Finance
BITING THE FISCAL BULLET INSPIRES CONFIDENCE
The international creditor community is hard to please. Not often will it look over a country's financial affairs and reward it with admiration. Yet that is exactly what is happening in the Philippines these days as the nation is set to record a balanced budget two years ahead of schedule thanks to bold fiscal reforms.
Much of the credit goes to Finance Secretary Margarito B. Teves, who pushed hard for the 12 percent extended value added tax (EVAT) Secret and other fiscal reforms that have helped revenues climb dramatically. The country's credit rating has been upgraded from negative to stable, and its budget deficit, which stood at $3.7 4 billion in 2004, is expected to be eliminated by 2008.
"The sum total has been achieved by increasing investor interest. Multilateral institutions now come to us, instead of us going to them," Mr. Teves says. "The world is recognizing we are serious in changing the paradigm. The old perception was that we were financing development with our foreign loans. Now we are increasing reliance on domestic resources through revenue collections, and so we have turned things around. We want to demonstrate this seriousness by achieving a balanced budget by the end of 2008 without compressing expenditures."
The tax increase was an especially difficult decision, coming at a time of political turmoil and rising oil prices. Budget Secretary Ronaldo G. Andaya Jr. recalls, "All the economic managers, including myself, supported the president. We knew that we should implement and bite the bullet now and receive the benefits at a most crucial time. Sure enough, along the way, we felt the improvement. The problem I have right now in the budget sector is how to spend the money."
All this has had an extremely positive effect on market confidence in the Philippines. The Philippine Stock Exchange (PSE), for example, hit a nine-year record high in 2006 and closed out the year some 28 percent higher. PSE President and CEO Francisco Ed Lim is even looking to offer more products, such as options to the bourse, and is pushing to integrate regional stock markets through an ASEAN federation of exchanges. "The business climate to say the least is upbeat. I have talked to a lot of businessmen, CEO's and industry leaders and the perception is that we had a good year and 2007 will be even better," Mr. Lim concludes.