August 16, 2004


Looking out for Arroyo's second term (Stephen F Berlinguette, 8/17/04, Asia Times)

[Philippine President Gloria Macapagal-Arroyo]'s first term in office was characterized by both domestic security distractions and policies that improved fiscal discipline in Manila, supported central bank efforts to stabilize the peso and stressed privatization of major state holdings. The president returns to office with a strong support base in Congress, the business community, the armed forces and the Catholic Church and is expected to exploit her recent victory by bolstering her administration's pro-business stance.

Economic management will be a critical determinant of Arroyo's effectiveness in her second term. Markets are expecting the government to make significant progress on its vows to reduce the budget deficit and take long-term steps to decrease public-sector debt in order to strengthen the peso and drive down interest rates. With a budget deficit of 4.6% of gross domestic product (GDP) and total government debt at 126.2% of GDP in 2003, Manila presently spends approximately one-third of its budget on debt servicing. In response, Arroyo has prioritized increasing government revenues to improve Manila's fiscal position and enhance investor sentiment: the administration's successes in this area will depend on a mix of effective policy, political stability and security over the coming years.

Central to Arroyo's two-track fiscal reform program is a drive to increase tax revenues. The government currently has a debt burden of approximately US$61 billion (P3.4 trillion), compared to an annual GDP of about $79.3 billion. Tax takings in the Philippines typically hover around 15% of GDP, though this figure has been even lower in recent years. Past attempts by Manila at improving this ratio have emphasized enacting new and unpopular taxes, but Arroyo has stated that the government will focus on reducing tax evasion and developing its revenue collecting abilities in her second term. The administration's achievements in this decisive policy area will lay the groundwork for deficit reduction and unlock funds for badly needed infrastructure investments.

The second pillar of Arroyo's deficit policy concerns power sector liberalization. This campaign has centered on the state-owned utility National Power Corporation (NAPOCOR), which has been an enormous weight on public sector resources; in 2004 it is expected to exacerbate its six-years of severe under performance with a P100 billion loss. Though Arroyo unsuccessfully attempted to sell off NAPOCOR assets in her first term, her re-election improves Manila's prospects for revisiting the problem and unloading the utility to infuse fresh revenues into government coffers. Privatizing NAPOCOR will be a decisive indicator of the president's fiscal discipline in her second term.

Senator Kerry thinks France more important.

Posted by Orrin Judd at August 16, 2004 11:02 AM

You're the first blogger I've come across in a while who has anything good to say for Arroyo. Most who've been talking about the Philippines lately have been scoring that country for cutting and running from Iraq in the face of hostage-taking.

Posted by: Joe at August 16, 2004 1:38 PM

Reforming her own country matters more than helping us.

Posted by: oj at August 16, 2004 1:53 PM

>Senator Kerry thinks France more important.

And if he's a good little garcon who remembers his place, M.Chirac might even let him pumice his corns...

Posted by: Ken at August 17, 2004 4:22 PM