The Philippine Economy in 2009: Bruised and Battered by Myths and Hype

Renewed Fiscal Crisis

The country entered a new period of fiscal crisis in 2009 with a deficit of P272.5 billion (nearly $6 billion at the current exchange rate of $1=P45.82)in the first 11 months that is likely to reach, by Ibon Foundation’s estimates, P293.3 billion ($6.4 billion) for the whole year and equivalent to 3.8 percent of GDP. This has been an uncontrollable and a very rapid deterioration from the P12.4 billion ($270 million) deficit in 2004 equivalent to 0.2 deficit of GDP. It is over seven times the original full-year deficit target for 2009 of P40 billion ($873 million) set in October 2008 and nearly triple even the adjusted target of P101.3 billion ($2.2 billion) set at the start of 2009. the rate of deterioration since 2007 also far exceeds that preceding the last episode of fiscal turmoil in 2002.

The descent into fiscal crisis will accelerate in 2010 with drastic implications on social services, portending greater tax burdens on the people, and leading to greater instability. It will be recalled that the record fiscal deficit in 2002 ushered in a long period of soaring debt service and declining spending on social services which culminated in the implementation of the regressive RVAT in November 2005.

The government has taken pains to claim that the deficit is justifiable and due to a P330 billion ($7.2 billion) stimulus program implemented in the wake of the global crisis. This is unlikely to have been the major factor though because the 2009 national government budget as a whole is only around 18.2 percent of the GDP, which is basically the same as the average 18.2 percent of GDP of the budgets over the previous 10 years (1999-2008). In short, there is no significant additional stimulus occurring. The “stimulus” explanation rather appears to cover up for more basic fiscal failures causing the deficit problem: graft and corruption, trade liberalization, foreign investment incentives, unproductive debt service and military spending.

Economic and Political Democracy

The Philippines has rich natural resources and productive labor power and these are the material base and conditions for its development. As ever, the overriding task is creating the political conditions where the people benefit from these rather than foreign and domestic elites. Socioeconomic development cannot happen absent real political democracy. Citizen’s, grassroots and people’s movements are the real driving force of this greater democracy and are the keys to progress in the country.

The May 2010 elections in particular are a moment of struggle for the people and, however limited, creates some opportunities for progress. On the socioeconomic front, the Filipino people must challenge the next administration and assert that past policies have been problematic and there must not be more-of-the-same or business-as-usual. (Bulatlat.com)

(The author, an economist, is a member of Bulatlat’s editorial board and research director of Ibon Foundation.)