Crisis? What crisis?

While all eyes focused on a fiscal crisis, everyone politely ignored the real crisis at hand

In September 2004, a group of economists from the University of the Philippines’ School of Economics released a paper outlining the state of the country’s fiscal position. Overnight, the paper became must-reading for government officials, the media, foreign diplomats, and investment analysts. The term “crisis” became a byword. Even the President admitted the country was, in fact, in a crisis and had been so for quite some time, although her own economic managers were loathe to use the word. Whether one agreed with them or not – and most people did – one thing was clear: the UP economists had struck a raw nerve and spurred action. All of a sudden, the government began to place more emphasis on its fiscal reform program and pushed for more new tax measures. But just as suddenly, before Congress could even pass the tax proposals, President Arroyo announced that the crisis was over. It had somehow ceased to exist.

But did it ? While all eyes focused on the fiscal crisis, everyone politely ignored the real crisis at hand – a crisis of credibility and the inability to meet rising expectations. When the President entered her second term in July 2004, the business consensus was that she was the right person for the job – an economist best equipped to turn around the economy. Moreover, she had now received a direct mandate and was entering her second, and final, term. The conventional wisdom was that her right to run the country was no longer in doubt and that the temptation to run for re-election no longer existed. It was, in short, the perfect time to get down to business.

And yet, by the end of the year, although the economy showed strong signs of recovery, the feeling of disappointment was palpable. The signals were all around. Both Social Weather Stations and Pulse Asia released surveys which showed the President’s ratings dropping below zero, indicating more people disapproved of her performance than approved of it. The business community’s own surveys indicated that many were sharply critical of the President and her Administration.

What went wrong and how can it be fixed ? The answers, at least in the eyes of the business community, appear rather clear. In a special year-end survey conducted among members of the American Chamber of Commerce, Australia-New Zealand Chamber of Commerce, Canadian Chamber of Commerce, European Chamber of Commerce, Japanese Chamber of Commerce, Management Association of the Philippines, and the Makati Business Club (the publisher of Philippine Business), 43% stated they were “somewhat dissatisfied” while another 32.6% said they were “extremely dissatisfied” with the performance of the Arroyo Administration in the first six months of its new term. Only a fifth (21.6%) said they were “somewhat satisfied.”

Among the issues which they felt the government was not doing enough to resolve were population (64.9% saying the government was not doing enough or nothing at all); corruption (58.8%); infrastructure (50.9%); and smuggling (48.5%).

With respect to infrastructure, the most frequently-cited issue was the NAIA 3 airport terminal which remains shut down by a legal dispute. Over 40% of respondents said they would like to see this resolved in 2005. Roads, power, and the South Luzon Expressway were also listed by broad numbers of respondents as infrastructure projects to pursue in 2005.

Executives also stated that the government was doing barely enough to make headway to push fiscal reforms (51.2% of respondents); attract investments (50.5%); solve the peace-and-order problem (46.4%); and implement its counter-insurgency policy (41.9%).

One bright spot in the survey was in the Administration’s foreign policy and international relations. Almost one-half (47.8%) said they were somewhat satisfied with the President’s international relations policy while another 4.8% stated they were extremely satisfied with it.

The problem is not that the government isn’t doing anything. In some cases, government programs are just not so clearly communicated. For instance, just as the survey closed, the Presidential Anti-Graft Commission (PAGC) conducted a three-day workshop on developing a counter-corruption strategy led by former Hong Kong deputy commissioner of the Independent Commission Against Corruption, Tony Kwok. Mr. Kwok has been taken on as a consultant to help map out a plan which the European Union is funding.

In infrastructure, the Department of Trade and Industry has announced that work will begin early in 2005 on the repair of the Alabang Viaduct, South Luzon Expressway extension, and the STAR tollway extension to Batangas City. The entire project is expected to be completed in the first quarter of 2006. And Congress did pass some of the pending tax measures to address the fiscal crisis but it remains to be seen whether revenue yields will meet or exceed projections in the coming year.

Both Congress and the Senate fared poorly in the assessment of business executives. Over 80% of respondents said they were either somewhat or extremely dissatisfied with the performance of the House and Senate with respect to the legislative agenda.

Overall, the survey results indicate the need for renewed focus on key issues, better implementation of programs, and stronger teamwork within the Cabinet and between the Executive and Legislative branches. Entering a new term last July, most businessmen had expected that a combination of a fresh mandate and majority control of Congress would give the Administration the momentum to pursue some key programs to move the country forward. By the end of the first six months of the new Administration, those expectations had not yet been met. And that’s the crisis facing the Administration.