Wednesday, October 13, 2004
Downgrade and Down
Writing about the Philippine economic predicament and the administration’s failure to properly address our problems is like sitting at the bedside of a sick person. It is boring. There is little one can do. And it is annoying to the point that you almost wish the patient would die and get it over with.
In fact, unless the President and congress take action quickly, the international financial community is going to take matters into its own hand. Unless the Philippine patient starts showing signs of improvement, they are simply going to put the patient out of its misery by suffocating it with a pillow, the way we might think about doing to an old feeble relative, in this case by cutting off our supply of money rather than air.
A few years ago, people talked about how things could not get any worse; how there was no place to go but up because we were so low. Well, we found out that was not necessarily true. That under the most extraordinary fiscal mismanagement possible, there was farther that the country could fall. Which teaches us the truth of an old lesson: Never underestimate the potential incompetence of a politician. You do so at your own risk.
In the next two months, the Philippines will almost inevitably suffer a downgrade by financial rating agency Moody. We already moved from a “stable” to “negative” outlook in January 2004. That put us on the critical list and into the ICU. Now we might have even a worse rating although I have no idea what could be less than a “negative” outlook for the future. Maybe Moody will simple say that in light of the situation, the Philippine economy has no future, negative or otherwise. That may be closer to the truth.
Unfortunate Bangko Sentral ng Pilipinas (BSP) Governor Rafael Buenaventura just suffered his own personal ratings downgrade. For the first time in three years, he drops from “A” (only one of four in the world) to “B”. “Global Finance” had this to say: “Part of the problem is that Buenaventura does not appear to see eye to eye with President Arroyo on key issues”. Well, at least he and I have something in common. However, the analysis that continues is very interesting. “However, while Buenaventura says the sovereign debt load remains serviceable, the President says the government faces a fiscal crisis. While Buenaventura suggests the government tap international capital markets if foreign direct investment continues to drop, the President wants to plug the shortfall by raising taxes.”
The comment above is absolutely amazing for a guy like me that follows the world financial scene like a sports fanatic watches the NBA. What “Global Finance” is saying is that Buenaventura wants to keep borrowing more money to finance our governments addiction to over-spending, while the President wants to raise taxes. If true, I would enjoy hearing the Governor’s reasoning. Perhaps he feels A) the more we borrow the less likely the international banks will pull the plug on us, or B) he knows increasing taxes won’t happen or if so, will not generate enough revenue to do the job.
So Malacanañg is partially pinning the financial hopes of the nation on smokers and drinkers as it pushes for increased taxes on tobacco and alcohol products. Chain smokers and drunks are now faced with a dilemma. Stopping smoking and drinking would be good for one’s personal health but could push the government into bankruptcy from less taxes. And what happens if Mayor Binay’s diligent anti-smoking crusade succeeds in Makati? What happens to the national government then?
Government insiders tell me that administration’s reforms, while well intended and progressing are moving way to slow to have any noticeable impact in the near future. But you can see that yourself. Interest rates are already moving up and the Peso is grasping like a smoker with emphysema as it heads to 60, as I predicted a few months ago.
The administration does not appear to have any reasonable solution to the problems it has gotten us into. It has no energy policy, no monetary policy (and less now with Buenaventura leaving), and an inherently destructive and detrimental fiscal policy. I wrote nine months ago that the president was heading us to financial ruin and she never changed her course. Now she has no choice and no political office to gain by standing on her past foolish policies of profligate and wasteful spending.
President Arroyo’s political philosophy is no different from America’s “Liberal” Democrats: Spend and Tax. Give silly “Food Coupons” to those who do not work paid for by those who do work. Tax those who have worked hard to afford to own and operate a car to subsidize those who have not. Take money away from the people to be spent “wisely” by government. No wonder people cheat on their taxes. Remember the words of an old Beatles song, “Taxman”.
“There's one for you, nineteen for me.
If you drive a car – I’ll tax the street;
If you try to sit – I’ll tax your seat;
If you get too cold- I’ll tax the heat;
If you take a walk- I'll tax your feet.
