Palace debunks CIA report

Malacañang debunked yesterday a report of the United States Central Intelligence Agency that foreign credit rating agencies had expressed concern over the Philippine government’s continuing difficulty in managing its debts and containing its budget deficit.

The CIA said this was despite the passage of revenue-generating legislation such as the lateral attrition law early this year and the "sin" tax law last year.

"Some of these residual doubts do not reflect current reality as well as the growing positive sentiments in the international community," Press Secretary Ignacio Bunye said. "We have just passed the main hurdles as far as putting our fiscal house in order," he added.

Bunye said President Arroyo already finished phase one of her economic agenda with the passage of the expanded value added tax law and is now moving to phase two where she would take the benefits of tough economic reforms to the people.

"With bigger revenues on hand, we will be able to invest more in vital social projects. And since we will no longer rely too much on borrowings, our interest rates should go down, as what is happening already, and this should enable business and jobs to grow," Bunye said.

In the World Factbook released on May 19, the CIA cited the country’s "consistently large budget deficit" which it said produced a high debt level and forced Manila to spend a large portion of its budget on debt service.

The President set forth eight revenue-generating measures as part of her economic reform agenda, which also included the passage of the EVAT Act of 2005.

Together with the lateral attrition and the "sin" tax laws, the EVAT is expected to reduce the budget deficit to over P150 billion and raise an additional P28.75 billion for the government in 2005.

In its report, the CIA said fiscal constraints continued to limit Manila’s ability to finance infrastructure and social spending.

"Large, unprofitable public enterprises, especially in the energy sector, contribute to the government’s debt because of slow progress on privatization," the US agency said.

The government is undertaking the sale of debt-saddled National Power Corp.’s (Napocor) generation and transmission assets.

The privatization of Napocor’s power plants and spin-off of firm National Transmission Corp. is seen to generate some $4.5 billion (P245 billion) for the government.

The President expressed hope she would finish the privatization by the end of the year.

The CIA also noted that it would take a higher, sustained growth path to make "appreciable" progress in poverty alleviation given the Philippines’ high annual population growth rate and unequal distribution of income.

"The Philippines also faces higher oil prices, higher interest rates on its dollar borrowings and higher inflation," the CIA said.

The CIA also said the Philippines continues to export marijuana and hashish, noting that it is being used as a transit point for heroin and shabu.

The CIA also cited the alleged presence of local and foreign terrorist organizations in the Philippines.