RP on brink of fiscal crisis — Diokno

The Philippines is "on the brink of a fiscal crisis" and only a broad political coalition brandishing a comprehensive public sector reform program can "avert the crisis," former budget secretary Benjamin Diokno said yesterday.

In a forum conducted by the Manila Overseas Press Club (MOPC) yesterday at the Ristorante La Dolce Fontana in Greenhills, Diokno said the new president must not be in denial about the country being in crisis and must have the political will to get the bureaucracy to embrace a reform program.

Diokno, a professor at the University of the Philippines School of Economics, lamented that the national government is "in denial."

"The national government is disconnected. Its resources are disconnected from its vision; what it claims is disconnected with what it does. The growth in population is disconnected with the government’s social services spending," he said.

Diokno predicted that within the next six years, the Philippines will experience serious credit deterioration and pathetic public service, which he said would result the government’s failure to meet growth targets unless institutional and structural reforms are initiated seriously.

He added that it would also result in a depreciated local currency, wider trade deficit, which is well beyond five percent of gross domestic product (GDP), and a larger debt stock beyond the present P5.1 trillion.

Malacañang, however, reiterated yesterday that the Arroyo administration has done a good job in managing the economy after inheriting it in a dismal state from the Estrada administration.

Presidential Spokesman Ignacio Bunye said that the Arroyo administration has actually done a good job of keeping the budget deficit within the target levels because of good fiscal management.

He asserted that tax collection has improved while expenses have been rationalized in order to control the budget deficit.

"According to (Budget) Secretary (Emilia) Boncodin, this is backed up by figures... during the last quarter we did very well as far as meeting our targets, and two very important elements here are increased revenue and rationalization of expenses," Bunye said.

Diokno, however, claimed that the consolidated public sector deficit has, in fact, already worsened from 3.2 percent of GDP in 1999 to 6.6 percent in 2003.

According to Diokno, as it is now, the Philippines is already three times over the benchmark for public debt-to-GDP ratio. Debt interest payments have all but crowded out the productive portion of the national budget, increasing from 26.5 percent in 1999 to 42.6 percent last year.

The country cannot continue borrowing, he said, since its credit rating would deteriorate further and the only sources of funds would come with sky-high interest rates from foreign banks or private sector sources.

Bunye pointed out though that it was the term of deposed President Estrada that brought about the huge budget deficits.

"I believe we are on the right track in containing one of the biggest problems that we inherited from the administration served by Mr. Diokno," Bunye said, referring to the Estrada presidency.

But Diokno insisted that the country is on the brink of a crisis. "We are in a situation where we have less money, more debts," he stressed.

The biggest challenge he sees for the winner of the national elections is to form a broad coalition that would outline a comprehensive public sector reform program.

"The coalition should be prepared to stop non-concessional foreign loans while it should be prepared to bite the bullet," he said.

"A massive review of the existing power, energy, water and transportation rates is in order, as well as a review of the country’s tax structures."

Diokno’s recommendation is to reverse the trend of large consolidated deficits equal to five percent of GDP.

"Within 100 days of the presidency, it should prepare and submit to Congress a medium-term expenditure framework for the next six years (2005-2010). The 2004 administration should also conduct an inventory of all un-funded laws which is reportedly worth P300-billion, and veto all proposed bills where funding is unclear," he added.

He admits, however, that there are underlying risks within those critical periods, including increasing world oil prices, interest rates, political uncertainties, peace and order, and rising foreign exchange risks. — with Marvin Sy