The challenges ahead


THE President is faced with daunting tasks. Crushing burdens. Everyone knows this. But she has only six months to accomplish great things, or risk the country degenerating into an irredeemable basket case. This, at least, seems to be the consensus of those in the know. Bankers, economic managers, businessmen, entrepreneurs, and even some of the smarter people in government.

The future of the administration, they say, is inextricably bound to the fate of the country, which will be decided in the very short term indeed. Three things must be attended to, and handled, between now and December. In the opinion of these economic movers and shakers they are, the Bloated debt, an Inflated government labor force, and a Resentful population.

Our bloated debt, of course, is what has led to the country’s staggering deficits. Some maintain that the government has been reduced to only being able to spend 30% of all income collected on running the government, with the vast bulk of revenues going to pay old and new debts. What is clear is that something drastic needs to be done, if the government is to have a chance to pare down our debt, and thus free up funds for genuine development.

The experts claim that the biggest item in this debt, the mother of all white elephants, is the National Power Corporation. The solution according to the technocrats, is to divide the debt of Napocor in half. One half would be absorbed by the National Government. The other half could then be gradually paid off, or at least handled, provided Napocor eliminates its current deficits in turn.

The only way to handle those deficits would be to raise its rates. As Napocor itself has said, that would mean a rise in the cost of Napocor’s electrical rates by somewhere in the neighborhood of 80%. The effect would be an increase of the consumer’s Meralco bill by 40%. By any measure, this is a huge increase in the cost of electricity.

The bankers and experts claim it needs to be done. First of all, such a move would begin the process of controlling the debt of Napocor, and potentially make it saleable.

At the same time, as the government attends to Napocor, it must end its freewheeling habit of borrowing to cover deficits. The only way to do this is to raise taxes, particularly for sectors that have long enjoyed exemptions from the government. 80% of the tax base consists of wage earners, who automatically pay their taxes through the withholding tax. Professionals who earn much more, pay far less in taxes. They have to pay more, and immediately so. This will not be popular either.

But by attending to the festering Napocor problem, and broadening the tax base, and updating the index of sin taxes, the government can hope to swiftly put itself in a better fiscal position. And not a moment too soon. As things stand, bankers expect their international colleagues to lower the credit and other ratings of the country early next year. The result of such downgradings would be not only greater difficulty in sourcing loans for the government, but a rise in interest rates affecting the private sector. Higher interest means less money to go around. Less money to go around means less money to invest in anything new; higher interest means the risk of troubled companies collapsing because of defaulting on their loans.

According to the same experts, the government needs to put itself on a better fiscal footing quickly, and rely on the influx of money from OFW’s abroad in December, to tide people over in the short term. If the government can do something about its deficits, it can then direct more spending toward social services; but to put things another way, if the deficit is not addressed, and remittances come in, all it will do is postpone an Argentina-style political and economic collapse. But the collapse will come. But if the government attends to deficits, and the remittances come in, the country will be poised to see improvements occurring over the next few years.

These are dire predictions but apparently confident, if sobering, expectations. This is where the bloated bureaucracy comes in. It must be trimmed, and corruption at the very least reduced to more manageable levels. Discretion over tax payments and many other things in the hands of officials has to be eliminated.

As if this isn’t difficult enough to do, it must be done at a time when the population will be angry and antsy over higher taxes and the increased cost of electricity.

Yet again, it must be done now. Postponement could be fatal to the country.

What the President therefore faces, is the nearly superhuman task of convincing the country that it must tighten its belt for the short term if survival of the country in the long term is to be assured. As one banker has put it, the government had better make sure, at the very least, that there is a plentiful and cheap supply of food for everyone. People can bear a lot if they at least don’t go hungry.

While the administration has not revealed what it intends to do, specifically, or when, it is clear that the President set out her goals during her pre inaugural address, and will use her State of the Nation Address next month, to tell the Congress and the country the hard, unpleasant facts.

Can the country hold, in the six months within which tremendous adjustments need to be made? That is the question. There will be the temptation to cave in to public protest, to political pressure, to Socialist economics and quack cures. The president must be able to pave the way for a cooperative, and not resentful, population.

The challenges ahead are thus, building a coalition that will brace the president against the shocks that will come, once she tells the country the bad news in July. It is probably safe to say that the Armed Forces will play a significant role in mustering the iron clad resolution required to make the population swallow such bitter medicine.

There will be rabble rousers and adventurers who will greet the president’s call for belt tightening and sacrifice with calls for civil disobedience and economic sabotage. The president must be prepared to crush such attempts with brute force. The consequences of a failure to do so would mean the postponement or even the rejection of difficult but necessary policies, and the assured destruction of the economy –not to mention the constitutional order as it presently exists.

On the other hand, if, by a combination of firm political will, candor in speaking to the public, a firm political coalition, steady military support, and judicious executive appointments, the president is able to weather the storm that will becloud the political landscape over the next six months –what then?

The very survival of the country, the experts insist, will have been assured. And with that continued existence come prospects of life slowly, but steadily, getting better.




Manuel L. Quezon III.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.