TCS Daily

A New Beginning?

By John Lawrence Avila - June 8, 2004 12:00 AM

After more than two weeks, a final outcome of the presidential race in the Philippines has yet to be officially determined. The electoral process is placed in doubt by questions about its conduct and counter-accusations from opposing parties imperil an outcome acceptable to all.

Early trends show incumbent President Gloria Macapagal Arroyo slightly ahead of opposition candidate, popular actor Fernando Poe Jr. Exit polls by the reputable Social Weather Stations predict Arroyo retaining her hold of the country's top post. It appears likely that Arroyo will gain a new mandate to lead the country for another six years. However, a less than credible election may deprive her of the political legitimacy she so desperately needs to govern effectively.

Arroyo assumed the country's top post after a people revolt three years ago that toppled the previous president. Under those unusual circumstances, she obtained the highest office without an electoral mandate necessary to carry out her program of government. To gain political legitimacy, her administration sought to accommodate differing interests to generate support for her fragile government.

In the last three years, efforts at reform were rather lackluster apparently aimed at not upsetting domestic political interests. For instance, the government appeared to backtrack from its program of tariff liberalization after intense domestic pressure from local industrialists. President Arroyo increased tariffs for several products signaling a reversal of progressive trade reforms since the 1980s.

Pandering to a local constituency increasingly apprehensive about globalization, her government cheered the collapse of the multilateral trade talks in Cancun. The Philippine government took active part in the Group of 22 that blocked agreement at the WTO meeting. Moreover, the Philippines has been seeking further exemptions from its trade commitments under ASEAN Free Trade Area.

Does this signal a permanent turnaround? Perhaps not. It is more likely that Arroyo merely sought to assuage domestic groups and lobbies ahead of an election year. Lately, she increasingly moved toward adopting populist economic policy to produce support for her government. This certainly proved an effective political strategy as it generated the electoral votes needed to stay in power.

It is hoped that with a new mandate, President Arroyo will exercise a more determined effort at economic reform. The Philippines deserves the kind of political leadership that will deliver many Filipinos from poverty and bring the country forward. The task is immense and the problems confronting the country are many and complex.

Foremost in the economic agenda is the fiscal deficit. Chronic budget deficits and payments imbalances are persistent features of the Philippine economy. Recently, the International Monetary Fund warned of an impending fiscal crisis given the present government's large budget deficit and rising level of public debt.

Faced with a burgeoning fiscal deficit, the government desperately needs to overhaul the revenue collection system. Past efforts at reforming the country's internal revenue agency did not go very far however. The new government needs to aggressively push for reform of the tax administration and avoid the possibility of a crisis like one that recently hit Argentina.

The second item is to undertake immediate efforts to restore foreign investor confidence in the country. Foreign direct investment collapsed from US$1.8 billion in 2002 to just over US$300 million the following year. Foreign capital has sidestepped the Philippines apparently turned off by infrastructure bottlenecks, policy inconsistencies, bureaucratic corruption, and continuing domestic political instability.

The new government will have to undertake some high profile changes to regain the attention of foreign investors. Up for discussion are amendments to foreign equity restrictions and outright prohibitions in key industries such as mining, banking, telecommunications and transport. There are also proposals to relax land ownership rules and further open up the domestic market.

These are controversial issues that will meet intense domestic opposition, particularly from the powerful industrial elite that has long dominated the Philippine economy. This will be the key challenge of the President Arroyo as she enters a new six-year term. She needs to demonstrate that her government can resist pressures from vested interests and push ahead with policy reform that will benefit the general welfare and not just enrich a privileged few.

This may be carried out through a proposed overall of the country's constitution. Key economic reforms can be introduced by amending the anti-market and anti-foreign provisions of the existing legal framework. Arroyo has already announced her intention of calling together a constitutional convention to begin deliberations on a new charter.

It is also widely recognize the economic reform should be accompanied by fundamental restructuring of the country's political system. The plan to shift the present presidential/unitary form of government to a parliamentary/federal one promises a way of resolving the existing inefficiencies of the present political system.

Also on the table are improvement of the electoral system, campaign finance rules, and bureaucratic reorganization.

These proposals are meant to strengthen the country's public institutions weakened by more than 13 years of authoritarian dictatorship and extra-constitutional people power movements effecting political change. However, plans for wholesale change complicate further an already difficult job for the new government.

The new government can look forward to a more supportive legislature. Based on preliminary election results, the administration coalition will likely retain effective control of both houses of Congress. This will facilitate the passage of key items in the president's legislative agenda.

The government can also jumpstart economic reforms through an impending free trade agreement with Japan. Given the loss of momentum in the WTO, APEC and in ASEAN, an FTA with Japan can give new impetus for market opening measures. The agreement will help lock-in domestic reform and signal the country's commitment to trade liberalization. The current administration appears determine to conclude an agreement before year's end. Already, the government is considering entering into similar bilateral deals with other countries.

The first year of the new government will be a crucial one. If Arroyo can demonstrate her resolve in carrying out the difficult transformation of the present political and economic system, then the future augurs well for the Philippines. But if she continues with the status quo and surrenders to political accommodation, then the goal of sustainable and equitable growth might be a pipe dream. Will it be a new beginning for the Philippines, or more of the same thing?

The author is with the Center for Research and Communication, Metro Manila, Philippines.


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