Crisis Under Arroyo Rages On; People Bear the Brunt *

2004 was rough for the ordinary Filipino. While economists and politicians debated endlessly on the intensity of the country’s problems and wavered on their solutions, the masa was bearing the worst of the Philippine crisis.

Executive Director, Ibon Foundation
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2004 was rough for the ordinary Filipino. While economists and politicians debated endlessly on the intensity of the country’s problems and wavered on their solutions, the masa was bearing the worst of the Philippine crisis.

The country’s economy, remaining backward and colonial as it has been, has undoubtedly reached a critical stage in the beginning of the new millennium as its age-old problems have been advanced by globalization. There was nothing new in the crisis of 2004, which remained symptomatic of the rotten economic system and its rapid deterioration due to globalization – except that the people’s suffering was most severe.

The past year was also marked by the bitter realization of the futility of the electoral exercise in solving the crisis. The elections remained only reflective of the rottenness of the social system, and even turned out to be the most fraudulent, violent and incredible in the history of Philippine electoral politics. If there was another thing that the events of 2004 revealed, it would be the reality that the solution to the rapid deterioration of living standards and intensification of poverty of the masa does not lie in the hands of the politicos.

But how long can this go on? The economic crisis has reached an unparalleled level in the sense that all key issues boil down to the further decline of the people’s condition. What is the capacity of the system to prevail given the continued destruction of its productive forces?

This unprecedented situation has given the present government no chance to deny the crisis, like what has been the practice of past governments, but only to face it squarely and act decisively. But the Arroyo government has only acknowledged the fiscal crisis so far, and merely to justify new taxes. With the enormity of the crisis, government’s inaction raises serious doubts. Along with the system, how long can the Arroyo government prevail?

The crisis presents people’s concerns that require immediate and decisive solutions. If these people’s issues remained unresolved, they would contribute to the escalation of the social upheaval that would likely shape the character of the year 2005.


1. Oil

Global oil prices reached record highs in 2004. The New York Mercantile Exchange (NYME) oil posted an all-time high US$50.47 per barrel while London’s Brent crude was at unsurpassed US$40.28 and Dubai crude at a 13-year high US$38.15 per barrel.

Local oil prices increased more than once a month the whole year of 2004. Gasoline pump prices increased 13 times by a total of P7.45 per liter, while diesel prices went up 15 times by a total of P7 a liter. Prices of household fuels such as kerosene and LPG also increased steeply, leaving the poor households no reprieve from the battery of increasing oil prices.

Fed up with the successive oil price hikes, drivers and transport operators, with the support of workers and other ordinary people, went on strike in 2004 and paralyzed transportation and mobility in the country’s major cities and urban areas, even suspending classes in Metro Manila. The transport sector demanded government to lower fuel prices and scrap the oil deregulation law, which they cited as one of the reasons why oil prices have become out of control.

But the Arroyo government, in the fashion it has been well known for, could only delay the implementation of the increased specific tax on petroleum products, which it issued in July, promise to study oil deregulation, and grant a 50-centavo discount in the price of diesel, a lot lower than what the drivers demanded and far from the real solution.

2. Power

The National Power Corporation (Napocor) increased its rates four times in 2004, and another rate hike is in the offing in the beginning of 2005….

Power rate hikes are burdensome for the people, especially since no substantial improvement in income and livelihood has been felt. For instance, the last Napocor rate adjustment of 98 centavos translates to an increase of P1.23 per kWh in Luzon, P22 centavos per kWh in the Visayas and 27 centavos per kWh in Mindanao. For Meralco consumers who use up to 200 kWh a month, the new rates would mean an additional P123 in their electricity bills.

The rate hikes, according to the Arroyo government, are meant to help Napocor recoup its losses and ease the burden on the government whose fiscal position has been weighed down by Napocor’s indebtedness. The rate hikes are justified by the Arroyo government as the people’s part in the principle of ‘burden-sharing’.

But the reality is that the burden of Napocor’s colossal debts should not even be shared by the people. The root of Napocor and government’s bankruptcy can be traced to the policy of privatization, which was first implemented in 1994 through the onerous contracts with the IPPs, mostly foreign private corporations.

3. Water

In 2004, the issue of water exposed the faults of privatization.

