Fiscal policy and the challenging economic environment
In the face of the increasingly alarming global economic crisis, the Philippine government, as the institutional embodiment of the sovereign authority of the Filipino people, is challenged to fulfill its constitutional mandate to protect the general welfare.
Debates about what the government should do to save the economy are happening almost everywhere, from public offices and school classrooms to wet markets and hair salons. It is argued that it is through its fiscal administrative power that the government tries to resurrect the dying economy.
Public fiscal administration generally refers to the formulation, implementation and evaluation of policies and decisions on taxation and revenue management; resource allocation, budgeting and public spending; public borrowing and debt management; and accounting and auditing (Briones 1983:2).
The hope of seeing real economic progress seems to hinge on the success of the entire fiscal policy process. Fiscal policy derives its meaning and direction from the aspirations and goals of the people which are said to be embodied in the Philippine Medium Term Development Plan.
“The basic task of the Philippine Medium-Term Development Plan… is to fight poverty and create prosperity for the greatest number of Filipinos. We must open economic opportunities, maintain socio-political stability, and promote good governance, all to ensure a better quality of life for all our citizens. We will focus on strategic measures and activities that will stimulate economic growth and create jobs. This can only be done with the common purpose of getting our economic house back on track” (Arroyo 2004). .
But the big question is: how does the government carry out its fiscal management function to actually protect Filipinos from the adverse effects of the looming global financial crisis?
Fiscal policy as a political process
At the heart of public fiscal management are fiscal policies shaped by the socioeconomic and political interaction of the domestic and foreign policy environment. The domestic policy environment includes the government’s decision-making agencies, such as Congress, the Office of the President and its supporting agencies, the National Economic and Development Authority, the Department of Budget and Management, the Department of Finance, and the Department of Finance. Audit Commission, among others. The internal environment also includes the private sector, interest groups, non-governmental organizations and popular organizations in society.
The foreign policy environment, on the other hand, encompasses foreign interest groups made up of international financial institutions such as the World Bank (WB), the International Monetary Fund (IMF), and the Asian Development Bank, among others. In addition, the foreign policy environment includes international agreements and economic cooperation, such as the General Agreement on Tariffs and Trade (GATT), the World Trade Organization (WTO), the Asia-Pacific Economic Cooperation (APEC), the Association of Southeast Asian Nations (ASEAN). ), the Organization of Petroleum Exporting Countries (OPEC), and institutions that grant Official Development Assistance (ODA), among others (Cuaresma 1996:46).
Professor Leonor Briones, from UP’s National College of Public Administration and Governance, states that “these foreign interest groups prefer to keep a low profile in local fiscal policy. with Philippine officials due to the enormity of the Philippine public debt; MNCs [multinational corporations] they are represented by local nominees and the foreign creditors by their Filipino proxies. In open political competition, these foreign interest groups express their preferences by financially supporting their politicians. Where local technocrats and bureaucrats are most important in administering fiscal policy, they try to influence their nomination and appointment.” (Briones 1983:97)
This only means that the financial health of the country is at the mercy of international financial creditors and the political bodies that issue our fiscal recipe. While scholars often argue that the field of public administration should not be political by its very nature, fiscal administration as its subfield is not free from political maneuvering, since it operates within the political system.
From the academic perspective of Professor Briones, fiscal policy has four main functions: (1) the allocation function, (2) the distribution function, (3) the stabilization function, and (4) the development function.
The main fiscal instrument in the allocation function of fiscal policy is the national budget. In general, a national budget is the government’s financial plan for a given fiscal year, showing what its resources are and how they will be generated and used during the fiscal period. The budget is the government’s key instrument for promoting its socioeconomic goals. The government budget also refers to the national government’s revenues, expenditures, and borrowing sources that are used to achieve national goals, strategies, and programs.
In developing countries like the Philippines, the gaps between rich and poor are insurmountable. Therefore, the distribution of income and wealth is a serious problem. The distribution function could have serious implications for tax and spending policies. Recently, a report came to light that the Department of the Treasury (DOF) was planning to increase the sales tax or value added tax (VAT) to 15 percent from the current level of 12 percent in order to raise very high revenues. necessary to cover the inflated growth of the country. budget deficit that reached a record P298.5 billion last year (Agcaoili 2010).
The report makes fiscal debates even more heated as the issue of stability, another function of fiscal policy, is now the subject of concern. The government often resorts to raising taxes to provide means for public spending or to avoid budget deficits. But many are aware of the myriad trade-offs it can create.
