Misuse of privatization earnings endangers Philippine economy, group warns

MANILA — The Philippine government’s 2007 target of 105 billion pesos in big-ticket privatization earnings show the continuing vulnerability of the fiscal sector to another crisis similar to the one the country experienced in 1997, Ibon Foundation said today.

Sonny Africa, Ibon’s research head, said that the government has been using proceeds from the sale of government assets to pad its fiscal position, thus giving the illusion that all is well with the economy. The problem is, he said, the Arroyo administration will soon run out of assets to sell or privatize.

With the passage of the expanded value-added tax into law in 2005, Africa said, Arroyo had confidently claimed that the fiscal crisis she declared was finally over. In fact, the administration even moved up its target of achieving a balanced budget by two years, saying that it can be achieved next year rather than in 2010.

But Africa pointed out that in the first quarter of the year, government had recorded a deficit of 52 billion pesos, more than 6 billion pesos above the targeted 45.8 billion pesos, and was using privatization revenues to make up for the shortfall and to keep within its programmed 63 billion peso deficit ceiling.

Africa warned that the Arroyo government is on a path similar to that taken by former president Fidel Ramos in the years before the 1997 Asian financial crisis.

The Ramos administration’s 52.7 billion in privatization earnings in 1994 and 1995 was the main reason it recorded an unprecedented fiscal surplus in 1994, Africa said. But such surpluses quickly declined in subsequent years as government started running out of assets to sell. Deficits started to return in the years after the Asian crisis, hitting a record-high of 5.4 percent of gross domestic product (GDP) in 2004.

“When the Asian financial crisis exploded in July 1997, ten years ago, the Philippine economy was thrown into disarray from which it has not yet really recovered. The real economy, especially the manufacturing sector, continues to slow and actual joblessness minus statistical redefinitions remains at record highs,” Africa said.

He likened the Arroyo government’s actions to those of the millions of poor and desperate families forced to sell of their most precious possessions just to make ends meet. Government’s stakes in San Miguel Corp., the Manila Electric Co. (Meralco) and the Philippine National Oil Co., which it is planning to dispose this year, are among its most profitable and valuable assets.

“Their disposal would allow the Arroyo government to be able to maintain its illusion of fiscal health, at the expense of revenues in subsequent years,” Africa said.