Don't ask me what I want it for
Yeah, I’m the taxman.
And you're working for no one but me.”
In fact, unless the President and congress take action quickly, the international financial community is going to take matters into its own hand. Unless the Philippine patient starts showing signs of improvement, they are simply going to put the patient out of its misery by suffocating it with a pillow, the way we might think about doing to an old feeble relative, in this case by cutting off our supply of money rather than air.
A few years ago, people talked about how things could not get any worse; how there was no place to go but up because we were so low. Well, we found out that was not necessarily true. That under the most extraordinary fiscal mismanagement possible, there was farther that the country could fall. Which teaches us the truth of an old lesson: Never underestimate the potential incompetence of a politician. You do so at your own risk.
In the next two months, the Philippines will almost inevitably suffer a downgrade by financial rating agency Moody. We already moved from a “stable” to “negative” outlook in January 2004. That put us on the critical list and into the ICU. Now we might have even a worse rating although I have no idea what could be less than a “negative” outlook for the future. Maybe Moody will simple say that in light of the situation, the Philippine economy has no future, negative or otherwise. That may be closer to the truth.
Unfortunate Bangko Sentral ng Pilipinas (BSP) Governor Rafael Buenaventura just suffered his own personal ratings downgrade. For the first time in three years, he drops from “A” (only one of four in the world) to “B”. “Global Finance” had this to say: “Part of the problem is that Buenaventura does not appear to see eye to eye with President Arroyo on key issues”. Well, at least he and I have something in common. However, the analysis that continues is very interesting. “However, while Buenaventura says the sovereign debt load remains serviceable, the President says the government faces a fiscal crisis. While Buenaventura suggests the government tap international capital markets if foreign direct investment continues to drop, the President wants to plug the shortfall by raising taxes.”
The comment above is absolutely amazing for a guy like me that follows the world financial scene like a sports fanatic watches the NBA. What “Global Finance” is saying is that Buenaventura wants to keep borrowing more money to finance our governments addiction to over-spending, while the President wants to raise taxes. If true, I would enjoy hearing the Governor’s reasoning. Perhaps he feels A) the more we borrow the less likely the international banks will pull the plug on us, or B) he knows increasing taxes won’t happen or if so, will not generate enough revenue to do the job.
So Malacanañg is partially pinning the financial hopes of the nation on smokers and drinkers as it pushes for increased taxes on tobacco and alcohol products. Chain smokers and drunks are now faced with a dilemma. Stopping smoking and drinking would be good for one’s personal health but could push the government into bankruptcy from less taxes. And what happens if Mayor Binay’s diligent anti-smoking crusade succeeds in Makati? What happens to the national government then?
Government insiders tell me that administration’s reforms, while well intended and progressing are moving way to slow to have any noticeable impact in the near future. But you can see that yourself. Interest rates are already moving up and the Peso is grasping like a smoker with emphysema as it heads to 60, as I predicted a few months ago.
The administration does not appear to have any reasonable solution to the problems it has gotten us into. It has no energy policy, no monetary policy (and less now with Buenaventura leaving), and an inherently destructive and detrimental fiscal policy. I wrote nine months ago that the president was heading us to financial ruin and she never changed her course. Now she has no choice and no political office to gain by standing on her past foolish policies of profligate and wasteful spending.
President Arroyo’s political philosophy is no different from America’s “Liberal” Democrats: Spend and Tax. Give silly “Food Coupons” to those who do not work paid for by those who do work. Tax those who have worked hard to afford to own and operate a car to subsidize those who have not. Take money away from the people to be spent “wisely” by government. No wonder people cheat on their taxes. Remember the words of an old Beatles song, “Taxman”.
“There's one for you, nineteen for me.
If you drive a car – I’ll tax the street;
If you try to sit – I’ll tax your seat;
If you get too cold- I’ll tax the heat;
If you take a walk- I'll tax your feet.
Don't ask me what I want it for
Yeah, I’m the taxman.
And you're working for no one but me.”
// posted by john mangun @ Wednesday, October 13, 2004 
