BSP CHIEF: WE CAN'T GO BACK TO BUSINESS AS USUAL
MANILA, June 29 , 2004 (STAR) Bangko Sentral ng Pilipinas governor Rafael Buenaventura said yesterday that President Arroyo must undertake crucial reforms to control the budget deficit and the debt burden while reforming the power and financial sectors during her new six-year term.
"We can’t go on with business-as-usual," Buenaventura said, warning that such drastic reforms were necessary if the country was to see strong enough growth to make any headway against poverty rates.
Arroyo’s new mandate is "a window of opportunity" to address these key concerns, he told a gathering of the Foreign Correspondents Association of the Philippines.
"With a new mandate, most business people are hoping we can do better," Buenaventura said, adding that it is important to show local and foreign investors that "there is light at the end of the tunnel."
An International Monetary Fund mission is in Manila because "they want to know what is the economic agenda for the next six years. What will be emphasized, what will be de-emphasized." In a television interview aired late Sunday, Mrs. Arroyo said she would push reforms in corporate taxation and the Constitution in a bid to increase government revenue and stem a decline in much needed foreign investment.
Both aides and analysts agree that weak revenues, soaring state debt and a protectionist constitution that keeps out foreign direct investment (FDI) in key sectors of the economy are the main constraints to reducing poverty.
With her political allies capturing the majority of seats of Congress and local government posts, Arroyo hopes she can get more support in pushing for a change in the constitution to help open the economy to foreign investment.
"Our main problem in revenue generation is corruption. If we simplify the system, there will be fewer loopholes," Arroyo said in the interview, citing the tax system in force in Hong Kong as a model. The Manila-based Asian Development Bank says the Philippines’ revenues-to-gross domestic product (GDP) ratio of 14.4 percent last year, already one of the lowest in Asia, would slip to 14.1 percent this year and in 2005 as the government resorts to more debt to finance the gap.
FDI inflows plunged 90.7 percent to 161 million dollars in 2003, the ADB said.
Arroyo did not say how the constitution would have to be changed but economists have previously cited provisions barring majority foreign equity in strategic sectors such as mining, publishing and media, and shipping, preventing the entry of foreign capital in these crucial areas.
Buenaventura said that top government planners were working out the economic agenda, which Arroyo will present in her annual State of the Nation Address to Congress on July 26.
He stressed that the economy had been "performing above expectations" and expressed confidence that inflation this year would remain within the government’s five percent target. At the same time, he said the Philippines was far behind its neighbors.
Controlling deficit and debt levels while reforming the power and the financial sectors would free up funds for infrastructure and encourage more investment needed to spur growth, he said. The Philippines incurred a budget deficit of P77.4 billion in the first five months of 2004 and its foreign debt stood at $56.7 billion as of end-March.
Buenaventura said the country was not facing a debt crunch as most of its debt was long-term but he remarked that with debt service charges, there was very little money left over for government expenditures. Manila must broaden the financial markets and strengthen financial regulators, he said.
Banks must be encouraged to lend, he said, remarking that they did not have enough suitable borrowers because companies were not expanding. — AFP, Marichu Villanueva
Reported by: Sol Jose Vanzi
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