A Radical's Nut

Ondoy victims in Pila, Laguna receive relief goods from volunteers of Bayan's Bayanihan Alay sa Sambayanan or BALSA (photo from Bulatlat.com)

The twin devastation brought by typhoons Ondoy and Pepeng hit the Philippines at a time when the country is still reeling from the impact of the global financial and economic crisis. According to the latest (as of Oct 16) consolidated report of the National Disaster Coordinating Council (NDCC), the total cost of damage from the two typhoons reached ₱21.29 billion. The cost of damage to agriculture accounted for 64.8% of the total, and infrastructure, 35.1%. About 7.43 million were affected in the country’s 12 regions, including Metro Manila. (See Table 1)

Initial estimates from the National Economic Development Authority (NEDA), meanwhile, claimed that the macroeconomic impact of the two typhoons is about 0.2% of the gross domestic product (GDP). This could be mitigated, according to NEDA, by remittances from overseas Filipino workers (OFWs) who would tend to send home more money because of emergencies and “will make up for the billions lost in devastating floods”.

Because of the need for additional spending for post-Ondoy and Pepeng rehabilitation and reconstruction, on top of the need to pump-prime the economy amid the global financial and economic crisis, the 2009 budget deficit could reach as much as ₱307.9 billion, according to the Department of Finance (DOF). There is no official figure yet on the actual amount needed for rehabilitation and reconstruction but Congress has already approved a ₱12-billion supplemental budget for the immediate needs of the typhoon victims.

In addition, a total of ₱32 billion spread over 10 years is needed to relocate more than half a million illegal settlers, including those occupying waterways in Metro Manila. Mrs. Arroyo has ordered the immediate relocation of families near waterways following the massive flooding caused by Ondoy.

Meanwhile, the Arroyo administration has also successfully raised $1 billion from the global bonds market which it said would be used for its reconstruction efforts in regions affected by Ondoy and Pepeng.

While government tends to downplay the effects of the recent typhoons on the economy, with NEDA pointing out that reconstruction will spur domestic growth, the costs are actually much higher considering the still unquantified short- and medium-term effects of losses in jobs and livelihood due to Ondoy and Pepeng, although independent think tank IBON Foundation, in an estimate, said that Ondoy alone would push at least 276,000 families in NCR, Calabarzon, and Central Luzon into “long-term poverty”.

Note also that official unemployment before the storms ravaged the country was pegged at 7.6% nationwide (National Statistics Office’s July 2009 Labor Force Survey), with the top three highest regional unemployment posted by the NCR (12.1%); Calabarzon (11.1%); and Central Luzon (9.9%) – the regions most affected by the typhoons. These regions account for 79.9% of the total number of permanently displaced workers due to economic reasons from Jan 2008 to Jun 2009 as well as 69.3% of the total number of families affected by Ondoy and Pepeng. (See Table 2) 

A community in Pasig City remains flooded days after tropical storm Ondoy hit Metro Manila and nearby provinces (photo from Bayan - NCR)

Malacañang admitted Thursday (Oct 1) that government’s calamity fund of ₱1 billion is in danger of being depleted. Thus, members of the Senate and the House of Representatives held an emergency meeting with some Cabinet officials and agreed to pass a ₱10-billion supplemental budget in the wake of Ondoy’s onslaught in Metro Manila and adjacent provinces last weekend (Sep 26-27).

The problem is where to source the money. Not surprisingly, Department of Finance (DOF) Secretary Margarito Teves announced that they will tap the global bond market again in order to raise funds for relief and rehabilitation of “Ondoy” victims. This would be the third round of global bond issuance for the Philippine government this year, after the $1.5-billion bond sale in January and the $750-million sold in July, and would come ahead of the scheduled Samurai bond issuance later in the year.

But instead of borrowing more which will only aggravate the country’s debt problems, the more sensible step would be for government to cancel debt payments to free up billions of pesos in public funds that can be used for disaster relief and rehabilitation in the immediate, and provide much needed social services in the medium and long-term.

Debt servicing, since the time of the dictator Ferdinand Marcos, has been siphoning valuable public resources from the country, with the current Arroyo administration paying out the biggest amount of public funds for debt servicing. Debt servicing (interest payments and principal amortization) under Mrs. Arroyo has been, on the average, more than 10% of the country’s gross domestic product (GDP) – higher than Aquino’s 8.1%, Ramos’s 6.8% and Estrada’s 6.6 percent.

Under its proposed national budget for 2010, the Arroyo administration will shell out a huge ₱746.18 billion for debt servicing covering interest payments and principal amortization. In 2009 and 2008, government spent ₱702.6 billion and ₱612.68 billion for debt servicing, respectively. These are huge amounts of money, with interest payments in 2010, for instance, eating up 22.1% of the national budget compared with housing’s 0.4%, health’s 2.5%, and education’s 15.3% – all of which will surely require more funds now because of Ondoy and other stronger typhoons expected to hit the country.

