Former National Treasurer Briones draws from the past to illumine the present-day fiscal crisis.
In August 2004, President Gloria Macapagal-Arroyo announced the country was in fiscal crisis. Although the news did not come as a shock to most Filipinos, the admittance of the chief executive confirmed the people’s fears that the Philippines was in dire straits.
In turn, the announcement elicited calls for sacrifices and advice from various sectors on how to solve the problem, such as the voluntary donation of money and jewelry to the government, proposed new revenue bills, the abolition of pork barrels and internal revenue allotments for local government units, reorganization of the government, and even the closure of Congress.
2004 Fiscal Crisis:According to the national dailies, the Philippines’ fiscal crisis involves a consolidated public sector debt of P5.39 trillion (as of 2003). Of this, P4.063 trillion (including P708.5 billion in contingent liabilities), is accounted for by the national government.
The Department of Finance reported the national debt stock as of 2003 as 92.4 percent of the GNP (gross national product) while the consolidated Public Sector Debt was 161.3 percent of the GNP.
Sector expenditure allocations were going down, while debt service was steadily rising. In 1999, the social service expenditures were allotted a 33 percent share of the budget.
In 2004, the share went down to 28.73 percent. Meanwhile, the 18.3 percent budget allocation for servicing interest payments in the 1999 budget rose to 31.4 percent in the 2004 budget.
For years, the annual deficit lingers at the P200.00 billion level.
For 2005, the national government budget deficit is projected at P184.526 billion while the consolidated public sector deficit is estimated at P253.636 billion.
In UPD, former national treasurer and public administration professor Leonor M. Briones presented the public lecture A Tale of Two Fiscal Crises: 1946 and 2004, detailing the country’s fiscal crisis 58 years ago, and how former President Manuel A. Roxas managed the 1946 crisis.
In revisiting the past fiscal crisis, Briones said this may provide insights on how to deal with the present situation.
RUBY ROXAS (right) and grandson Senator MAR ROXAS
(second from left), together with NCPAG Dean ALEX B.
BRILLANTES JR. left
The present fiscal crisis is not the very first one for the Republic. The birth of the Republic itself was attended by multiple crises, not the least of which was fiscal by nature…these problems still linger on, even after 50 years…The solutions which President Roxas crafted…might be instructive for the 2004 crisis (and)…lessons can be drawn from the crisis of that time which can help the present government choose from the plethora of advice which have emerged since…,” Briones said.
1946 Philippines: The Philippines was practically in shambles in 1946 as an aftermath of World War II.
Filipinos were threatened by cholera, smallpox, dysentery and the onslaught of famine. There was a threat of inflation. Productive capacity was destroyed.
The bureaucracy, as described by social scientist and former UP President Onofre D. Corpuz was “characterized mainly by low prestige, incompetence, meager resources and a large measure of cynical corruption. The low prestige was caused, primarily, by sub-standard salaries and corrupt bureaucratic behavior.”
Those who benefited from pre-war economy wanted a restoration of the old arrangements, which organized peasants of Central Luzon, the workers’ unions and the HUKBALAHAP strongly opposed.
The country was surrounded with political, social, and economic threats, including problems of ethics and accountability. It was in a fiscal crisis.
It was in this milieu that Roxas, whose political career started in 1917 as councilor, became the last president of the Commonwealth in May 1946 and the first president of the Republic on July 4, 1946.
To solve the crisis, Roxas adopted measures to counter the problem in the areas of fiscal policy, revenue administration, expenditure and budget.
Roxas’s solutions can be grouped into three points: increased taxes and revenues; reduction of expenditures; and government reorganization.
Increased taxes and revenues: Briones revealed Roxas’s first target was the increase of taxes and other revenues. In his brief stint as President, he was instrumental in having Congress pass 17 tax bills.
Roxas consistently placed importance on taxes and other revenues as the foundation of sound fiscal administration. He focused on increased taxes as the most effective way of handling the deficit,” Briones said.
He also passed a war profits tax which was levied on those who profited much from the war as well as its aftermath. He was ever mindful of the low-income groups.
In his own words, Roxas said, “taxes must be raised to reasonable levels without discouraging enterprise or business expansion. I believe firmly in the principle of taxation on the basis of ability to pay.” Roxas also urged the readjustment of taxes to inflation.
Reduction in expenditures: Roxas started the practice of suspending expenditures to curb deficit escalation, which Briones described as “drastic and even brutal cuts in expenditures.”
Nevertheless, “even as he endeavored to reduce expenditures to ‘an irreducible minimum’ he did not make across-the-board cuts. The expenditure cuts were made according to the size of the budget,” Briones said.
He ensured the increase in allocations for scientific research, nutrition, education, intensification of food production to prevent starvation, health and maternal care.
To avoid an impending deficit, Roxas suspended P71 million in expenditures in 1946-1947, and in the 1947-1948 budget, he suspended P40 million and did not release P8.2 million. He also submitted a rescission bill on his second year of administration, to cancel authorized appropriations amounting to PhP120 million.
He implemented the reduction of aid to local government units (LGUs).
He also gave the LGUs more power to tax to gradually eliminate total dependence from the national government.
As Roxas stated, “local governments must begin immediately to improve their revenue collection to enable them to meet their own needs. Financial dependence upon the National Government must be discontinued at the earliest practicable date…their aid…will be gradually reduced and stopped altogether.”
Government reorganization: To solve the problem of corruption, Roxas reorganized the bureaucracy. Briones revealed reports on the abolition of over 1,100 positions during his time, and the investigation and removal of erring officials.
Other factors: Briones also said other factors contributing to the success of Roxas’s campaign were his political will to implement the measures, and his total honesty of the Philippine situation.
Presidents are primarily political leaders. Their public pronouncements inevitably reflect political objectives, and not necessarily economic truth. It is delightful to discover a president who did not mince words or sugar coat the fiscal crisis with technical gobble-dygook. He said it resolutely and truthfully: total expenditure is this much, expected revenue is only this much; therefore, the actual fiscal deficit is this much,” Briones said.
Briones is the holder of the President Manuel A. Roxas Professorial Chair, and A Tale of Two Fiscal Crises: 1946 and 2004 is its inaugural lecture. The event was held on November 19 at the NCPAG (National College of Public Administration and Governance) Assembly Hall, attended by various public officials, including Senator Mar Roxas, the former President’s grandson.
Mariamme D. Jadloc