The Metropolitan Waterworks and Sewerage System (MWSS) was privatized in 1997. Maynilad, a consortium of the French giant Suez and the Lopez-owned Benpres won the west zone concession of Metro Manila while Manila Water, a consortium of UK’s United Utilities, Japan’s Mitsubishi Corporation, the World Bank’s International Finance Corporation (IFC), and the Ayala-owned Bechtel took the east zone. Since 1997, power rates have increased tremendously despite prohibition in the seven-year concession agreement – by 226% for Maynilad and 350% for Manila Water.

In 2002, Maynilad declared an early termination of its contract with the MWSS after government refused to approve its petition for a rate hike. It also stopped paying its concession fees but continued collecting foreign currency differential adjustments and extraordinary price adjustments from its consumers, even if such price adjustments could only be collected if the concessionaire paid its concession fees.

After a two-year legal dispute, a compromise deal was crafted in March 2004. But this was eventually rejected by the Arroyo government especially after the elections, and is currently under deliberation at the Quezon City Regional Trial Court, Branch 90.

A new rehabilitation plan, which may still turn out to be government’s bailout program if left unchecked, assumes that the MWSS can have a full draw of the $120 million performance bond of Maynilad covering part of the unpaid concession fees and that it shall not convert the balance to equity.

To date, however, Maynilad has not yet paid all its dues – $180 million in unpaid concession fees and around P7.5 billion refund to consumers from unauthorized collections of foreign currency differential adjustments and extraordinary price adjustments.

At the close of the year, citing the new rehabilitation plan, in an act that has been called immoral by the Water for the People Network, Maynilad applied for an increase of 36% in water rates, or P7 (from P19.92 to P26.92) in the all-in tariff and 17 centavos per cubic meter for the fluctuation of the peso against the US dollar. Manila Water, on the other hand, also proposed an increase of P2.18 per cubic meter in January 2005.

In an equally immoral act, which is not unexpected of the Arroyo government, and after being slow in translating the rehabilitation plan to its advantage, the Arroyo government has been quick to grant the petitions for rates hikes. It has even granted a higher increase of P10.27 than what has been proposed.

4. Fiscal Crisis

President Arroyo admitted in August that the country is in the midst of a fiscal crisis. This was right after the release of a study done by economic professors of the University of the Philippines showing the possibility of the country having a debt crisis similar to that of Argentina unless radical measures were implemented.

President Arroyo’s economic advisers and some government officials were quick to correct the President just so her statement would not turn off international investors and creditors. They defined ‘fiscal crisis’ as defined by credit rating and multilateral agencies as being on default – when a government can no longer borrow and finance its debt and budget deficit. By definition, according to them, the country is nowhere near a fiscal crisis, but the fiscal situation indeed requires painful and urgent measures.

Two months later, the President announced that the country was already out of the fiscal crisis but the painful and urgent measures were still needed. Clearly, Malacanang’s false humility in the face of the crisis was only meant to pressure legislators and government officials to prepare those bitter pills.

But despite Malacanang’s muddling, the truth remains that the Philippines, having historical budget deficits, huge debt to service and little left for social services, is in a fiscal crisis.

The budget deficit of the national government as of September 2004 reached P141.91 billion. The consolidated public sector deficit (CPSD) – the combined deficits of the national government, local government units (LGUs), government-owned and controlled corporations (GOCCs) and government financial institutions (GFIs) including the old Central Bank – reached P167.31 billion during the same period, 25% higher than the CPSD the previous year.

The 2005 budget is P907.6 billion, more than one-third is allocated for debt servicing. In fact, only allocations for debt payments and net lending have increased over the past five years while percentage shares of social and economic services have continuously declined. Effectively, debt servicing has crowded out all budget items necessary to promote long-term economic growth and poverty alleviation.

For 2005, the Arroyo government plans to borrow P214 billion locally and abroad, one-fourth of its entire budget. Forty percent of the Arroyo government’s funding requirements are because of Napocor’s long-term liabilities, which have reached $19 billion in end-2003 and translate to annual funding requirements of $1.5 billion from 2004-2010. Not yet included in the borrowing plan of P214 billion is the result of absorbing Napocor’s P200-billion debt.

5. Taxes

President Arroyo has proposed eight revenue measures, which are expected to raise an additional P80 billion. (See List 1) Four of these have already been passed by the Lakas-dominated Congress, with one already signed into law, while four others are under deliberation.