Is debt cancellation possible? Ecuador just did it earlier this year, with its President calling the country’s foreign debt “immoral”.

Considering the still unfolding humanitarian crisis that Ondoy has caused and threats of more super typhoons, the

Youth groups under the Serve the People Brigade join relief efforts for Ondoy victims in Laguna (photo from Kabataan party-list - Southern Tagalog)

 Philippines can justify its move to cancel debt servicing and attend to the more immediate needs of its people. On top of this is the long-standing issue that many of the country’s debts are considered odious and thus the people should not be burdened to pay for them.

Current debt-funded projects such as the multi-million dollar road projects being bankrolled by Asian Development Bank (ADB) and the Japan Bank for International Cooperation (JBIC), $100-million text book project of the World Bank, China’s $885.4-million South Luzon railways project, ADB’s $750-million power sector reform programs and projects, among others are tainted with irregularities and corruption and should be considered for debt cancellation.

While emergency grant assistance for disaster relief from foreign donors are welcome, debt cancellation should be a top option for the Philippines in terms of raising sufficient resources in a sustainable manner to deal with disasters and other immediate and basic needs of its people.

As an initial move, Congress must repeal the Marcosian automatic debt servicing rule as provided under the revised Administrative Code of 1987 and rechannel funds allocated to debt servicing in the 2010 national budget to social services and disaster relief and rehabilitation.

also published in Bulatlat.com

As expected, the revived proposal to impose a tax on text messaging is again controversial and widely opposed. What surprised some people perhaps are the strong statements from telecommunication companies (telcos). They called the plan “anti-poor”, “oppressive” and “one of the worst anti-consumer legislations ever made”.

Telcos, of course, are still reeling from the public relations beating they had from questionable charges, missing load and other abuses recently probed by the Senate. Thus some may think that telcos just hope to recover some publicity points by taking on an issue their customers strongly oppose. But Globe Telecom and Smart Communications are actually defending their business interests threatened by the proposal, which include their promotional bucket-priced short message service (SMS) plans that allow them to protect their market share and earn billions of pesos in profits.

Broad opposition

Nonetheless, the firm position of Globe and Smart against the text tax is a welcome development. They reinforced the broad opposition versus an onerous tax proposal repeatedly raised by Congress as well as Malacañang the last 7 or 8 years. Members of the Senate, led by self-styled consumer advocate Senate president Juan Ponce Enrile, have also spoken strongly against the text tax. Add the 2010 elections to the equation, some say, then it is almost certain that this plan will not materialize any time soon.

But proponents of the measure are adamant. The House ways and means committee led by Quezon Rep. Danilo Suarez and Ilocos Sur Rep. Eric Singson has promised to pass a law imposing a 5-centavo tax on SMS within the year. Some sort of an alternative bill is also being pushed by Sen. Richard Gordon reportedly supported by the DOF and NEDA. In Gordon’s version, the text tax is in the form of a 5-year levy on telcos’ profits on SMS. Malacañang has not asked its allies to drop the text tax though it set conditions for its support, namely no pass-on to users; telcos must pay; and revenues for education, health or computerization.

IMF pressure

The latest incarnation of the text tax (a consolidated version of Singson’s House Bill 6625 and Suarez’s House Resolution 282) comes in the context of an administration under pressure from the International Monetary Fund (IMF) to widen its revenue base. In its latest consultation with Philippine officials concluded last January 2009, the IMF Executive Board “suggested” that government raise tax collection effort, broaden revenue base and rationalize fiscal incentives. The IMF noted the still high level of public debt amid continuing need for a measured fiscal stimulus, and thus raised said proposals to provide government “more scope for fiscal easing and well-targeted pro-poor cash transfers”.

While no longer in debt with the IMF, the Philippines remains hostaged to it because its assessment of a country’s fiscal situation is used as a signal by foreign creditors and investors. A favorable review by the IMF means high “creditworthiness” for the debt-dependent economy. The IMF has exercised control over the country’s fiscal policies through regular consultations between its Executive Board and Filipino officials such as the one they concluded in January.

Incidentally, it was the IMF that first openly pushed the text tax idea in 2002 to address government’s burgeoning budget deficit. But it was hugely unpopular and promptly rebuffed by some lawmakers. Even so, various text tax and related bills have been filed in Congress since then. Finance and Trade officials have also raised the proposal at various times and circumstances – at one point to pressure the bicameral committee to fast track the also infamous Reformed Value-Added Tax (RVAT) law in 2005 and in some instances as trial balloon on public opinion. The National Tax Research Center (NTRC) has conducted a study as well on the text tax in 2007 to weigh potential revenues and impact on consumers.

