Better tax collectionand less corruption in expenditureswould both 
reduce the ballooning deficit and allow the government to pay government 
workers, better, while still having more money to spend on needed 
infrastructure, social services and national defense," the Amcham said.

On the BI, the Amcham recommended the President, "The BI should make it 
much easier for foreign residents to leave and return to the Philippines. 
She should eliminate the travel tax since the airport tax is enough...we 
have to bribe BoC and have major problems with Immigration. It seems the 
'Sales Prevention Division' of government has branches in every office." 
(By Michaela P. del Callar and Sherwin C. Olaes, Tribune)

Reported by: Sol Jose Vanzi

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