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.
BY ROSARIO BELLA
GUZMAN
Executive Director, Ibon Foundation
Posted by Bulatlat
Introduction
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.
10
KEY ISSUES
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. Posted by Bulatlat
*This is an abridged version of the Ibon Foundation’s economic briefing
paper presented Jan. 13, 2005 in Quezon City. For the full report, contact
Ibon Foundation, 3/F SCC Bldg., 4427 Interior Old Sta Mesa, Manila; Tel.
Nos. +7132737 and +7132739; Fax (+) 7160109; Email: editors@ibon.org
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