FOCUS ON THE PHILIPPINES
an electronic newsletter (focusing mainly on Philippine news
and issues) of
FOCUS ON THE GLOBAL SOUTH
a Program of Development Policy Research, Analysis and Action
Issue #27 Series 2000 19
December
A Post-Estrada Agenda for Economic and
Political Recovery
by
Carlito Añonuevo, Jenina Joy Chavez, Tina Clemente,
Amor Datinguinoo, Alvin Firmeza, Jose Ernesto Ledesma, Joseph Lim, Nepomuceno
Malaluan, Rene Ofreneo, Rene Raya, Jessica Reyes-Cantos, and Filomeno Sta.
Ana III
Action for Economic Reforms
5
December 2000
Mr.
Estrada is politically dead. Even if he survives the impeachment trial in
the Senate, he will never be able to stabilize the economy and put out the
political conflagration. Estrada is facing the wrath of the entire Philippine
society: organized labor, the business sector, the peasantry, the middle class,
the urban poor, the different churches, the intelligentsia, and the whole
spectrum of people's and non-governmental organizations. Thus, even as we
continue to focus all our energies on driving Estrada out of office, it is
necessary at this time to lay the foundations of a post-Estrada agenda for
national recovery and development.
Failure
of Institutions
Reforming
or changing institutions is difficult to do even in normal times. But times
of crisis offer opportunities for overhauling institutions. The need to implement
bold policy and institutional changes in the post-Estrada period is all too
clear. The political, economic and moral crisis brought upon us by the Estrada
regime has exposed all too well the weaknesses of our national institutions
and governance structures.
The
Estrada administration will leave behind a government with a serious fiscal
problem, an economy in deep crisis, very low public and private sector morale,
shattered business confidence, and discredited institutions of governance.
At the same time, the political crisis has heightened public awareness of
and disgust over the high level and brazenness of corruption and cronyism
in government. The next administration will thus be under great pressure to
undertake reforms to bring back the trust of the people in government. This
is fertile ground to advance a wide-ranging progressive reform agenda.
Formulating
this agenda and forging a consensus on it begin now. We must translate the
strong unity to oust Estrada into a movement to transform the Philippine state
and civil society. The first step is to have a plan that identifies the most
critical reform areas in the economy and in the institutions of governance.
Recovering
the People's Trust in Government
The
immediate task of the post-Estrada administration is to reverse the people’s
cynicism towards government. Measures to achieve this must be convincing and
unequivocal. In this regard, the following actions are indispensable:
·
Prosecute Mr. Estrada and other offenders in public office for economic plunder
and related crimes against the Filipino people. The
punishment of Estrada will send a powerful message that never again can high-level
government officials easily get away with high crime. Letting Estrada off
the hook – just like the many compromises with the Marcoses – will only perpetuate
Philippine booty capitalism.
·
Secure the independence of the legislature by removing the pork barrel funds
and restricting the use by the president of discretionary funds. The
presidency has used the vast resources at its command to buy the votes of
legislators. This practice of using discretionary funds to get the legislators’
support has also contributed to the weakening of the multiparty system.
·
Reform the institutions that are tasked with ensuring government accountability.
While civil society has played the crucial role in exposing and checking corruption
in government, this is no excuse for the incompetence and impotence displayed
by government institutions tasked with ensuring transparency and accountability.
These agencies failed totally in their task to expose much less prosecute
and punish the perpetrators of high-level corruption and bribery in government.
The
next administration should therefore thoroughly reexamine and overhaul the
institutions responsible for ensuring accountability. Special attention must
be given to the Commission on Audit (COA) and the Office of the Ombudsman,
which have proven inutile in spite of their broad investigative and prosecutory
powers. Executive, legislative and judicial processes to prosecute and punish
crimes by public officials and their accomplices and allies in big business
must be strengthened.
The
new administration must strengthen the mechanisms for transparency. Specifically,
the statutes requiring public officials to truthfully disclose their income,
assets and liabilities must be strictly enforced. The new administration must
also pass a law to actualize the Constitutional guarantee of public access
to official information. Bank and financial secrecy laws must be relaxed especially
when the suspected offenders come from government and big business.