President Arroyo also issued Executive Order 336 in July to raise the import duty on all refined petroleum products except LPG from 3 to 5 percent. The Executive Order took effect only in January 2005 because of high global oil prices.

Effective January 1, 2005, government has increased taxes on alcohol and tobacco by 20% on the average using tax tiers based on brands and raw materials used.

Next for approval is the bill seeking to increase the exemptions under the Value Added Tax (VAT). There are currently 27 exemptions from VAT and government has proposed to lift exemptions on the sale and importation of petroleum products, passenger vessels, cooperatives and books as well as the services of doctors and lawyers. Then, the government is also studying to increase the VAT rate from the current 10 to 12 percent.

The VAT currently comprises as much as 30% of the tax collection of the Bureau of Internal Revenues. It was first implemented in 1988 and replaced 12 kinds of indirect taxes covering local sales and importation; it was expanded to other sales and services in 1996. Being an indirect tax, the VAT has contributed much in making the country’s taxation regressive.

The House of Representatives also passed bills that are quite obviously still within the framework of globalization – one would grant tax amnesty to evaders and another would pave the way for attrition of tax collecting agencies, just as the International Monetary Fund has always wanted.

The obvious reality is that the urgent measures that President Arroyo has proposed are basically anti-people and anti-industrialization. Its fiscal rehabilitation plan, which is expected to raise P214 billion over the next three years, involves taxes, increasing Napocor rates, and the privatization of Napocor. Of the P214 billion, P166 billion will be financed through what the Arroyo government itself calls a ‘pain package’ consisting of new taxes, power rate hikes and spending cuts.

The proposed taxes are basically pro-foreign, pro-big business and anti-poor since they are regressive, i.e. they are not based on the people’s capacity to pay. If the P80 billion expected revenues would be divided equally among the number of families, as assumed in the principle of regressive taxation, it would be grossly disadvantageous to the poor families.

6. Prices

Prices of basic commodities increased sharply in November 2004, with inflation rate recorded at 7.6%, the highest in five years.

The price increases were brought about by soaring global oil prices and resulted in the steep increases in the prices of food, LPG, kerosene and other fuels, electricity rates, and transportation. Price increases were also notable in items such as cooking oil, juices, coffee, sugar, and seasonings.

Chicken, pork and vegetables were particularly more expensive in 2004 as the country felt the impact of trade liberalization. Cheap imports sent local raisers and growers out of business while traders sold the imports at higher prices.

Inflation did not improve in December, and although preliminary data are not yet available, the absence of the usual lively consumer spending in the shopping malls during Christmas was noticeable.

The peso plunged to its historic low in September, closing at P56.56 to the US dollar. The peso became one of Asia’s weakest currencies, and the recent fall was due to soaring oil prices, the budget deficit, and falling approval ratings for President Arroyo.

7. Unemployment

The country continued to have double-digit unemployment rates throughout 2004 – 13.7% in April, 11.7% in July and 10.9% in October. The country’s unemployment rate in April was one of the highest in the world. (See Table 11)

Four million Filipinos did not find the jobs they were seeking. Jobs were lost in industry despite recent reports that manufacturing and construction were making a comeback. Meanwhile, only 180,000 new jobs were created, way below President Arroyo’s target of 10 million jobs.

Underemployment rate was higher at 16.9% due to lack of real and decent jobs. Meanwhile the number of deployed overseas increased to 564,643 from January to July 2004, or a labor migration rate of 2,688 Filipinos leaving the country everyday, because of job scarcity in the home front.

Lackluster investments, bankruptcies of farms, and closure of factories have resulted in mass unemployment that is the highest in Asia. Everyday for the past four years, eight establishments retrench their workers or close down due to economic liberalization; 196 workers are being displaced everyday as a result. Since 1993, around 9,900 farms are being eliminated every year.

8. Wages

Wage levels have been stagnant for the past five years. Still pegged at P250 in the national capital region, the minimum wage accounts for only 42% of the rising cost of living.

There is a clamor by labor groups, which has been going on for five years now, to increase the minimum wage by P125 across-the-board. There were only five legislated increases totaling P105 spread in a span of 10 years. The last legislated increase was in 2000 in the amount of P26.50 and this was even given to the workers on a staggered basis.

President Arroyo granted increase in the Employees’ Cost of Living Allowance (ECOLA) twice, P20 in 2002 and P30 in 2004, which conveniently avoided the responsibility to give more relevant relief to the workers and make a difference in the workers’ lives.

