Sacrifice and Deliverance (editorial)

It has been a catastrophe waiting to happen. The Philippines is in a fiscal crisis. In the past several months, this has been the message relayed to the public by government officials, economists and academicians. To the common man, this is nothing but a “trending of fear” by a government desperate to pass new taxes. But in actuality, the country is in an ailing fiscal scenario.

Former chief of the National Economic Development Authority (NEDA) Prof. Solita Collas-Monsod warns that if this fiscal crisis continues, the Philippines will be in an “economic disaster” unless the government could fix its money problems in two to three years.

A fiscal crisis is characterized by the “structural weakness in government financial condition but which can eventually infect the private sector and the rest of the economy through interest rate shocks as the medium of contagion”. In other words, it is the inability of the government to perform its functions because of financial constraint. And who isn’t surprised that we are in this quandary? The National Government’s debt is standing at a huge P3.36 trillion, and 30 percent of annual spending is depleted on debts alone, cutting up money that should have been allocated for social services and infrastructure. In the long run, huge dependence on debt means that any sudden increase in global interest would cause huge difficulties in repaying the debt; thus the worst-case scenario no one wants to anticipate.

With this crisis, a number of tax measures have been proposed to boost revenues and reduce the debt burden. President Arroyo has called on Congress to pass a 20% across-the-board increase in taxes for cigarettes and liquor starting next year. The so-called “sin taxes” legislation bill hopes to raise profits from consumers, and discourage smoking and alcoholism.

While this new bill could raise P5.7 billion a year, it is seen as a ‘temporary solution’ because it potentially harms business as there will be fewer investors; and is a ‘recipe for credit downgrade’, as the country will slide down to a lower credit rating (which translates to higher interest rates on foreign borrowings), a result of the chain reaction.

A possible solution to the Philippines’ financial woes is a fiscal rehabilitation plan that aims to yield P215 billion over the next three years, or the so-called “pain package” which includes new taxes, a hike in the power rates, a cut in pork barrel, a freeze in internal revenue allotments, and budget cuts in government agencies.

Though this is easy to say, it is very hard to do. In the advent of the fiscal crisis issue, we have heard politicians vowing to cut their pork barrels in half, and businessmen declaring to give a million pesos each to the national treasury. Did it really happen, or was it just for publicity’s sake? The President wants to promote austerity measures around the government, but she herself has gone off to ‘important’ overseas travels in the last two months. And in the wake of the Garcia military scandal, people wonder if it is only one of the many shenanigans that might have contributed to this whole pecuniary mess. As Monsod said in one of her columns, “The idea is that sacrifices have to be made by everyone, but the leaders must take the first hit.” We sure hope they will. All we can do right now is to pray for deliverance.

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Note: This article appeared in The Judenites, Sept-Dec 2004 issue.
(as Associate Editor, “Relativity”)