RP economy sinking under President Estrada

By Bob McKee

LONDON: In early April, Philippine armed forces spokesman Col. Romero denied reports that the military was preparing a coup against President Joseph Estrada. The military had been on "red alert" all week and security at military camps had been strengthened. At the time, Col. Romero commented: "It's the biggest of April Fools Day jokes".

Despite Col. Romero's dismissal of the story, it at least reflected how low President Estrada's stock had sunk since being elected by a landslide in December 1998.

The former film actor defeated the status quo candidate of the last administration because he was seen as a breath of fresh air.

Voters hoped Estrada would change Philippine society after years of authoritarian corrupt rule by Ferdinand Marcos and then the disillusioning experience of the presidencies of Corazon Aquino and Ramos, members of the Filipino landowning elite.

But the sweet taste of success has turned sour. Estrada has not turned out to be a Ronald Reagan. Instead, his popularity has sunk to an all-time low, from 65 percent net satisfaction back at the time of the election to just 5 percent now.

The electorate may have been prepared to forgive Estrada's colorful personal life -- he has revealed on his weekly television program that he had a daughter who was the product of an affair with a movie star. He did so by pointing out the teenager in the audience.

The president is believed to have 10 children, three by his wife and the rest with six other women. A top aide was sacked for claiming that Estrada was drunk at midnight cabinet sessions, observing that the aide was the only person sober in the room.

Guards at the presidential palace say that when Estrada's personal pianist checks in for work, they know there's a long night ahead.

What worries Filipinos much more is that the Estrada administration has reappointed many former Marcos cronies to government agencies, and there seems to be little sign of improvement in the level of corruption.

And most of all, the Philippines' economic recovery appears to be foundering, with the currency -- the peso -- coming under pressure.

In 1999, Philippine export growth accelerated. But exports are heavily weighted towards electronics products, such as computer memory chips.

And with relatively depressed Dynamic Random Access Memory (DRAM) prices, export growth has begun to slow. At the same time, high oil prices are pushing up import costs. So the trade surplus has peaked and is heading into negative territory.

And foreign investors are losing confidence in the economy. Direct investment contracts fell sharply last year and, although the government is planning several privatizations to boost investor interest, it doesn't look as though foreign capital flows will rise much this year either.

Indeed, the economy began to hemorrhage capital towards the end of last year and that has continued this year so far. The scandal of insider trading at the Philippines stock exchange has hardly helped either. Share prices have fallen 25 percent this year to date. And one foreign investor institution is planning to cut the Philippines weighting in its index in May.

The central bank's foreign exchange reserves are falling. The government managed to raise US$1.6 billion from a recent government bond issue.

That will help temporarily, but only by increasing the foreign debt of the nation, which is already the highest in the region after Indonesia as a percentage of national output. Indeed, short-term debt repayments this year are equivalent to all of the Philippines FX reserves.

For the moment, the Philippines is still growing (at an annual rate of 4 percent -- slow by Asia's standards) and inflation is benign. But food prices have been artificially depressed by government controls, the effects of which will last for only a couple more months. Non-food inflation is running at 6.5 percent a year and services inflation at over 11 percent.

Most worrying of all, the government badly missed its initial budget plan last year. It expected a deficit of just $1.02 billion or 0.6 percent of Gross Domestic Profit (GDP). It finished up at $2.67 billion, or 3.7 percent of GDP.

The 2000 budget deficit is officially expected to narrow to 2 percent of GDP. But that assumes government spending will rise only 6.6 percent this year after a 15 percent hike last year. And that depends on interest payments on previous debt falling. It is more likely to be 3.2 percent of GDP.

With inflation likely to pick up sharply and the peso under pressure, the central bank is more likely to be raising rates rather than lowering them over the next few months.

On the other side of the government's ledger, government revenues are expected to rise 18.3 percent against 3.5 percent last year and a long-term average of 12.5 percent. But the Philippines tax base is too small for such an increase and no measures against tax evasion have been introduced.

If inflation rockets, exports continue to slow and growth peters out, the peso could come under serious pressure. Then the rumors of a coup may gain more substance.

-- Observer News Service