The Arroyo government has slammed the clamor for a wage hike, even going to the extent of assuring business groups of its policy of wage freeze at a time when the labor front was quiet. The Arroyo government has used the old line that wage increases would only result in economic stagnation, closures and inflation.

A wage hike translates to increased disposable income thus improves spending and contributes to economic vibrancy. Filipino workers have increased their productivity by around 25% in recent years but continue to account for only 10% of production, thus cannot be faulted for closures.

A P125 wage increase may mean lower profits for enterprises, but it does not translate to closures, mass lay-offs, huge increases in the prices of commodities, and massive unemployment. These economic woes are already happening even if there has not been any increase in wages.

9. Poverty

Family incomes barely moved from 2000 to 2003, according to the preliminary 2003 FIES. The average family income increased by only 2.5% at current prices. In real terms (using 2000 prices), the average family income actually decreased by 10 percent.

Family savings decreased on the average, with the bottom 30% experiencing income shortfalls. Meanwhile, the share of the top 30% of the families in the total income increased from 61.4% in 2000 to 65.2% in 2003. (See Table 12)

Income disparity improved, according to the 2003 FIES, but only because the rich got a little poorer and not because the poor got better.

10. Mining

The Supreme Court has decided to uphold the 1995 Philippine Mining Law. In a 246-page majority decision, it has overturned its January 2004 decision to nullify sections of the mining law, including the legality of the Financial and Technical Assistance Agreements (FTAA). The Supreme Court now upholds 100% foreign ownership of major Philippine mining operations, its decision being final and cannot be appealed.

All said, the mining law is still anti-industrialization and anti-people. It is still premised on the bankrupt export-oriented, import-dependent and investment-led economic strategy that has caused most of the country’s economic problems. The law is still premised on surrendering national patrimony by allowing foreign corporations to exploit the country’s natural resources; it is still the same law that disregards the environmental hazards that mining poses and the fact that mining areas are inhabited by the indigenous peoples and peasants. The Supreme Court decision does not change the fact that the law is unconstitutional.
The people’s solution

In a breakfast forum with the Foreign Correspondents Association of the Philippines, President Arroyo was quoted as saying: “The price for me will be stiff. My popularity ratings will continue to slump as we suffer transient constraints and take the bitter pill to cure structural poverty and clean up the fiscal, economic and political mess we inherited.”

The statement carries the basic elements for traditional politics, i.e. one, that the crisis cannot be blamed on the present administration since it has only been inherited, and two, that the people should suffer anyway, after all, the reforms are the only cures. A third element that is quite amusing is the mention of popularity coming from a President who has supposedly been elected already, done with the popularity contest, rolled up her sleeves and gone to work. It becomes disconcerting for the people to see the President too concerned about popularity when the severity of the crisis has already put in question not the popularity but the very viability of the Arroyo presidency.

Better deals, not bitter pills, were presented by people’s organizations to President Arroyo upon her questionable assumption to power. Not one of these proposals, which were presented during the IBON 2004 Midyear Birdtalk, doable as they are, have been done or acted upon by the Arroyo government. Now the crisis is worse, globalization is more intense and the people’s issues have evolved, but the Arroyo government is lost in translation.

The Arroyo government continues to listen to the advice of TNCs, comprador-landlords, multilateral institutions, credit rating agencies and the U.S. government and even relies on their own definition of what constitutes a crisis instead of genuinely hearing out people’s demands. Like its predecessors, the Arroyo government is equally responsible for placing the country at the altar of globalization with the Filipino people as the sacrificial lamb.

The Arroyo government continues to implement the neo-liberal policies that have caused the people untold misery and exacerbated the crisis that is increasingly characterized by backwardness, foreign exploitation, bankruptcies, monopolies, environmental plunder and destruction, hunger, and poverty. It is indeed a mess that only a pro-globalization government could have created.

But the Filipino people are fighting back. From changing Presidents to bitter elections and still faced with the worst crisis, people have come to realize that it is the system – its rottenness and the rapacity of globalists, big business and landlords to squeeze whatever is left of the rotten system – that needs to be changed. They have come to realize that the people’s struggle is the wider arena where genuine changes can be achieved. This is the current level of the social debate and the capacity of the Philippine social movement. Unless the Arroyo government addresses the urgent people’s issues, the price will be stiff indeed.

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