ANALYSIS

Fiscal Crisis, People’s Crisis

The government’s fiscal troubles are so huge that fingers are pointing at culprits everywhere. Everywhere but where the blame truly lies: to the policies of imperialist “globalization” that, unchanged, will mean that fiscal fixes will always be borne by the people.

BY SANDRA NICOLAS
Bulatlat

The government’s fiscal troubles are so huge that fingers are pointing at culprits everywhere. Everywhere but where the blame truly lies: to the policies of imperialist “globalization” that, unchanged, will mean that fiscal fixes will always be borne by the people.

Malacañang, finance officials, lawmakers, big business, economists, multinational agencies, and international finance capital differ in the details but really just say the same thing: take drastic measures, just make sure they’re measures “the market” approves of.

Unfortunately this means more of the very same things that caused the current fiscal problems to begin with. Government’s “free market”-based approach to economic policy-making is precisely what makes the economy so vulnerable to fiscal crises and, moreover, what precipitates these when they occur. “Solutions” that fail to recognize these are then really no solutions at all.

Basic crisis conditions

The underlying conditions for a fiscal crisis are due to economic backwardness resulting from “globalization” policies that preserve, defend and promote foreign monopoly capitalist and landlord domination. Especially in the last two decades, liberalization, privatization and deregulation have hollowed out domestic industry and undermined agricultural production.

To begin with, the stunted economy means little economic surplus is generated and the government tax and revenue base is small. Collections are correspondingly also small.

But economic backwardness also means an engineered addiction to foreign capital where the government (and the economy) becomes reliant on borrowing from abroad. Because domestic capital accumulation is low, the government relies on foreign financing to augment the capital stock. In similar fashion, the government relies on borrowing for foreign exchange to pay for perennial imports of goods and services.

The only way to reduce this reliance is to build domestic industrial and agricultural capacity. However since economic policy-making according to the “free market” precludes genuinely determined efforts at this, the dependence becomes perpetual and excessive – virtually by “free market” design.

The ever-depreciating peso that is itself ultimately the result of the lack of domestic capacity, chronic trade deficits and never-ending repatriation of foreign monopoly profits aggravates this. This keeps driving the peso value of foreign debt up.

Proximate reasons

But “globalization” policies also directly undermine the national government budget by depleting revenues and bloating expenditures. Trade and investment liberalization in particular have been fiscally disastrous.

Tariff cuts are a direct revenue loss (apart from being removed as key instruments for protection) with some P100 billion lost yearly since 1998. Despite vastly increasing imports since 1993, import duties as a share of gross domestic product (GDP) have more than halved – down to 2.4% of GDP in 2003 from 5.6% a decade ago.

Foreign capitalists in investment enclaves meanwhile are given outrageous fiscal incentives and subsidies (on top of their damaging extraction and appropriation of domestic economic surplus) and some P 170.8 billion has been lost every year since 1998.

Yet most burdensome is how the people are made to support private financial, industrial and agri-business monopoly profits through sovereign government guarantees on odious debt and onerous contracts. Total debt payments (interest and principal) are projected to be a massive P695 billion just in 2005.

Aside from these, the national government (NG) budget is undermined by endemic graft and corruption – since 1998 some P41.6 billion has been lost annually to VAT evasion, and another P85.4 billion from income tax evasion. Yet while the government coddles big income tax evaders – corporations and professionals evade around P80.8 billion yearly, compared to just P4.6 billion by wage earners – the masses are made to bear a disproportionate burden through indirect taxes.

Debt bomb

Among the proximate factors undermining the NG budget, the single biggest problem and greatest source of instability is the public debt. This public debt includes an undetermined but certainly substantial amount of odious and onerous debt – i.e. debt that must be considered illegitimate and should not have to be shouldered by the people (where government diverted loans from their intended “developmental” purposes, or contracted debt or entered into contracts patently disadvantageous to the people; in many cases, creditors/investors are culpable for acting recklessly or in conniving with the government).

