Government needs to trim targets — Espiritu

Government will have difficulty attaining its revenue targets if it does not make downward adjustments on economic targets for this year.

This was the observation yesterday of former Finance Secretary Edgardo B. Espiritu who is now President Arroyo’s special envoy to multilateral financial institutions.

Speaking before the Rotary Club of Manila, Espiritu expressed doubt on the government’s growth forecast for this year. "Sticking to the original growth targets at this time is no longer tenable," he said, adding that "we should accept this as soon as possible to avoid any surprises and further problems with the already vulnerable situation."

Espiritu pointed out that "maintaining an unrealistically high growth target would have implications, for instance, on the attainability of our revenue targets and may further jeopardize the fiscal picture, which is already under severe pressure with a deficit target of P145 billion this year and P130 billion next year."

The former finance secretary also noted that the government can no longer resort to "to a strategy that proved successful before, namely, pump-priming the economy through deficit spending financed by reasonably price foreign money."

Espiritu expressed the view that "this option is no longer available at this time because international markets are now virtually closed to emerging market debt issues as a result of the increased risks and higher volatility in the aftermath of the terrorist attacks."

He explained that after such a shock, there is usually a flight to quality with investors shifting to more stable and less risky, although lower yielding instruments.

Furthermore, he pointed out, highly indebted countries like the Philippines usually have a more pronounced disadvantage in such a situation.

Espiritu stressed that the sooner the country and the government admit that its original assessment of the country’s economic prospects is already off, "the better for us."

"We would be able to shift to strategies more suited to the new circumstances," he added.

Expectations, Espiritu said, will be better attuned to reality and demands.

He cited for instance the labor sector which would then moderate its demand for a wage increase.

Likewise, Espiritu said, government should come up with more innovative ways to tap second line resources to raise new funds such as making use of idle government properties or future receipts or some other asset, in providing enhancements to financial instruments for which there still remains some opportunities in international capital markets.