Lobby vs. sin taxes

Due to its unpopularity, the text tax could not be found in official policy pronouncements of Mrs. Arroyo. In her July State of the Nation Address (SONA), for instance, Mrs. Arroyo has categorically asked Congress, to further restructure so-called “sin taxes”, which unlike the text tax does not invite loud public outcry. During its January consultation with IMF officials, Arroyo officials promised to pass a law imposing separate uniform tax rates for alcoholic drinks and cigarette products.

But apparently, Malacañang and Congress have given in to the strong lobby of local manufacturers of sin products, who reportedly sought a meeting with Mrs. Arroyo in her Forbes Park (Makati) home to lobby against the proposal. The coming 2010 elections could have also played a role – with known huge election campaign contributors Lucio Tan (who owns Asia Brewery Inc and Fortune Tobacco) and Danding Cojuangco (who own San Miguel Corp) as among the stakeholders to be affected by sin taxes reform. There is also strong opposition from the so-called Northern Luzon bloc, or congressmen from the country’s tobacco-producing region.

While openly asking for sin taxes reform, Mrs. Arroyo has also been discreetly pushing for a text tax law, which in March she described as having a rate of between “5 to 10 centavos” and with collections earmarked for “education”. Note that these are the same salient provisions of current House proposal for a text tax. After Mrs. Arroyo’s SONA, sin taxes are no longer in the agenda of the Malacañang-controlled House ways and means committee. Its chairman Antique Rep. Exequiel Javier has already declared that the text tax is more doable than the sin taxes reform.

Do we need new taxes?

For the IMF, what is important is that government be able to widen its revenue base and manage the national budget deficit, which is expected to balloon to ₱250 billion this year. The IMF and government hope to reduce this to ₱233.4 billion in 2010 through new taxes. Whether the new taxes will come from our cellphones or our beer, the intention is to assure creditors that the Philippine government, which presently has a debt of ₱4.23 trillion, will continue to be a viable borrower.

But do we really need new taxes when government losses from anomalous contracts in infrastructure projects alone such as the botched NBN-ZTE broadband project reach at least ₱30 billion a year and nearly approximate the projected ₱36 billion in potential annual revenues from the text tax?

Consider also that even without modifying our existing commitments with the World Trade Organization (WTO) and other free trade deals, the Philippines can hike tariffs across the board and raise billions of pesos in revenues. Note that due to continuing trade liberalization, total collections from tariffs on imported goods and services under Arroyo now only account for 2.8% of total revenues and gross domestic product (GDP), compared to around 4.5% for most of the 1990s. In the first half of 2009 alone, we are giving up almost ₱117 million in potential revenues per month due to lower duties.

Government claims that revenues from the text tax will be used for education. In a policy regime of automatic debt servicing, this is lip service, to say the least. In the proposed 2010 national budget, for instance, the Arroyo administration is allocating a per capita education budget of ₱2,502, while each Filipino will have a debt servicing burden of ₱7,944. For health, Malacañang is allocating ₱402 for 2010 and ₱58 for housing. Thus, this administration which always uses social services to defend its oppressive taxes is allocating a combined budget for education, health and housing with an amount that is merely 37% of what it intends to pay its creditors.

And finally, how can a regime whose highest officials dined for $35,000 (ostensibly using taxpayers’ money) in two nights during a US junket justify another onerous tax on a people already battered by high prices, low wages and job scarcity?

By the way, text tax proponent Suarez claimed to have paid for one of those dinners.

Photo from Bulatlat.com

The National Statistics Office (NSO) today reported that inflation in August further slowed down to 0.1% from July’s 0.2%, the lowest in 22 years.

Inflation shows the rate at which the general level of prices for goods and services is rising.

What does the 22-year low inflation mean for Juan and Juana? Does it mean that ordinary wage and income earners could now better afford the basic goods and services their family needs to survive every day?

0.1% inflation simply means that prices (as measured by the consumer price index or CPI) have not practically moved in August 2009 compared to their levels in August 2008, when overall prices have peaked mainly due to unprecedented increases in oil and food (in particular rice) prices in the first half. In other words, prices today remained very high.

The CPI in August 2008 peaked at 160.3. Compared then to August 2009 CPI of 160.5, year-on-year inflation rate is thus calculated at an unusually low 0.1 percent. Pushed down by declining oil prices in the second half, the monthly CPI last year began its descent in September 2008 and closed the year at 156.7.

Thus, this may be considered a hiccup in the general trend of increasing prices since current prices are being compared to abnormally high levels in 2008 and inflation may “normalize” by September to show the increasing trend in prices of basic goods and commodities.

But more importantly, it does not hide the fact that prices have jumped astronomically under the Arroyo administration especially since last year, and that wages and income have failed to cope.