Reinvigorating
the Economy
The
next administration will enjoy the advantage of legitimacy because of the
contrast with the thoroughly discredited Estrada administration. We can therefore
expect a return of business confidence and the normalization of markets, including
the financial and exchange rate markets. This will pave the way to recovery
as renewed business confidence expands aggregate demand. The next administration
should then adopt a prudent fiscal policy. It should also reverse the present
high-deficit policy of the Estrada administration by increasing progressive
taxation of the rich and wealthy and overhauling and reforming the processes
of tax administration while making sure that provision of basic social services
and fiscal activities are undertaken to reinvigorate the economy.
Since
the comprehensive tax reform program is already being implemented (although
the President's recent Executive Order No.311 creating a committee to review
and make recommendations on the tax system may further dilute the program),
special emphasis should be given to reforming the revenue administration.
Extra effort must be exerted to reverse the chronically poor performance of
the Bureau of Internal Revenue (BIR). Key here is the installation of an activist
leadership by putting reform-minded and responsible people in charge and giving
them broad powers.
Furthermore,
the new government must assist in easing the credit crunch and expanding economic
production by committing itself to a nonrestrictive monetary policy while
keeping inflation manageable. It is to the credit of some economic managers
that they resisted pressure from vested interests to raise interest rates
to exorbitant levels (between 30 and 40 percent). Despite this, interest rates
have increased, and they have to be lowered.
Raising
the Economy's Output and Productive Capacity
The
above policies are but initial steps to ensure long-term growth. Serious structural
reforms have to be undertaken to achieve a higher level of sustainable growth.
The country's normal output is far from ideal. The country has never reached
levels of growth beyond six percent in the past without precipitating a recession.
Thus,
an even more critical challenge for the next administration is addressing
the long-standing structural problems that have made the capital stock of
the Philippines low, labor productivity weak, production technology backward
and unemployment high.
Creating
a better climate for income and employment generation and mobilizing savings
and investments must include the following measures:
·
Modernize agriculture by increasing the rural sector's share in government
spending and liberalizing sensitive sectors captured by vested interests.
Public investment has always been concentrated in highly urbanized areas,
even if the bulk of the country's poor are in the rural sector. This pattern
of public investment must change. A bigger share of national public investment
spending should go to the poorest areas such as Central Mindanao, Eastern
Visayas, and the Cordilleras. At the same time, building the capacity of local
governments to plan and manage resources is necessary. The increase in spending
for the rural sector must go to education, health, infrastructure development,
research and development, and support services. Such reordering of government
investment priorities addresses not only the problem of poverty in the rural
sector but also contributes to building the country's readiness for globalization
by protecting the country's least-mobile and most vulnerable sectors.
Equally
important, there must be an end to protectionism, which has perpetuated cronyism
and rent seeking and harmed the poor. This is most evident in the sugar industry.
The erstwhile crony and kumpare himself, Luis Chavit Singson, has told
how Estrada cronies have extracted extraordinary profits from the discretionary
or arbitrary allocation of restricted imported sugar. The liberalization of
the sugar industry will be an important act in the dismantling of the anachronistic
feudal ramparts in sugar-producing areas and will strengthen the agriculture-industry
nexus by boosting the food processing industry. We likewise point out that
the liberalization of sugar will be a litmus test for Gloria Macagapagal-Arroyo,
whose family is linked to the protectionist sugar bloc.
·
Stamp out cronyism and rent seeking, and dismantle private monopolies. Mr.
Estrada has subverted economic policies to promote the economic interest of
his friends. Open as well as hidden subsidies have been extended to Lucio
Tan's companies, especially Philippine Airlines. The centralization of port
services and the tariff protection given to the petrochemical industry are
other acts, among many, that have entrenched rent seeking. These favors to
Estrada’s cronies must be reversed immediately. But we are also aware that
sections of the business community outside the immediate Estrada circle have
been engaged in rent seeking. Thus, as example, we call and support the prosecution
of the owners and chief executives of banks who have been charged with economic
plunder. Their prosecution is a way to prevent the recurrence of the moral
hazard problem even as the banks themselves may be allowed to be taken over
by others. We reject corruption and cronyism in whatever form and from whichever
government and regime.
