By Stuart Grudgings MANILA, Reuters
Philippine President Gloria Macapagal Arroyo kept faith with her economic ministers on Monday, asking them to stay in their posts for the time being as she acknowledged the country was in the midst of a fiscal crisis.
Arroyo, who won a fresh term in May elections, wants economic planning chief Romulo Neri, Finance Secretary Juanita Amatong, Budget Secretary Emilia Boncodin and Trade Secretary Cesar Purisima to remain in the Cabinet, her spokesman Ignacio Bunye said in a statement.
Bunye did not say whether Energy Secretary Vincent Perez, who is overseeing the crucial privatization of debt-laden state power firm National Power Corp. (Napocor), had also been asked to stay.
Arroyo reshuffled other Cabinet posts last week and had been expected to make some changes to her economic team as she tries to reduce a $3.5 billion annual budget deficit that economists say is unsustainable.
“We are already in the midst of a fiscal crisis and we have to face it squarely, wielding our courage, resourcefulness and solidarity as a people and nation,” Arroyo said earlier on Monday during a ceremony at national police headquarters.
The deficit and losses at Napocor have helped push public debt to around 130 percent of gross domestic product, raising fears that the Philippines could face an Argentina-style debt crisis in a few years if it does not bite the bullet of reform.
A group of economics professors from the University of the Philippines made headlines on Monday by saying in a report that the economy was heading for a debt crisis in the next few years.
“The growing dependence on debt means that any sudden increase in global interest rates — which can no longer be ruled out — would cause huge difficulties in repayment, whether or not the government defaulted formally,” the report said.
Bunye said that Arroyo had asked her budget planners to look into a proposal to declare a fiscal crisis, which would enable the government to slash its spending in some areas.
Budget Secretary Boncodin said the economic team would examine the idea, but added the economy was not technically in a fiscal crisis since international credit windows were still open.
“I can say now that this is drastic and we have to make sure that is feasible,” she told a news conference.
A trained economist who made little dent in the country’s economic problems in her first three years in office, Arroyo has pledged to wipe out the deficit by the end of her new six-year term by raising one of Asia’s lowest national tax takes.
To do that, her economic team needs to persuade a skeptical Congress to pass new tax bills while securing the $5 billion sale of Napocor to private investors.
Jojo Gonzales, managing director of Philippine Equity Partners, said it was “reasonably positive” that Neri, Amatong, Boncodin and Purisima were affirmed in their positions.
“At least they can move forward with their respective plans,” Gonzales said. “It’s not that any of them are controversial or non-performers.”
But Mike Moran, regional economist at Standard Chartered Bank in Hong Kong, said reforms undertaken by Arroyo’s economic managers had fallen short during her previous term.
“The only thing you can say this time round is that they have a far more friendly Congress. That may make it easier,” Moran said, referring to the majority of pro-Arroyo lawmakers in both houses.
Beyond bulging debts and weak tax collection, the Philippines suffers from rampant corruption and entrenched interests that sap the government’s ability to deliver funds to development projects and push painful but much needed reforms. Arroyo’s proposal for a new tax on mobile phone text messages withered on the vine after fierce opposition from phone companies while moves to trim a bloated bureaucracy have unions up in arms.