Page 1 of 2 Teves in race to fix Philippines' economy
By Jennee Grace U Rubrico
MANILA - Philippines' Finance Secretary Margarito Teves is running short on
time. Before a new set of political leaders is elected in May, he is scrambling
to contend with a ballooning budget deficit, boost revenues to pay for past
pump-priming efforts and manage the way ahead in a recovering but still
unstable global economy.
In response to the global economic crisis, President Gloria Macapagal-Arroyo's
government ramped up fiscal spending. Last year's budget deficit amounted to
nearly 300 billion pesos (US$6.5 billion), or 3.7% of gross domestic product
(GDP), compounding what was already a troublesome national debt
profile at 58% of GDP.
Before leaving his post, Teves says, he plans to privatize 30 billion pesos
(US$642 million) worth of government assets in an effort to begin to plug the
budgetary shortfall that will face the new administration to be elected in May.
The government failed in 2009 in its attempts to sell the same state assets and
it's not clear despite signs of recovery it will be successful in the weeks
ahead.
Market analysts have expressed concerns that the election season will distract
the government from improving tax collection and that the political flux will
stall revenue reforms and weigh against badly needed fiscal belt-tightening. In
a wide-ranging interview, Teves rang a warning about the need to reduce budget
deficits. He also looked back at his handling of the global economic and
financial crisis.
Asia Times Online: Could you elaborate on your budget deficit and
privatization plans?
Margarito Teves: The deficit, based on our likely scenario, was
290 billion pesos in 2009, representing about 3.7% of gross domestic product.
For 2010, we're projecting 293 billion pesos, representing 3.5% of GDP. Since
we're anticipating the GDP to improve, the denominator will be larger, even if
in absolute amounts there's a nominal increase of about 3 billion pesos
In terms of privatization, we're trying to dispose of Food Terminal Inc and [a
stake in] PNOC-Exploration Corp. These have been on the auction block for quite
some time. Last year, we suffered from very unfavorable market conditions, so
that's the reason why we deferred disposing of these assets.
A third item - but we're not selling, we're merely leasing - is the Fujimi
property. These three assets, together with small-ticket items, will hopefully
amount to about 30 billion pesos. Hopefully, we can try to dispose of this by
the end of the first quarter if we're lucky, and if not, not exceeding the
early part of the second quarter. Our target is really to try to get the
proceeds by the end of the first quarter.
ATol: Why are you pushing this before the May 10 election?
MT: I'm not talking about the election, really. It's more in
terms of trying to contain the deficit because normally the best time to
undertake infrastructure activities is during the first six months because of
the weather conditions. And we're coming unfortunately from a low revenue base
in 2009.
Probably it's the first time we have experienced this, although I checked with
the IMF [International Monetary Fund] and other international institutions,
[and] a number of countries have also suffered a decline in their revenue base,
largely as a result of the global financial crisis.
We have this situation where we cannot immediately increase the revenues, yet
there are expenditures that are necessary during the first six months, so we
need to have a fallback. So that's the reason why we're hoping that we can
dispose of these assets. But we're not fortunate in convincing congress to
approve revenue-enhancing measures. At the same time, there has been an
additional burden for us because of a number of revenue-eroding measures.
For example, over the last year and a half, we had major ticket items like the
additional allowances granted to middle-income employees; the corporate income
tax has been included for a long time in the provisions of the expanded value
added tax; the conversion of the way we tax distribution public utilities from
value added tax to franchise tax; the PERA [Personal Equity and Retirement
Account] law; the incentives given to the tourism industry; the approval of
setting up more economic zones.
All of these really unfortunately reduced the gains that we achieved from the
expanded value added tax. We have a situation where we suffered largely because
of the slowdown in economic growth, which in turn was an effect of the global
economic crisis. It came at a time when we needed to spend to counter the
adverse effects of the global recession, and congress has decided to pass a
number of these revenue-eroding measures without the corresponding
revenue-enhancement measures to compensate. That's why it's been a very
difficult period for us.
ATol:The government aimed to achieve a balanced budget by 2010,
but now we're looking at a likely 293 billion pesos deficit. Is it realistic
then to work towards a balanced budget by 2013, the new target set by your
government?
MT: 2013 is a possibility. But the situation can be supported
based on the target if, (a) the incoming congress, with the support of the new
administration, working together, they can decide to restore those losses we
have suffered because of these revenue-eroding measures; and (b) the [Bureau of
Internal Revenue, or BIR] and the Bureau of Customs will still have to continue
improving on their collection efficiency by a combination of tax administration
measures, customer enhancement programs and governance measures. And hopefully
there are no more revenue-eroding measures in the future.
But if that is not possible, hopefully congress will say, together with the
administration, that if there are additional revenue-eroding measures, there
will have to be a corresponding set of revenue-enhancing measures. In other
words, for every one peso of [revenue-eroding measures] approved by congress,
there should be a corresponding peso [for revenue enhancement], and let the
rest be handled by the improvement of collection efficiency. Otherwise, it's
going to be very tough.
So the medium-term trajectory is there. How long it will take will depend on
the new administration because this administration will be phasing out. A lot
of the decisions will be done by the new administration, so they can decide
whether they would still want to achieve a balanced budget in 2013 or later. We
have no control on what the new administration will decide on. They might want
to lengthen [the timeframe] a little bit, they might want to increase spending,
they might have a different assessment on what kind of deficit numbers they
will have over time.
We're just saying that international institutions and investors would normally
like to see a medium-term plan which shows a trajectory of the deficit going
down, and the debt-to-GDP ratio also moving down. I think that's the most
important thing. How fast and to what extent is secondary to the seriousness of
the administration in that kind of a plan.
ATol: How would you assess the government's fiscal performance
relative to the medium-term plan? Looking back, were the assumptions made to
move towards a balanced budget in 2004 realistic?
MT: We've made a comparison of fiscal deficit versus program.
Except for 2009, we've hit our target. In fact, we were below the target. 2009
is really an aberration, and that's why the international institutions and
private banks are discounting 2009. Without the 2009 figures, it would have
been possible for us to achieve a balanced budget.
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