People often hear in the news about fiscal plans created by the government in the name of “development”, another function of fiscal policy. Perhaps, this word is the most overused, if not abused, word in the political arena.
Development is multifaceted. The word itself is pleasant to the ear. But it is a “very expensive commodity” in the words of Professor Briones. To make development a reality, of course, financing is needed. In harmony with other measures, fiscal policies are expected to generate resources to finance development activities (Briones 1983:55). In loan-dependent countries like the Philippines, generating resources means borrowing more and paying back even more.
More than a third of our national budget goes to debt service. With the fiscal deficit rising, the national government’s debt now stands at P4.42 trillion, which is more than half of its GDP and more than three times the government’s revenue if creditors were to call in the debts. The Philippines relies heavily on domestic and foreign borrowing to close its fiscal gap, which is expected to hit a record P325 billion this year (abs-cbnNEWScom).
Challenging economic environment
Borrow more. Record more. Pay more. It is a vicious circle. There is no doubt that the Philippines, then the mighty tiger of Asia, has been transformed into a desperate pussycat roared by the giant financial institutions to which we are heavily indebted. The Filipino people become victims of the immoral and debilitating conditions imposed by the IMF and the international financial oligarchy.
The economic situation becomes even more difficult as the world faces what many economists describe as the worst economic crisis in history. The credit crunch in the US has accelerated the rate of financial collapse around the world, making international lending institutions more eager than ever to force heavily indebted countries like the Philippines out of a pound of beef. their people. Total national government borrowing has skyrocketed as a result of the sudden and sharp depreciation of the currency during this critical time of global economic uncertainty.
In response to minimizing the impact of the global economic downturn, the Philippine government is embarking on measures designed to stimulate positive performance in all sectors of society. Former Socioeconomic Sec. Ralph G. Recto, for example, proposed a stimulus package intended to keep the economy afloat. As a consequence, the Economic Resilience Plan (ERP) was implemented to supposedly sustain economic growth through fiscal policy adjustments along with the implementation of pumping programs and vital projects and activities.
The former NEDA chief simply argues that the government intends to fight the current crisis by increasing spending through what he calls a stimulus package, a fiscal and monetary strategy that is very Keynesian in nature. The ERP basically consists of “ensuring resources through better revenue collection; improved cash liquidity, access to credit and low interest rates; and more effective spending. It seeks to ensure stable growth, save and create jobs, provide assistance to the most vulnerable sectors, ensure low and stable prices, and improve competitiveness in preparation for the global economic upturn” (Recto 2009).
This stimulus package, however, is a pain reliever. It does not cure cancer, which is the crisis itself. Therefore, a major surgical operation is needed.
Think out of the Box: a tax strategy for general well-being
“There is life after the IMF”.
These are the words of then President Néstor Kirchner of Argentina as he challenged the predatory financial institutions that imposed belt-tightening measures on his people.
Newly elected Philippine President Noynoy Aquino must do the same. He must have the courage to detach himself from the deceitful legacy of his mother’s “honor all debts” policy. The government’s traditional course of action for debt management, such as swapping bonds, maximizing the use of ODA, guarantees for GOCCs, and more loans, will not deliver lasting economic growth.
The Philippines, as an independent nation, with all dignity and courage, must therefore declare a moratorium on foreign debt payments. This will give our country enough time to rebuild and expand our productive physical economy.
Through this fiscal strategy, the country can channel a large amount of its annual budget, instead of debt service, towards an effective education system, an efficient health system, and sustainable scientific research centers focused on food production. , health maintenance and industry. Consequently, this will encourage real investment in the agribusiness and manufacturing sectors and ensure a genuine path to development.
To seriously engage in the global effort to save the world economy, the Philippine government must join the growing global call for a new fixed-exchange-rate financial system. It is said that this new financial system will put an end to the financial tsunami that hits virtually every nation in the world today. The governments of Italy, Argentina, Malaysia and a growing number of countries, institutions, statesmen and patriots make proposals to change the global financial structure building on the tradition of the 1945 Bretton Woods Agreement (Philippine LaRouche Society 2004)
The issue of fiscal policy in the midst of a global crisis is indeed a very complex and thought-provoking issue. The crisis we are now facing as a nation requires an intelligent understanding of the problem and a courageous act to do the right thing for the benefit of present and future Filipino generations.
