REY GAMBOA: THE UNDENIABLE FISCAL CRISIS

MANILA, December 15, 2003  (STAR) BIZLINKS By Rey Gamboa - The crisis spawned by mounting government debts in the face of wanton spending appears to be an issue that continues to be ignored by our politicos even as the May 2004 election looms nearer.

That the Philippines is in the thick of a fiscal crisis is a statement that draws little surprise nowadays, except recently when it was echoed by the former Finance Secretary Jose Isidro Camacho just a few days after he had announced his irrevocable resignation.

Camacho, one of the more credible members of the Arroyo cabinet, testified on the true state of the economy last week when he said that the Philippines is in a fiscal crisis, its level of debt is unsustainable and that the political system as well as leadership are not equipped to solve the problem.

A Government Habitually In Deficit

In fact, since 1998, the government had been regularly posting a deficit that was well above the target. So while this year could be the first time that the deficit target would not be breached (as current administration officials hopefully boast), this is little comfort faced with the hard fact that the government remains weighed down by a huge fiscal burden that has consequently swelled the level of the country’s debt to monumental proportions.

As of end-2002, the Philippines’ consolidated public debt reached P5.163 trillion, higher by P752 billion or 17 percent than its level a year ago. If government reckoning could be relied on, by 2010 – which is incidentally also the year when a zero budget deficit is being targeted – the public debt would have reached about P7 trillion.

The public debt is comprised of outstanding borrowings of the National Government, state-owned banks and corporations, and the central bank. Private sector borrowings are not even included in the computation.

The total debt stock of the government is already equivalent to 120.3 percent of the country’s entire production as measured by the gross national product in 2002, up from 112.6 percent the previous year.

This simply means that the country’s total output is not enough to pay for its debts. In business parlance, this is a clear case of a government that is bankrupt.

Fiscal Mismanagement Continues

In fairness to the Arroyo administration, the current situation is not entirely its fault. But those who expected GMA, a president with an economic background, to impose fiscal discipline and dramatically improve fiscal management, are disappointed and frustrated.

The country’s overall outstanding debt has more than doubled since 1996, when it stood at P2.237 trillion only. And the sins of fiscal mismanagement committed in the past continued during GMA’s term: inefficient tax collection, undisciplined spending, legislative inaction. Add to this list, of course, the pervasive corruption in the revenue generating units of the government.

IMF Waiting At The Wings

Already, the International Monetary Fund (IMF) is warning that the debt problem particularly among emerging economies is getting worse.

In the IMF’s World Economic Outlook, the Fund believed "emerging market economies may again be on the verge of public debt problems." From 1997, the Fund said public debt is now higher in most Asian and Latin American economies by 15 percent.

The Fund emphasized that "the sustainable public debt level for a typical emerging market economy may only be 25 percent of GDP, compared to 75 percent of GDP for a typical industrial country."

In the Philippines, the public sector debt stock stood at 105.6 percent of GNP in 1997. But even then, the country’s consolidated debt was already outpacing the economy. Considering that the Philippine ratios are already much higher and not improving, expect the IMF to be once again visibly directing – and pressing – for internal reforms.

Chess Team Contributes To SEAG Gold Harvest

The 11-man chess team brought in three gold and three bronze medals to significantly contribute to the 48-54-75 gold-silver-bronze final day tallies of the 444-strong Philippine contingent to the Southeast Asian Games held in Vietnam.

Not a bad performance for our chessers, but definitely can be improved especially with Manila hosting the SEA Games in 2005. Let’s give our national chess team a hearty welcome but let’s prepare for the tougher challenge ahead.

Participate in the effort to prepare for the future and join the "Isulong Ang Pinoy Chess" foundation that is developing programs to hasten the grass root search for new Filipino chess talents. For details, visit the foundation website at http://www.IsulongPinoyChess.com.

Manila Urban Renewal

 On TV "Isyung Kalakalan at Iba Pa" on IBC News (4:30 p.m. and 10:30 p.m., Monday to Friday), in response to requests received, starts featuring again today the various issues related to the urban renewal program being implemented in the City of Manila. Following the successful re-development of the portion of Roxas Blvd., now known as "Bay Walk," residents of the City of Manila are looking for more projects that will bring back the luster of the city.

There are obstacles along the way put up by those who benefit from the status quo. Of particular note is the resistance by the oil companies to vacate and re-locate their storage depots at Pandacan. The city government headed by Mayor Atienza entered into a compromise agreement that effectively deferred the implementation of a city ordinance declaring Pandacan as off limits to oil depots and terminals.

Apart from the perceived kowtowing to the oil companies, there are also allegations of forcing through the Avenida Rizal project despite objections from residents and transport groups. Watch it. ‘Breaking Barriers’ Focus On Logistic Service "Breaking Barriers" on IBC-TV13 (11 p.m. every Wednesday) will feature Alberto D. Lina, chairman of Fedex Phils. and the Lina Group of Companies on 17th December 2003.

How does the logistic service in the Philippines compare with that of other countries? Is it competitive in terms of cost and standard of service? What is the government doing to develop and promote this service sector? Will the full implementation of the "open skies" arrangement with the US bring more opportunities or more conflicts for this sector?

Join us break barriers and gain better insights into various issues involving the logistic service sector and Philippine business in general.

Should you wish to share any insights, write me at Link Edge, 4th Floor, 156 Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at reygamboa@linkedge.biz. If you wish to view the previous columns, you may visit my website at http://bizlinks.linkedge.biz.


Reported by: Sol Jose Vanzi

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