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Black and Blue (Second of Two Parts)

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Jesus EstanislaoIn our last issue, former Economic Planning Secretary and now Governance Advisory Council chairman Jesus Estanislao talked about the impact of the global economic crisis on the Philippines.

In the second part of this exclusive interview with China Business Philippines, he tells us where the government has gone wrong in managing its resources and what should be done to stop the drain of precious money from the national coffers.

Have there been enough preparations on the part of the Philippine government to cushion the impact of the meltdown?
No. (Laughs) Quite frankly, the tax collection that we have is weak, and people are talking about fiscal stimulus. They’re just mouthing the language being used in the US. But we’re not the US economy. The US economy is in recession. We have not been in a recession. We do not have that extra capacity to absorb any fiscal stimulus.

I think government overspending is necessary, but beyond certain limits becomes inflationary for the Philippines. If you allow your fiscal position to deteriorate, it will bring down confidence in the Philippine economy. Investors will not be coming in. I hope that we recognize that we’re not the United States. We’re not Germany; we’re not Japan. Our situation is very different.

Those economies are in recession. Now, when you’re in a recession, you stimulate. And especially if you have the fiscal strength with which to pay for your stimulus. Now that is true with Germany, but that is not true of us. So that’s what we mean by preparation.

Many people are not too keen on paying their taxes because they think the money does not go back to them in terms of services.
But it’s not so much the tax rates but more of the leakages that we allow to flow out of the system. The more you have smuggling, and the moment you have inequity in the way you administer your tax system— giving a lot of incentives and privileges to special sectors—[the more your collection problem grows]. It’s still very much there, and the leakages are enormous.

Therefore, you really have to improve your tax administration. I’m not quite sure what the record is, but the Bureau of Internal Revenue has fallen below their targets and the Bureau of Customs has also fallen below their targets. So it’s not just a question of spending, you also have to worry about the tax leakages. And that needs political will from the leadership.

So are you saying the current administration has no political will?
Yeah, in terms of customs collection. You already saw some of the problems we had in Subic two years ago. There was a lot of leakage. And there is Port Irene in Cagayan Province. This is absolutely unnecessary. You’re shooting yourself in the foot by allowing these things to happen. And this is something within the powers of any administration.

Do you think the government is spending wisely?
Well, there’s a Countrywide Development Fund [Now called Priority Development Assistance Fund—Ed]. But as much as 30 to 40% may not go to the real purposes[of the fund]. Now you have all these contractors that are debarred by the World Bank. That’s the World Bank, but what about the Philippine government?

Why should we depend on the World Bank [to tell us about irregularities]? It does not take the World Bank to tell us that these contractors are terrible. And you can multiply that several times over. For example, the fertilizer scam. We’re talking about funding our agriculture and it goes to all of these types of scandalous procurement and overpricing. That’s a huge amount of money that goes down the drain.

But don’t you think the executive branch is just as responsible for precious funds going down the drain?
Oh yeah, I would say so. Again that’s because of what our orientation is. We seem to be very concerned about political positioning [and] getting votes; we’re not as concerned about building roads.

Take a look at the roads in China. There is corruption in China, but I think it is not much because they actually shoot corrupt officials. You travel through any part of China, and you’ll find that their roads are very good. People see their funds being used for public purposes. But here, what have we got? Scam after scam.

You said earlier that the Philippine government is not prepared to address the impact of the global meltdown. What, then, should it do?
It’s just to bring substance to what the government does, like agricultural productivity. We need farm- to-market roads and so on. It makes a lot of sense to increase the productive capacity of the Philippines to enable us to feed our people better and to give employment to the people in the countryside. These are very simple projects, and there are many of them. You don’t have to invent them.

We’re trying to encourage the provincial government of Bulacan to organize their cooperatives so they can have the North Food Exchange. It’s one of those projects that make a lot of sense. Now more of those should be done. And that is ready-to-go, high impact, and will create job and income opportunities for our people.

The key is to bring down [the number of] people living under the poverty line from over 40% to about 25–20%. It has been done before, towards the end of the Cory administration, and especially during the Ramos administration.

We were able to break the poverty incidence to below 30%. It can be done.

Print ed: 11/09


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