In Washington DC, the boys of "W" are simply ideological about their demand for tax cuts for the rich and couldn’t care less about the deficit. Just so happened the war freak of a President is also spending a bundle on defense. The surplus left by Bill Clinton is all gone and they may have to dip into the social security funds of ordinary folks in the future.
In Manila, the pretty boys of Ate Glo are trying to make it look like they spent less than the budgeted target deficit. In fact, I came across a news release just before the holidays claiming just that. What the story didn’t say is the fact that the budget deficit target of Ate Glo’s boys had been a fast upwardly moving target this year. Worse, the economic managers of Ate Glo were taken by surprise at midyear that the deficit was as big as it already was.
So they tried to convince us that the deficit does not matter. With the help of some economists, notably from Ateneo, they were peddling the theory that keeping it within a certain percentage to GDP is what matters. I think that was supposed to be a little less than four percent. Well, they exceeded that too.
Financial rating agencies reacted swiftly by downgrading the country’s rating. This means, borrowing abroad to cover the deficit will be a more expensive proposition. They will borrow locally and put an upward pressure on interest rates, crowd out the private sector and delay economic recovery. Worse, debt service will be grabbing a larger and larger share of the national budget so that no money would be left for infrastructure needed to spur investments and create jobs.
The large deficit is also reason why the peso stayed close to P54 to $1 during the holidays, despite the strong flow of dollar remittance from the OFWs. In the past, the exchange rate will improve during the holidays and creep back up in January. No such luck this year, thanks to the deficit attention disorder of Ate Glo’s economic managers.
That’s not even the end of it. There were rumors over the holidays that Ate Glo plans to reward her chief economic manager, Finance Secretary Lito Camacho by promoting him to Executive Secretary. Oh well. What could we do if the woman has a political death wish!
The thing to do is to convince the people to pay their taxes. They have to convince people that government can use their money efficiently and honestly. But that takes some hard convincing. People will ask what happened to that criminal syndicate caught hijacking tax collections with the connivance of Land Bank employees. We haven’t heard anyone going to jail for that crime. On the contrary, the NBI got the whistle blower into so much trouble, you’d think the G-men were protecting the syndicate. In the meantime, the Finance people couldn’t care less because they can always spend what they don’t have. That’s the deficit, stupid.
It is obvious this malady afflicting her investment bankers in the Cabinet is incurable. Deficit attention disorder can only be cured by shock therapy like the one being administered to Argentina. Unfortunately for us, it is our quality of life that will suffer when it comes to that. These investment bankers, if not Kuya Mike and Ate Glo herself, have most likely stashed away their personal fortunes in hard currency, away from our shores. Ah, such is life! The rats lord it over the sinking ship just before they abandon it.
Now they are trying to make us believe that the new year will be better for the economy. I can understand why they want some good news to tie us over during the holidays. But raising false hopes could be politically devastating. The secret in getting popularity ratings up is in managing expectations. Let people hope too much such that failure is inevitable and you end up with an explosive brew of public opinion.
To be sure, Romy Neri’s six-percent growth expectation for next year is wishful thinking, pure and simple. Everything really depends on the United States. Will the US economy get out of its current rut? Will the war break out with Iraq and North Korea? Will increased tension lead to an atrocious rise in petroleum prices? How bad will El Niño be?
For the Unites States, an economist of BusinessWeek magazine "sees a stagnant economy, and a stagnant market, in 2003 and thinks the best return an investor can expect in the new year is two percent to three percent – with the risks on the downside." With all the geopolitical tensions escalating, the price of gold, the last storehouse of value in turbulent times, had been rising. The same BW economist predicted as much some weeks ago.
"I have never been a gold fan, and I’m still not, but I do think that its strength will continue for at least several months to come. And if the dollar continues its swoon against the euro, the rise in gold could be quite sharp and prolonged. I would dearly love to be wrong about this, but prudence suggests that optimistic talk about the economy or the international situation is premature."
American consumers who have held up the American economy thus far, have started to feel the burden of too much debt, job losses and shrinking investment portfolios. In the days before Christmas, they didn’t buy as much as they used to. Los Angeles Times reports that "even if shoppers flocked to the malls for the post-Christmas bargain hunt, it probably would not be enough to help pull this season out for retailers."
The LA Times observed that "the sluggish holiday shopping portends trouble for the broader economy, which has been held up by hearty consumer spending even in the face of a jobless recovery and declining growth in personal incomes. Weak holiday sales mean fewer tax dollars for budget-strapped states such as California, and they could get the nation’s economy off on bad footing next year."
"Basically we have just one horse," Sung Won Sohn, the Minneapolis-based chief economist for Wells Fargo & Co. told the Times. "If that one horse gets sick, not only the US economy but the global economy will be in deep trouble."
It is clear that given the dim prospects in the international economy next year, we have to gear up our domestic economy to survive such an environment. If our leaders know what is good for us, they will set aside petty politicking and focus national attention to the crisis at hand. Both houses of Congress must declare a moratorium on investigations. That’s not their job. Their job is to pass legislation we need.
They must for starters, get all the essential economic legislation passed quickly. Start with the stronger money laundering law. We can’t afford to be blacklisted by the international financial community. Imagine the crisis arising from the inability or even the difficulty of remitting OFW money to their families here. Why have the legislators been blind to this brewing crisis?
I know we cannot afford a premature election campaign for 2004. But then again, it is almost useless to expect our leaders to be statesmen. And that’s the reality we must live with. Sigh!
A Frenchman in Paris nearly got away with stealing several paintings from the Louvre. However, after planning the crime and getting in and out and past security, he was captured only two blocks away when his Econoline van ran out of gas.
When asked how he could mastermind such a crime and then make such an obvious error, he replied, "I had no Monet to buy Degas to make the Van Gogh."
(Boo Chanco’s e-mail address is bchanco@bayantel.com.ph)