The True State of the Nation

Photo: Arkibong Bayan

Gloria’s First World in 20 years pure fantasy

By Chito Lozada Business Editor

Daily Tribune 07/24/2007

The most striking part of President Arroyo’s policy speech in the State of the Nation Address yesterday was her target of putting the Philippines in the ranks of First World nations in 20 years, which an economist described as an obvious publicity spin.

University of the Philippines (UP) economics Prof. Benjamin Diokno, who was Budget secretary during the term of deposed President Joseph Estrada, said the economy is far from going the path of an industrialized nation.

“Forget the First World status in 20 years. For the next three years, she’ll be lucky if she can make up for her neglect of educa-tion, health and infrastructure,” Diokno said.

He noted that for every P1-tax that the Arroyo administration has collected,

93 centavos went to debt service.

He noted that based on a recent UP research, the historical growth of the Philippine economy from the Nineties to the present, averages only slightly more than four percent even if only non-crisis years are included.

Diokno said except for 2004, the Arroyo administration has consistently failed to meet its own gross domestic product (GDP) growth rate targets, which is used as basis in tracking economic growth.

“The gap between the promise and actual performance has been widening and it would be much wider if no further reforms are adopted. Given how weak the government is, however, further reforms are highly unlikely,” Diokno asserted.

He noted that the economy has not performed well enough to improve the lives of the poor.

According to the Asian Development Bank’s (ADB) Asian Development Outlook 2007, which was released last March 27, the Philippine economy has been growing only moderately which was not enough to address the country’s worsening problems of unemployment, underemployment, and poverty, Diokno said.

The economy is being hobbled by fiscal mismanagement in government which resulted in the collection of higher taxes, thus reducing the disposable income of Filipinos.

“Every Filipino is now paying more taxes, effectively reducing the money in his pocket, and as a result, reducing his overall welfare,” Diokno said.

He said wrong priorities had made the plight of Filipinos worse. The Arroyo administration is spending less for education, basic health care and public infrastructure, and more for debt service, he said.

The fiscal mismanagement was reflected in the Arroyo administration’s failure to get congressional support for its budget plans.

“It operated on a reenacted budget for three of the six years it has been in power. The national budget is an important tool of public policy, it is supposed to provide the flesh and blood to the skeletal medium-term plan or vision of any government,” according to Diokno.

By agreeing to run the government without an approved budget, the critical role of the budget is lost, he added.

Mrs. Arroyo incurred the highest budget deficits, measured in terms of national government deficit, public sector borrowing requirements and consolidated public sector deficit, in recent Philippine history, Diokno said.

Her priorities were misplaced. The President neglected education, health and public infrastructure, thereby propelling the Philippine economy on a lower growth trajectory. Debt servicing became the government’s top priority, he said.

The Arroyo administration incurred the highest budget deficits — which peaked in 2002— in recent Philippine history. In 2002, the budget yawned to a P214 billion deficit, the biggest ever for a Philippine administration.

“After creating such a monumental fiscal mess, Mrs. Arroyo now wants credit for cleaning it up,” according to Diokno.

To cover the fiscal disaster, Mrs. Arroyo has to rely heavily on borrowings.

“When Mrs. Arroyo assumed power in 2001, the national government’s outstanding debt was P1.9 trillion; it now stands at P3.9 trillion, which means the national government’s debt rose by P2 trillion during Arroyo’s watch.

Interest payments as percent of GDP peaked at 5.5 percent in 2005, up from 3.6 percent in 1999 4.2 percent in 2000, Diokno added.

The result is the current debt servicing level quadrupling since Mrs. Arroyo took power in 2001.

The P854.4 billion spent to service the national government’s debt, covering interest and principal, in 2006 is almost equal to what it collected in taxes of P860 billion during the year.

Put differently, for every 100 pesos collected in taxes, P99.35 went to debt servicing, he said.

Government spending per student was P5,830 per student during the administration of former President Joseph Estrada compared to P5,467 during the present administration.

The combined per capita health spending, adjusted for inflation, in 2000 prices, was the highest during the term of Estrada; it dropped during Mrs. Arroyo’s watch. It was P201 during the term of Estrada against P184 for each Filipino in the Arroyo administration.

Poor priorities helped push the economy to uncompetitiveness in the world stage.

According to the World Economic Forum, the Philippines’ ranking in global competitiveness, has been falling, from a ranking of 48 in 2000 to 71 in 2006.

By contrast, the country’s neighbors in the Association of Southeast Asian Nations (Asean) garnered the following rankings in 2006: Singapore 5, Malaysia 26, Thailand 35, and Indonesia 50.

Poor governance and the dismal state of public infrastructure have deterred foreign direct investment, Diokno said.

The country’s investment rate is “extraordinarily low at about 15 percent,” as pointed out by the Joachim Von Amsberg, World Bank’s country representative, at the Philippine Development Forum held in Cebu last March 8 to 9.

The domestic investment rate of the Philippines has dropped from 19 percent in 2001 to a record low of 14.8 percent in 2006 while those of its neighbors have continued to rank from 20 percent to 40 percent based on ADB’s Asian Development Outlook 2007.

During the last six years, the economy has not performed well enough to make a difference in the lives of most Filipinos, especially the poor, Diokno said.

Not enough jobs were created, inflation remained high, and consequently the 2006 misery index is higher than the 2000 level.

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