The Philippine State, Society
& Economy, 1986-1992

Feb 22, 91
The Price of Living Up
To IMF's Austerity Economics
By Ramon Isberto (IPS-Inter Press
Service/Global Information Network)

After months of negotiations, the Philippines has finally gotten the nod from the International Monetary Fund for a $916 million financing package to help bail the country out of a serious economic crisis.

But there are deep doubts here over the government's ability to implement the tough austerity measures that Manila promised the IMF in exchange for the loan.

Though politicians of all stripes have already started campaigning unofficially for the presidential elections -- still 14 months away -- no one is preaching the IMF brand of austerity economics.

With politicians keeping an eye out for the elections, President Corazon Aquino will be hard put to find lawmakers willing to support legislation needed to implement the IMF's "bitter medicine", such as new taxes.

"We need a (Margaret) Thatcher," says one frustrated Filipino banker who favors the hard road of austerity. "We need politicians who will tell the people the hard realities."

For now, the government has bought time. Finance Secretary Jesus Estanislao told reporters yesterday the fund will immediately release about $460 million or half of the total package.

This will help build up the country's dollar reserves, much depleted by more expensive oil imports and falling overseas workers' remittances and export earnings.

As usual, the importance of the IMF program far exceeds the value of its loans. As Estanislao emphasized, the IMF's approval of the Philippine economic stabilization plan paves the way for even bigger loans.

In late February, the Philippines hopes to secure $2.8 billion worth of fresh aid pledges from the country's aid donors which will be meeting in Hong Kong.

In late April or mid-May, Philippine officials will be meeting with the "Paris Club" to reschedule official loans falling due after June 1991. Both these meetings would not have pushed through without an IMF program in place.

Critics of the government's debt policy warn that the price for all this will be excessive.

Solita Monsod, Aquino's first economic planning minister who quit over differences in debt policy, warns that the steep spending cuts, high interest rates and tight monetary policy required by the IMF will mean severe cuts in social services and may push the economy into a deep recession.

Instead of the economy growing at about 1.5 percent in 1991, as official projections put it, the Philippines could suffer negative growth rates of from minus 2.5 to minus five percent -- as it did in the recession of 1984-1985.

The Philippines lost a decade of development in that slump which was worsened by an IMF stabilization program. Monsod argues that the country could lose yet another decade with the new program which threatens to inflict long-term, not merely temporary, damage to the country's growth.

Some private bankers say, however, that the real issue is not growth but the need to stabilize the economy.

"We'd be in bigger trouble if we didn't slow down now," says a senior economist of a major U.S. bank here who argues that the overheated economy had to cool down after being destabilized by inflation and the enormous budget deficit in the past two years.

He warns that election spending will pour billions of pesos into the economy and fuel even worse inflation unless the problem is tackled now.

There are also fears that the coming polls will keep politicians from making the hard economic decisions needed to put the country back on the growth track.

One crucial issue is the nine percent import levy that was recently imposed to reduce the budget deficit.

That levy will raise over 20 billion pesos in badly needed revenues. But it is a grossly regressive tax that will not only mean higher prices for consumers but also higher costs for exporters using imported raw materials.

Central Bank governor Jose Cuisia says both the government and the IMF want to phase out the nine percent levy as soon as alternative revenue sources are found. That can come from improvements in tax collections and new taxes.

But congressional leaders, particularly House Speaker Ramon Mitra, are against imposing new taxes. They would prefer to let President Aquino, who has pledged not to seek reelection, take on the political burden of imposing new revenue measures.

An impasse on this point could scuttle the IMF program and unhinge other aid commitments. Cuisia says the promise to phase out the nine percent levy is "very critical."


Copyright © 1991 IPS-Inter Press Service/Global Information Network . All Rights Reserved.



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