Comparing the January 2008 and August 2009 CPI, the rate in increase in general level of prices will be at 9.3 percent. Also, annual inflation from 2005 to 2009 is pegged at a higher 5.7% than the 2001 – 2004-period when it was at 4.8 percent.

For ordinary wage and income earners, the low inflation rate in August did not mean improved buying capacity and decent living for their families. For instance, a minimum wage earner in Metro Manila takes home only as low as ₱345 per day while his or her family ideally needs about ₱1,000 for their daily food and non-food requirements.

Inflation lowest in 22 years? E ano ngayon?

4 million jobless a year

In her first SONA (2001), Mrs. Arroyo declared that her economic philosophy is that “the way to fight poverty is to create jobs, not destroy them”. She even made a concrete promise to create one million new jobs in agriculture and fisheries in one year alone.

In her 2002 SONA, Mrs. Arroyo said that her working agenda will focus on creating and improving job opportunities. And she meant not simply jobs but “jobs paying decent wages”.

In her 2003 SONA, Mrs. Arroyo recognized that for the practical purposes of most people, “government exists to provide jobs”.

After making big promises on job creation and preservation, by 2004, Mrs. Arroyo was asking for “patience” from the people. In her SONA that year, she said: “We must wait in patience for the reforms to work… konti pang sakripisyo (a little more sacrifice)… because world competition is keen and we want the jobs not only to come but to stay”.

In her 2005 SONA, Mrs. Arroyo was immodest about her job generation program. Remember that a month before her SONA, the “Hello Garci” scandal broke out, triggering massive protests and calls for her ouster or resignation. Her speech thus had to be extra highfalutin about her supposed achievements. She bragged, among others, of an economy that “surprised many at home and abroad” while “generating 4 million jobs in the last four years”.

In 2006, Mrs. Arroyo acclaimed two of her most important job “creation” initiatives – business process outsourcing (BPO) and labor export. She said that with the proliferation of call centers in the country, “we not only found jobs but kept families intact”. But she was also quick to recognize that “we are a great people” because “we compete and win in every imaginable job throughout the world”.

She repeated her promotion of BPO jobs under her government in 2007, citing in her SONA speech that “the business services sector has become the fastest growing in the economy”. She said she expects the sector to become as important as labor export and that by 2010, the sector could produce $12 billion or the same amount of OFW remittances.

Her last SONA in 2008 saw Mrs. Arroyo addressing the country “at a crucial moment in world history”. The worst global economic crisis since the Great Depression started to unfold and she blamed this for undermining her supposed gains in managing the Philippine economy, including its creation of “a million new jobs”. She said to address the global challenge, the country must go on “building and buttressing bridges to allies around the world to bring in “investments to create jobs”, among others.

How can we sum up Mrs. Arroyo’s achievements in terms of job creation and preservation in the last eight years?

First, we may compare the job situation under her watch with that of her own targets or commitments.

Under the Arroyo administration, the country has been experiencing its worst jobs crisis, which has been further aggravated by the wave of massive displacements due to the impact of the global financial and economic crisis. Unemployment rate since 2001 has remained at more than 11% per year with about 4 million workers jobless every year. Annual unemployment rate under the Aquino to Estrada administrations was between 9 to 10% while the number of unemployed was between 2 to 3 million a year.

Consequently, Mrs. Arroyo has also been the most aggressive in exporting Filipino workers since the domestic job creation under her pro-globalization policies have been greatly undermined. Every year, OFW deployment under the Aquino to Estrada administrations was between 361,000 to 693,000 but under Arroyo, the figure ballooned to more than 1 million a year.

In fact, Mrs. Arroyo is the only Philippine president to categorically declare labor export as an official job creation policy of government. Administrations since Marcos have considered (at least on paper) labor export as “temporary” or “secondary” option for Filipino workers.

Second, we may compare her achievements with that of her own targets or commitments.

In her 2004 SONA, she outlined her so-called 10-point agenda. Number one on this list is the “The creation of six million jobs in six years via more opportunities given to entrepreneurs, tripling of the amount of loans for lending to small and medium enterprises and the development of one to two million hectares of land for agricultural business”. This means one million new jobs every year.

In 2004, the average number of employed workers was 31.6 million. This means that by this year, the total number of employed workers should be at least 37.6 million. Based on the official Labor Force Surveys in January and April 2009 of the National Statistics Office (NSO), the average number of employed workers this year is only 34.63 million. From 2004 to 2009, the annual average of additional jobs is only 690,000, not one million as promised by Mrs. Arroyo. And we’re only talking about official figures or “employment” as defined by government’s ridiculous standard (i.e. anyone who has worked for an hour, paid or unpaid, for the past week before the NSO conducted its survey is considered employed, etc.)

In her supposedly farewell SONA on July 27, what will she say about jobs now that the direct impact of the global crunch is now being felt by domestic jobs as well as by OFWs?

Abangan.