Crisis reckoning: Lessons from the Philippines

Pana Janviroj, The Nation, Asia News Network, Bangkok

Not so many months ago, things were looking up in the Philippines. Gloria Macapagal Arroyo had been re-elected president to the relief of many who did not want to see the Philippines plunged into another theatrical bout of chaos under the leadership of a showman.

If there were any clouds on the horizon of Arroyo's return they cast shadows only on her political credibility. She had initially pledged not to stand in the presidential election, but went back on her words and ultimately triumphed. In victory she pledged to carry out a series of reforms.

The phrase "a lost decade" -- coined to describe the prevailing situation in several failed Latin American economies that had to endure years of debt overhang as a result of excessive borrowing -- has appropriately been applied to the Philippines, the sick man of Asia in the years following the ouster of the late dictatorial president, Ferdinand Marcos. A decade passed since the end of his reign, then two, and even today the Philippine economy is still unable to achieve the kind of resilience that would allow it to stay on top of global economic volatility.

As the young economists at the Bank of Thailand noted at their recent annual symposium, public sector finance, alongside inflation and employment, continues to play a pivotal role in the economic stability of nations, even in this age of markets, privatization and liberalization. In any case, despite the Thai government's confidence in its ability to steer the economy, what is happening in the Philippines should serve as a lesson to all Asian nations.

In the six years following the 1997 Asian economic crisis, tax revenue as a share of gross domestic product in the Philippines fell from 17 per cent to 12.3 per cent, making the Philippines one of Asia's worst performers in terms of this form of revenue. This occurred during a period in which most other Asian nations had started their recoveries and during which intra-Asian trade was starting to pick up.

Manila's budget deficit is now running at more than 4 per cent of gross domestic product, while the broader public sector borrowing requirement is over 6 per cent. Overall public sector debt, half of which is in foreign currency, is just under 130 per cent of GDP and rising.

Eventually something will have to give. At the end of last month, Arroyo, a Georgetown University-educated economist, dropped a bombshell when she declared that her country was in a "fiscal crisis". Although this admission was designed to lure legislators into passing laws to raise taxes, it caused panic the world over.

And then earlier this week, Mina Figueroa -- the national treasurer and a key member of Arroyo's economic team in charge of government finance and domestic borrowing -- tendered her resignation, leaving the government to struggle with the country's mounting financial woes on its own. Arroyo officially accepted Figueroa's resignation yesterday.

The Philippines is gripped by speculation that this fiscal crisis could within the next three years lead to a financial meltdown similar to the one that has derailed Argentina, which defaulted on its public debt in 2001 because of its ballooning deficit and staggering debt.

However, it must be pointed out that the Philippines' fiscal crisis is really only a symptom of what has been going on in that country since the time of the dictatorial Marcos, and even before. Firmly entrenched vested interests and political cronyism have kept the Philippines yoked to a vicious cycle of corruption that exists not only in the public sector, but also within private corporations.

The culture of corruption is rooted so deeply that even the publisher of the Philippine Daily Inquirer conceded before the participants in the Young Leaders Forum, which was recently organized in Singapore by the Asia News Network and the Konrad Adenauer Foundation, that he had little hope in the young generation of Filipino politicians because, like their predecessors, they see politics more as a source of quick wealth than as a place to practice public service.

Thailand should be cautious about drawing comfort from the fact that its economy appears to be stronger and more resilient to global economic volatility than that of the Philippines. While the finance minister and prime minister are to be commended for closely following the Bank of Thailand's guidelines for dealing with debt, the situation seems to have deteriorated on the non- performing loans front. And corruption and cronyism have grown.

The Ekkayuth Anchanbutr saga could clearly benefit from the lesson "two wrongs do not make a right", but this former con- man's personal crusade against the prime minister and the country's corrupt politicians has tapped growing concern among the middle classes and even some politicians within the ruling Thai Rak Thai Party about where the country is heading. What's happening in the Philippines is ominous proof of how difficult it can be to extricate a nation from the vicious cycle of corruption and rampant cronyism.