·
Build defenses against financial crises. In this age of highly volatile capital, economy-wide
shocks are unavoidable. The lessons of the Asian financial crisis, unfortunately,
have been ignored. Among the lessons that should have been learned are not
to depend on short-term foreign borrowing, to keep the exchange rate competitive
even while striving for currency stability, and to adopt macroeconomic policies
that give a premium to growth, employment and a robust trade balance. Similarly,
policies that reduce the adverse impact of short-term capital flows, which
are expected to return once confidence is regained, must be instituted. We
support measures that will reduce the highly speculative use of portfolio
flows such as the imposition of significant taxes on capital gains from stock
market transactions and currency arbitrage. Bank regulation and supervision
will have to be strengthened even more to ensure that financial intermediaries
will be able to manage adequately the risk they undertake.
·
Review government's negotiating position in the WTO, AFTA and other multilateral
institutions. In the context of integration into the global economy,
it is important to have a clear strategy for maximizing the opportunities
offered by global trading arrangements while mitigating their negative effects.
In this regard, the "special and differential treatment" that developing
countries can invoke in the WTO to get concessions on strategic industries
must be used to the utmost. This cannot be done however by just fence-sitting
in the Cairns group. Instead, new partnerships must be built with other countries
that have similar concerns and are ready to take the WTO to task. Further,
the new government should take a more active role in investigating claims
of dumping and similar complaints from domestic producers, and taking prompt
and appropriate action.
Building
the Social Infrastructure for Change
The
above prescriptions though by no means exhaustive are necessary actions that
all progressive and reform-minded groups must support. But we have to adopt
a new perspective for these to be successfully implemented. The Philippines
has been thrust into global competition and has liberalized its economy more
than any other country in East Asia. But it has lagged behind in economic
and social development. More than ever, the crisis has demonstrated the importance
of institutions and governance structures. We need to further deepen our understanding
of the state and civil society in our economic and social development. It
is only by creating an enlightened state and civil society that we can ensure
a stable foundation for socially responsive and development oriented decision-making.
"Lazy
liberalization" is not the way to go. A market economy in a developing
country likewise requires an activist, transparent and accountable government.
The former is more in tune with a corrupt and insensitive leadership that
prioritizes short-term vested interests to long-term national interests while
perhaps believing and hoping that market liberalization in itself will somehow
result in an economic "miracle." An activist government does not
mean unnecessary and suffocating state intervention and meddling in the economy.
It means creating a competitive atmosphere and actually promoting competition
(partly by eliminating and punishing vested interests that try to subvert
this). It means providing the physical, human, social, legal and regulatory
infrastructure that enhances productivity and efficiency and responding adequately
to economic volatilities, uncertainties and market failures. It means institutionalizing
poverty reduction in the development plans, programs and policies of agencies
and local governments, including the national and local budgets. It means
the empowerment of the disadvantaged sectors by providing and improving access
to education, social services, technical and management know-how, appropriate
technology and economic resources.
Finally,
we stress the role of civil society in pressuring and forcing the state to
undertake the important and difficult tasks we have outlined. One lesson that
the EDSA Revolution and the current movement to oust Estrada provide us is
the great role we all play in ensuring a responsible and honest state. But
we cannot always remain at the level of periodic angry mass rallies and street
protests. After we are able to rid ourselves of this corrupt president, we
begin the difficult task of converting our initiative and energies into a
social and citizens’ movement that will institutionalize civil society’s day-to-day
watch and monitor over the top political leadership, government agencies and
bureaucracy, and big business. Pressure from below should be converted into
a positive force that will ensure development of sound institutions, governance
structures and policies. This is the opportunity we threw away after we achieved
the triumph in EDSA. This is one opportunity we can ill afford to throw away
again.