Bankers, investors and rating agencies wouldn’t find any presentation credible unless it is clear that we are taking the required measures to deal with the fiscal crisis. The populism of this administration, one of the causes of this fiscal crisis, is a principal worry of the financial sector. The revenue measures now pending in Congress will take some time to pass into law, if they even get passed. And outside of those, what is the Arroyo administration offering?
A proposal to restrict mall hours and the requirement for trip tickets for government vehicles are two of the patchwork measures I can remember off the top of my head. I thought all along government vehicles needed trip tickets, so that’s not really a solution. As for restricting mall hours, they obviously have not thought that through.
For one thing, restricting mall hours will merely punish ordinary folks who may lose jobs. Mall merchants can lay off one shift of workers with restricted hours and what would that achieve? More unemployment without helping reduce the fiscal deficit and, in fact, may worsen it because less business hours may mean less business and that means less taxes.
If they proposed to reduce mall hours in order to save electricity, that’s not going to work either. There is still surplus capacity, thanks to Napocor’s eagerness to sign up IPPs during FVR’s later years. So, a further drop in demand now will only mean Napocor will be in a deeper hole, thanks to the take or pay provisions in the IPP contracts. Napocor’s hole is the National Treasury’s hole, so the bright idea of cutting mall hours will worsen the fiscal crisis.
The symbolism of banishing the merienda during Malacañang meetings is nice, but I am sure they can do better than that. We need more drastic measures that really address the root causes of our current fiscal problems. We need to stop the hemorrhage at Napocor, for instance, caused by among others, Ate Glo’s populist and election-inspired order to peg the cost of power that could be passed on to consumers.
This reminds me of a paragraph in the paper of the UP Economics professors about the role of the GOCCs like Napocor in bringing us to this crisis point.
"The problem of the ballooning government debt," the paper pointed out, "cannot then be attributed solely to the extravagance‚ of government budgets, or the inadequacy of its tax revenues. An equally important part of the story has been the dismal performance of government-run corporations and the equally disastrous policies of all previous administrations that have affected them. Both have played a major role in determining the size of the debt and the burden that taxpayers must bear to service it."
Simple spending cuts, the UP paper observed, will not work. Given the inflation rate of about four to five-percent, the proposal to cut expenditures by five percent means freezing the budget in real terms and in the face of a 2.3-percent population growth rate. Crisis or no crisis, we still have to educate all those children being produced in our most prolific cottage industry. Other social services like health care and poverty alleviation programs require more, not less funding.
The cuts in pork barrel should help, specially if the executive branch also cuts its so-called "intelligence funds" and other discretionary funds that often end up lining pockets of officials and their cronies. And while all these make good press releases, we need announcements from the Palace that will convince us the administration is finally serious about this crisis.
Energy Secretary Vince Perez made a bold statement at the MOPC forum last week about the need to pass on the real cost of generating electricity to consumers. Vince is correct, of course, about the need to stop what amounts to a subsidy on power rates. Will his boss have the guts to implement such a politically sensitive measure?
The crazy thing about this seemingly sudden realization of a fiscal crisis is that this did not happen overnight. I recall that then Finance Secretary Jose Isidro Camacho said as much, shortly before he resigned. I said as much too during the campaign, which is why I opted for Raul Roco, not because he has a magic formula to address the crisis but because he has the moral authority to lead us towards a solution. The credibility of the leader is paramount in a situation like this one we now face.
That is why, when I realized that Ate Glo was going to win, I wrote that it might just as well happen so she will have the responsibility of untangling the mess she helped create. That’s divine justice, I guess.
But lacking the moral authority a crisis President should have, it would be that much more difficult for her to lead us through this one. That’s bad news for all of us. Hopefully, she realizes her handicap and goes out of her way to convince skeptics that she means business. And I don’t mean Jose Pidal’s.
After reading your readers‚ and GMA’s solution to the current crisis, I hope you don’t mind if I add my own thoughts. Cutting costs is a great way to increase efficiency and we should all make an effort here. But that is no solution. The solution to the financial crisis, if I may humbly suggest is simply more finances. Loans are not the long term solution, either. In every great economy, the engine for growth has been the success of small and medium scale industry. Therefore, a plan must be centered on how to encourage such industry. The steps to these include:
• A vision, which should come from the leader. ("Without vision, the people perish.") The President should identify the industries where we can compete globally, give proper incentive, and encourage local competition.
• Bureaucracy needs to be cut and so should corruption; but first in all the areas that hinder growth of industry. (A suggestion might be to allow commercial banks to collect all forms of taxes. Surely the private sector CPAs can properly interpret taxation laws and properly audit returns. Another would be to have many collection centers. If I find a collection center corrupt, I will go to another until I find one not corrupt.)
• In no case should any government or Cabinet official be connected in any business whatsoever. Competition is hard enough, but to know that the rules are swayed unfairly to discourage our business for a ‘favored’ one is economic suicide!
• Finally, and equally important, is CUT taxes. If corporate tax was, say 15 percent instead of 32 percent, more would pay taxes...But even more importantly, the domino effect of reduced costs and eventually prices would be astounding and beneficial to all. In the end, what would the government rather have: A large piece of a cup-cake? Or a small piece of a large cake?
We have great managers and business owners both here and around the world. Many of those abroad want to come back and invest here. But the risks of investing at this point are not worth it. We have the people resources to be a nation with a great economy. But it starts with a vision and some tough decisions to back up the vision!
Thanks for listening.
A psychiatrist got a postcard one morning from one of his patients. It read, "Having a wonderful time. Wish you were here so you could tell me why."
Boo Chanco’s e-mail address is philstar_chanco@yahoo.com