RP economy sinking under President Estrada

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