MANILA, August 27, 2004 (STAR) BIZLINKS By Rey Gamboa - No matter how much the government – and even the eminent faculty members of the UP School of Economics – talk about the perils of the country’s high level of debt and unmanageable budget deficit, we may not be able to get out of the rut unless drastic measures are seriously undertaken soon.

Malacañang has announced its own austerity measures –from doing away with merienda during LEDAC (Legislative-Executive Development Advisory Council) meetings to several energy conservation measures to save on electricity and imported oil products. Yet I feel these are simply token words. Wa epek, if you really get down to brass and tacks.

Raising the red flag and admitting that the government is indeed in a fiscal crisis (as differentiated from a financial crisis that Argentina had experienced) reflect an all-too familiar posturing, even mind-conditioning. The game plan, it seems, is that should the taxation proposals being pushed by the President not pass, then she is not to blame; it is the legislators who are not learned economists that become the culprits.

More taxes from those with less are dangerous. Yet more taxes, especially if levied on the general population, are not the solution. Wasn’t this the route chosen by Argentina? Did this not only inflame Argentinean workers, leading to mass strikes and chaos, and ultimately economic paralysis?

It’s true that our debt ratios are already comparable to Argentina. And worse, our fiscal sector seems to be more paralyzed now than that of our Latin American counterpart. But exacting more taxes from those already getting less will most probably create more serious problems.

Be brave; ask creditors for re-structuring. What we need to do now is pull the brakes on new loans, particularly loans being obtained to pay for interest on outstanding loans and to pay for loans coming due and demandable. And this is where the fun begins. The cat is out of the bag, anyway.

So, why not bravely face our creditors and start restructuring all our debts? Stop pretending that the country can still afford to borrow some more especially if the additional borrowings are just to pay off interests and due loans.

If we want to call a spade a spade, then let’s shed off this macho (9th powerful woman) image and, with honor and with heads up, approach our creditors with a clear plan to solve the deficit problem and an urgent request to re-shape our gargantuan liabilities. Negotiate for extension of terms and conversion of interests into principal to be repaid over a period of time. Even if a premium would be imposed for re-structuring, it would be worth the time we will buy to get out of the hole.

With firm hand, clean the house. Hand in hand with the stretched re-payment plan for liabilities are firm commitments of this government to radically cut back on spending. First to be slashed, perhaps by as much as 50 percent, should be the countrywide development fund or more popularly known as our legislators’ pork barrel.

Next should be the reduction of IRA or internal revenue allotment given to certain government units. It may be possible that not all local government units may be affected. Again, those who are confirmed to be in dire need should be provided.

Government must operate on a shoestring budget. The move to streamline and cut the bureaucratic fat must be pursued vigorously. This is to demonstrate to the creditors that steps are being taken to cut expenditures to meet the requested extended term of repayment of loans.

Increase revenues. Aside from paring to the barest its spending, government needs to increase revenue collection. But this need not be done at the expense of the general population. There are other ways to raise revenues.

For instance, why not beg off (at least temporarily as we solve our deficit crisis) from our World Trade Organization (WTO) commitments. By doing so, we can increase tariff and taxes on all importation of luxury goods and non-essential products that can be produced locally.

This would not only increase revenue collections, but also encourage and give some breathing space to local manufacturers that are now finding difficulty to compete with products from other countries freely entering the domestic market.

Of course, local taxes on sin products – alcohol and cigarettes – should without hesitation be hiked. Those legislators who were before swayed by the strong lobby and opposed tax increases on sin products must now relent and just for a moment consider the country’s predicament.

However, I don’t believe that raising the specific tax on petroleum products by P2 per liter is going to do the country good in the long run. Instead, let’s focus on certain sectors, like private motorists, and discourage wasteful consumption of gasoline, for instance.

And, of course, the acrimonious debates about the re-organization of the Bureau of Internal Revenue (BIR) should be stopped and legislative action taken to immediately make the bureau a more effective collection agency. A graft-free, performance-based collecting agency is the key to increasing revenues, not the imposition of new taxes.

Facing up to creditors armed with clear and firm commitments to put our fiscal position in order would require the highest degree of political will and leadership. And it will buy us precious time. On the other hand, the current administration may face an erupting social volcano difficult to manage if it decides to ram down the wrong pills to cure the ailment.

‘Breaking Barriers’ with SBMA chairman Felicisimo Payumo

‘Breaking Barriers’ on IBC (11 p.m. every Wednesday) will feature chairman Felicisimo Payumo of the Subic Bay Metropolitan Authority on Wednesday, 1st September 2004.

Heated debates are ongoing on what the best economic and spatial strategy should be to develop the entire Central Luzon including Clark, the former US Air Base. Will the formation of the Subic-Clark Alliance for Development or SCAD accelerate the development of both areas? Or will it be just another bureaucratic layer that will choke and stifle investors’ initiatives? Is the re-structuring of SBMA merely to accommodate another "pay back" appointee? Or is it appropriate to sustain Subic’s progress? Watch it.

Health issues on TV

‘Isyung Kalakalan at Iba Pa’ on IBC-TV13 News (5 p.m., Monday to Friday) ends today the discussion of the country’s health issues. With the government’s huge budget deficit, the country’s less privileged citizens are not getting the proper medical care from the state-owned and managed health service system. Comparatively, we have the worst health figures in the region. Worse, our people are dying because of illnesses that are curable by current day health science standards. What can this country do to stay alive in spite of government’s financial problems? Watch it.

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 If you wish to view the previous columns, you may visit my website at

Reported by: Sol Jose Vanzi

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