MANILA,  August 25, 2004
Economic managers: What fiscal crisis?

President Arroyo’s economic managers countered yesterday her statement that the Philippines is in the midst of a fiscal crisis, saying this is not an accurate description of the country’s financial problems.

"We’re not in that situation," acting Bangko Sentral ng Pilipinas Governor Amando Tetangco said.

"I think she’s trying to say there’s a problem and we need to get the support of everyone to address it," he said, referring to the President.

He maintained that "technically" the Philippines was not yet in a fiscal crisis because it has not defaulted on payments, not lost access to the international debt market and not accumulated a budget deficit of "unmanageable" proportions.

Meanwhile, Finance Secretary Juanita Amatong announced that the government has stopped short of officially declaring a state of fiscal crisis, admitting that the Arroyo administration is not prepared to wrangle with local governments over a proposed cut in the Internal Revenue Allotment (IRA) to address the crisis.

Economic Planning Secretary Romulo Neri, Trade Secretary Cesar Purisima, and Budget Secretary Emilia Boncodin were one in saying the President merely used the term "fiscal crisis" in its simplest and most understandable form for the general public to get a picture of the government’s problems.

"We’re not in that situation yet. We’re nowhere near there in that situation. But the President was right in saying we’re in a serious situation to wake up everybody, especially Congress, to pass the proposed tax bills and for the business sector to pay the correct taxes," Neri said.

He noted that Mrs. Arroyo used the term "in a conventional manner for everyone to understand it when she spoke about it before the policemen" at the Philippine National Police turnover rites at Camp Crame last Monday.

Boncodin pointed out that "there is a technical definition of what a fiscal crisis is. When you are actually experiencing a case where the credit windows of the international communities are beginning to close. We are nowhere near that."

From the economic managers’ point of view, according to Boncodin, fiscal crisis "is not something in the near future. But that is not to say that we are not having difficulties, that we are not having a problem. Precisely because of the fiscal problems is why we are taking these drastic measures now."

She explained that to prevent a real crisis from occurring "as in a case where the Philippine government can no longer have access to international credit, we have to show the international community that we mean business as far as resolving our fiscal problem is concerned."

Purisima said there is no need to panic, and all that needs to be done is "for... Congress, the executive branch, the local governments to align priority expenses." He also pointed out that the President used the term "rhetorically and not technically."

The government debt, including obligations by the national government plus those assumed from failing government corporations, rose to P3.36 trillion as of end-2003, equivalent to 130 percent of gross domestic product. Half the total is denominated in foreign currencies.

The Development Budget and Coordinating Committee (DBCC), composed of Mrs. Arroyo’s Cabinet members with economic portfolios, said in a statement that while the fiscal situation required "both painful and urgent measures," the Philippines was nowhere near a fiscal crisis.

Heated discussions have been ongoing from Monday afternoon until yesterday morning at separate meetings of the Economic Management Group, the DBCC and the Legislative-Executive Development Advisory Council (Ledac).

Emerging from the Ledac meeting, Amatong said the DBCC decided not to touch the P150-billion IRA for local government units in the 2005 budget.

"There is a process and we looked at it," she said. "It was decided that it might not be politically acceptable to do this at this point."

Under existing rules, the executive department would have to get a joint resolution between the departments of finance, budget and management and local government.

The executive department would then have to get the concurrence of the league of local governments, officially declaring not a fiscal crisis but a "state of unmanageable fiscal deficit."

Only then can the executive department invoke its authority to reduce the budget allocation for the IRA, which is based on a specific formula defined in the Local Government Code.

However, Amatong said the President’s economic managers eventually concluded that instead of battling local governments over their IRA, the effort would be better spent on getting Congress to pass revenue measures.

"At least that would give us a long-term solution to the government’s perennial fiscal problems," she said.

Amatong said the Arroyo administration can still reduce local government spending even without officially declaring a fiscal crisis.

"We have made the decision early on that we will cut all our subsidies and funding for foreign-assisted projects intended for local government units," she said. "If the LGUs want to continue these projects, they would have to provide the counterpart funding themselves."

Amatong said the national government has been subsidizing the counterpart funds for these foreign-assisted projects for years, even after the Local Government Code was passed into law.

On the other hand, Boncodin said there was no shortcut to pass new revenue bills and continuing to institute fiscal discipline measures.

"The members of the DBCC are in agreement that these have to be made to ensure that the solutions are permanent and institutional," she said.

Two congressmen have warned that people are getting mixed signals over the President’s announcement since her economic managers are saying otherwise.

House Minority Leader Francis Escudero said Mrs. Arroyo’s economic managers "are contradicting" her "and yet they don’t want to create panic in the international credit and finance community."

He noted that the President made no mention of a fiscal crisis during her State of the Nation Address last July 28, "yet only a month later, she admits there is a problem."

Pasig City Rep. Robert Jaworski Jr. said Purisima and Amatong are still trying to convince the public that matters are under control.

"We cannot deny that there is a state of fiscal crisis, evident in the obvious degradation of public service... Instead of a cover-up, let us accept it and face it together as a nation," he said. — With Des Ferriols, Paolo Romero, AFP

Reported by: Sol Jose Vanzi

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