The Political and Economic Situation in the Philippines

Article excerpt

THIS is the time for the strengthening of our democracy and the rule of law, and to redouble our reconciliation efforts in the Philippines.

The January "People Power" movement had been exuberant, peaceful - even prayerful. It was an assertion of the sovereign people's ultimate right to intervene - when political institutions fail - to try and make democracy work the way it should.

Tasks of the new Manila government

Our central task as a people is to build strong political institutions - to build an effective and efficient state.

For the ruling elite, politics had historically been a game for playing out factional rivalries, rather than being a tool for nation-building and economic development . That is why President Arroyo has identified as among her basic goals that of improving moral standards in government.

And this is fitting and proper, since any democracy needs strong ethical foundations.

Indeed, the threat to our representative systems comes not so much from a restoration of authoritarianism and cronyism (which the Philippines rejected in 1986) as from democracy's loss of purpose and direction.

In the economy, these next two years must be spent in managing the deficit, restoring business confidence, and completing structural reforms with the constant cooperation of Congress.

Government's most pressing need is to raise its revenues - so that it could increase public spending on vital infrastructures, seeding propoor/people empowerment projects, and developing our human capital.

Not only must public expenditures be wellmanaged. Also, tax administration must be overhauled, tax programs simplified, fiscal incentives rationalized, and national savings increased.

Current surveys by economic analysts suggest investor confidence in the Philippines is returning cautiously.

In late February, business leaders judged Mrs. Arroyo (an economics graduate of the Georgetown University and a Ph. D. in economics from the University of the Philippines) to be "competent" and "trustworthy."

Let me assure you that President Arroyo realizes she must build quickly on the revival of confidence her Presidency has generated - not only among our corporate leaders but among everyday Filipinos, especially the poor.

Global uncertainties

inhibiting economic growth

She also knows how difficult her task is - since the lingering Estrada effects on both national politics and the economy are being compounded by a downturn in our main markets, the US and Japan.

Philippine producers had been well-placed to take advantage of the investment boom in American Information Technology. But now that boom appears to be turning to bust.

As for Japan, its ruling party under Prime Minister Koizumi has yet to show political will enough to deal decisively with that country's stagnant economy.

Meanwhile, China's entry into the World Trade Organization (WTO) - now merely a matter of time - should sharpen even more the competition it offers East Asia's emerging economies.

Already China is sucking in nearly half of all the foreign direct investment that goes into East Asia. In 2000, it took in $41 billion - second only to the US itself. China's economic (and military) power is rising inexorably. This year its economy is expected to grow by 7%.

By contrast, Philippine GDP will grow by little more than half of that - by about 3.8%.

And our exports - the bulk being electronic components of the new economy - are expected to grow no more than 4% - less than half of last year's 9%, and much less than the 18% average growth of the past ten years.

Fortunately, interest rates have also been declining, and inflation has remained in the vicinity of 6 to 7 percent.

Last year, the budget deficit reached P136 billion - from an original target of P62 billion. …