As it is, the government is already caught in a debt trap with regular expenses and debt payments increasingly being paid for by contracting ever more debt. The Arroyo regime is making the most debt payments in Philippine history – the P470 billion paid in 2003 was equivalent to 75% of NG revenue and 11% of GDP, the P542 billion payments in 2004 is equivalent to 80% of NG revenue, and the P695 billion in 2005 is equivalent to 92% of NG revenue.

This government is also the most indebted government in Philippine history. The P3.4 trillion in total national government debt as of end-2003 (equivalent to 77.4% of GDP) has reportedly risen to P4.1 trillion by end-Feb 2004. There was already some P5.4 trillion in total public debt by September 2003, and total public debt in 2001-03 was equivalent to 124.3% of GDP over the same period.

Yet it is still borrowing heavily. NG financing (i.e. gross borrowing minus amortization) is rising steeply, from a net payment of P27.1 billion in 1997 to net borrowing of P286.8 billion in 2003. Indeed the last two years are the highest sustained borrowing in 2 ½ decades – the average of 6.6% of GDP in 2002-03 is exceeded in only two years (7.0% in 1984 and 11.3% in 1992).

However “globalization,” the “free market” and monopoly capitalists take as a premise that debt is untouchable. Hence the trade-off is inescapable: the more debt servicing continues, the more the people will pay through higher taxes, reduced social and economic services, short-changed government workers and even lay-offs, as well as higher fees, rates and charges for public utilities.

In the short- to medium-term, debt servicing must be reduced albeit in a way that causes the least disruption to the economy. Over the long-term, the government’s mounting reliance on debt – and undue fixation on foreign capital – must be reversed.

Austerity already

The government is already implementing an undeclared austerity program. It is reducing real education, health and housing spending, and aims to short-change and lay-off thousands of government workers to be able to continue servicing its debt.

Interest payments on debt are being given greatly increased priority and increased from 15.9% of the budget in 1997 to 34.4% in 2005.

On the other hand, between 1997 and 2004: education spending has dropped from 19.3% of the budget to 15.5%; health spending has dropped from 2.9% to 1.5%; and housing spending has dropped from 0.5% to 0.3%. While defense spending also seems reduced from 5.9% of the budget in 1997 to 5.0% in 2004, this is much less than the reduction in social services and also doesn’t take into consideration the billions in pensions reclassified from the defense budget to social services.

Most revealingly, taking inflation into account, real social spending cuts by the Arroyo regime in the years 2001-2003 compared to 1997-2000 were: education 2.6%, health 19.6% and housing 58.5%.

All this is happening during difficult times for the people. There is historic unemployment – the annual average of 11.4% in 2002-03 is, apart from 1985-1986, a historic high. There is also deepening poverty (90% of the population was already living on P137 or less in 2000) and accelerating inflation (rising and so far up to 6% in July).

No way out

An immediate crackdown on graft and corruption and more “efficient” tax and revenue collection is desirable but a partial measure at best. More than anything else, a pro-people debt policy has to be adopted that immediately reduces the debt burden and that aims to eventually eliminate all odious debt and onerous contracts (“pro-people” meaning putting the people’s needs first in discriminating which debt should and should not be paid, an in drawing up repayment terms).

Ms. Arroyo’s “8 revenue measures” of mainly regressive taxes aim to raise P80 billion. Meanwhile, total government debt payments of P695 billion in 2005 are a massive six-fold increase from P118 billion in 1996.

Yet the most important and lasting solution to fiscal crises however lies in removing the basic conditions in which these occur: a stunted domestic economy and an engineered addiction to foreign capital. This requires nationalist and pro-people social and economic policies that directly tackle the economy’s underlying semifeudal and semicolonial backwardness – true agrarian reform and nationalist industrialization. Such policies are also the only strategic alternative to the stranglehold on the domestic economy of foreign creditors and investors that is so embraced by the country’s neocolonial elites. Bulatlat

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