Next Philippines president will inherit country near collapse

The winner of the presidential election next month will have to raise taxes to deal with huge debt and rising poverty.

Filipino children working by collecting sand at a shore line in the Manila suburbs. Underage children are being forced to manual labor to help their families mainly due to poverty.

MANILA // Whoever wins next month's presidential election in the Philippines will inherit a government facing fiscal collapse and will be forced to take extreme measures, such as increasing taxes to raise revenue, according to some of the country's leading economists. When Gloria Macapagal Arroyo came to power in 2001 after the ousting of Joseph Estrada she inherited a deficit of eight billion pesos (Dh660 million). When she steps down at midnight on June 30 she will leave behind a deficit in excess of 300bn pesos.

Poverty has risen under Mrs Arroyo's watch, the education system has fallen apart and the public health system has virtually collapsed. Estimates as to the number of people living in poverty - and getting by on less than a dollar a day - varies from 20 million to 30 million. The World Bank estimates the number is 28 million. Between 2003 and 2006 nearly four million people slipped below the poverty line despite the fact the economy was showing signs of solid growth.

Either Benigno Aquino or Manuel Villar, the front-runners to take the reins from Mrs Arroyo, will have their work cut out for them. "The next president of the Philippines will inherit a fiscal position that is teetering on the brink of collapse," according to Ben Dikono, a former budget secretary and economics professor at the University of the Philippines. Speaking at a seminar, "Elections 2010: The Morning After" in Manila this month, Prof Dikono said infrastructure is crumbling, the education system has gone from being one of the best in South East Asia to one of the worst, while there are major backlogs in power, water, roads and mass transit programmes throughout the country.

"I don't envy the next president because no matter what was promised in the election campaign he will have little room to move. He will need to make some hard choices including broadening the country's narrow tax base and increase tax revenues." With a workforce of 37 million, less than 20 per cent are employed in the formal sector which is made up by salaried employees who pay tax. Mr Dikono said the next president should press Congress to reform the tax system, especially excise taxes on cigarettes and tobacco or the so-called "sin taxes".

Attempts to reform excise taxes in the past have been met by strong opposition from the tobacco companies. A paper by the Asia Foundation said recently that over the past 10 years the Philippines has experienced "modest growth", averaging 4.4 per cent annually. Last year the Philippines recorded just 0.9 per cent growth while Indonesia expanded by 4.5 per cent, Vietnam 5.3 per cent and Laos 6.7 per cent.

A former head of the National Economic and Development Authority, Felipe Medalla, told the Manila forum the next government will need to focus on trying to get foreign investors to invest in the power sector to build new power stations, which the country desperately needs. But it is the education and public heath sectors that are in desperate need of attention. According to the 2010 UN Education for All Global Monitoring report, the Philippines spent 2.3 per cent of its national income in 2007 on education - the second lowest only to Cambodia's 1.7 per cent. Indonesia was the highest in the region, spending 4.7 per cent on education.

A former education secretary, Jose Luz, was quoted in the Philippine Daily Inquirer recently as saying education in the Philippines was not advancing. "It's not going anywhere. Spending is flat while our neighbours are spending on education," he said. Mr Luz is widely expected to be the education secretary if Mr Aquino is elected president on May 10. Mr Luz is responsible for Mr Aquino's education policy, which is widely regarded as the most progressive of the presidential contenders.

According to education specialists, the Philippines has still not achieved universal primary education. About 25 per cent of children entering school drop out before Grade 5 and that has not changed in 10 years, while less than 60 per cent enrol in secondary school. Studies have shown that children from the richest 20 per cent of households get an average of 11 years education compared with six years for the poorest 20 per cent.

Similar to education, the public health system has been allowed to deteriorate over the years to a point where hospitals are run down and poorly equipped. The government spends less than three per cent of its gross domestic product on health care, which is two per cent lower than the recommended World Health Organisation's minimum. Geneve Rivera, the secretary general of the Health Alliance for Democracy, said recently: "Quality health care is simply out of the reach of ordinary Filipinos."

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