Pick your crisis

There is now general agreement that the Philippines needs to come to grips with the fiscal deficit and the debt problem. Whether it is a fiscal problem or a fiscal crisis, the fact remains that the deficit remains unmanageable while the public debt is now calculated to be 80 percent of the GNP. In the meantime, the Philippines still has very high poverty levels and is hard put to raise additional resources for the Millennium Development Goals.

It used to be the Freedom from Debt Coalition and Social Watch Philippines were lonely voices crying in the wilderness, warning about the unsustainability of solutions to the deficit and the debt burden. Now, the multilaterals -- e.g., the International Monetary Fund, the Asian Development Bank and the World Bank -- are worried.

Moody’s recently downgraded the rating of the Philippines amid “concerns that the government’s recent progress in containing fiscal imbalances has not been sufficient.” The business community is fidgeting while the man on the street worries about an economic debacle in the wake of the looming fiscal crisis.

The only ones who are silent on the fiscal crisis are the political candidates, who obviously are engrossed with digging up dirt about their rivals to bother about crucial national issues.

Now that the fiscal crisis has everybody’s attention, it is time to ask: What solutions are being implemented? The textbook answer to this consists of three alternatives: increase revenues, reduce expenditure, or borrow more. By increasing collection of taxes and other government income, the deficit is reduced. This is the approach favored by most economists. On the other hand, decreasing expenditures has its downside. It has been pointed out that cutting expenditures “to the bone” might have adverse effects on economic growth as well as on social development. Finally, increasing levels of borrowing will only exacerbate the deficit.

The combined pressure from multilaterals and the business sector to reduce the deficit has been so strong that the government is focusing on a drastic reduction of expenditures -- the easiest cop-out when you can’t lick the bullies is to run after the little ones. While it does not have full control over taxpayers and creditors, government controls expenditures, which it has done with energy and vigor for the past two years. Indeed, government overspends in certain activities. However, it is obvious that it is underspending in economic and social development.

Since 1999, the share of social development has steadily gone down. The only sectoral expenditure which has gone up is interest expense, which now constitutes 31 percent of the 2004 budget. This does not include principal payments.

In the meantime, the Philippines still has very high poverty levels and is hard put to raise additional resources for the Millennium Development Goals.

Much has been made about successes in controlling expenditures. But former national treasurer and public administration expert Leonor Briones has a timely warning, which we can only ignore at our peril: In its efforts to manage a fiscal crisis, the government just might trigger a social crisis if it continues cutting down on social and economic services. This, she said, is just like throwing out the baby with the bath water.

Watch this issue, and watch how this administration that trumpets it has the experience and sense of good governance to lead this country “forward” will handle the emerging crisis. Not on the backs of the Filipino people, we hope.